As Filed with the Securities And Exchange Commission on December 27, 2001
                                                           Registration No. 333-
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM S-3

             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

                                   ----------

 Public Service Electric                                PSE&G Capital Trust III
     and Gas Company                                    PSE&G Capital Trust IV

(Exact name of registrant                             (Exact name of registrants
as specified in charter)                                 as specified in Trust
                                                              Agreements)

       New Jersey               (State or other                Delaware
       22-1212800               jurisdiction of               22-6691384
                                incorporation or
                              organization) (I.R.S.
                          Employer Identification No.)     To Be Applied For

                                  80 Park Plaza
                                  P.O. Box 570
                          Newark, New Jersey 07101-0570
                                 (973) 430-7000
  (Address, including zip code, and telephone number, including area code, of
                   registrants' principal executive offices)

                                   ----------

                                 Robert E. Busch
                Senior Vice President and Chief Financial Officer
                                  80 Park Plaza
                                  P.O. Box 570
                          Newark, New Jersey 07101-0570
                                 (973) 430-7000
 (Name, address, including zip code, and telephone number, including area code,
                   of agent for service for each registrant)

                                 with copies to:

   James T. Foran, Esquire                        Howard G. Godwin, Jr., Esquire
  General Corporate Counsel                       Sidley Austin Brown & Wood LLP
        80 Park Plaza                                    875 Third Avenue
        P.O. Box 570                                 New York, New York 10022
Newark, New Jersey 07101-0570

        Approximate date of commencement of proposed sale to the public:

      From time to time after the Registration  Statement becomes effective,  as
determined by market conditions and other factors.

                                   ----------

      If the only  securities  being  registered  on this Form are being offered
pursuant to dividend or interest  reinvestment plans, please check the following
box. |_|

      If any of the securities  being  registered on this Form are to be offered
on a delayed or continuous  basis  pursuant to Rule 415 under the Securities Act
of 1933,  other than  securities  offered only in  connection  with  dividend or
interest reinvestment plans, please check the following box. |_|

      If this Form is filed to register  additional  securities  for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list  the  Securities  Act  registration  statement  number  of the  earlier
effective registration statement for the same offering. |_|

      If this Form is a  post-effective  amendment filed pursuant to Rule 462(c)
under the  Securities  Act,  check the following box and list the Securities Act
registration  statement number of the earlier effective  registration  statement
for the same offering. |_|

      If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|

                         CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                                        Proposed Maximum     Proposed Maximum
    Title Of Each Class Of             Amount To Be    Offering Price Per   Aggregate Offering       Amount of
Securities To Be Registered (1)       Registered (2)      Unit (3)(4)          Price (3)(4)      Registration Fee
-----------------------------------------------------------------------------------------------------------------
<S>                                   <C>                    <C>              <C>                   <C>      <C>
Public Service Electric and
  Gas Company Senior Debt
  Securities ......................
-----------------------------------------------------------------------------------------------------------------
PSE&G Capital Trust III and IV
  Trust Preferred Securities ......
-----------------------------------------------------------------------------------------------------------------
Public Service Electric and
  Gas Company Guarantees
  with respect to Trust
  Preferred Securities (5) ........
-----------------------------------------------------------------------------------------------------------------
Public Service Electric and
  Gas Company Deferrable
  Interest Subordinated
  Debentures ......................
-----------------------------------------------------------------------------------------------------------------
Total .............................   $1,000,000,000         100%             $1,000,000,000        $239,000 (6)
=================================================================================================================
</TABLE>

(1)   Securities  registered  hereunder may be sold  separately,  together or as
      units with other securities registered hereunder.
(2)   There  is  being  registered  hereunder  (a)  a  presently   indeterminate
      principal  amount of Public  Service  Electric and Gas Company Senior Debt
      Securities  and (b) a presently  indeterminate  number of Trust  Preferred
      Securities of PSE&G Capital  Trust III and IV and related  Guarantees  and
      Deferrable Interest Subordinated Debentures of Public Service Electric and
      Gas Company for which no separate consideration will be received, all with
      an aggregate initial offering price not to exceed $1,000,000,000.
(3)   Estimated solely for the purpose of determining the registration fee.
(4)   Pursuant to Rule 457(n) and (o), the registration fee is calculated on the
      basis of the  proposed  maximum  offering  price of the  securities  being
      offered.
(5)   This  registration is deemed to include the rights of holders of the Trust
      Preferred  Securities under the Guarantees and certain backup undertakings
      as described in the Registration Statement.
(6)   As permitted by Rule 429 under the  Securities Act of 1933, the prospectus
      included   herein  is  a  combined   prospectus   which  also  relates  to
      Registration Statement No. 333-2763 previously filed by the registrants on
      Form S-3 and declared  effective  on June 12, 1996 as to which  securities
      having an aggregate  offering  price of  $47,000,000  remain  unsold.  The
      registration fee of $11,233 associated with such securities was previously
      paid. Accordingly, the registration fee consists of $227,767 paid herewith
      and the $11,233 previously paid. This registration  statement  constitutes
      Post-Effective  Amendment No. 1 to  Registration  Statement No.  333-2763,
      which shall become effective concurrently with this registration statement
      in accordance with section 8(c) of the Securities Act of 1933.

                                   ----------

      The Registrants  hereby amend this Registration  Statement on such date or
dates as may be  necessary  to delay its  effective  date until the  Registrants
shall file a further amendment which specifically  states that this Registration
Statement shall  thereafter  become effective in accordance with Section 8(a) of
the  Securities  Act of 1933 or until the  Registration  Statement  shall become
effective on such date as the Commission,  acting pursuant to said Section 8(a),
may determine.

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

<PAGE>

                                EXPLANATORY NOTE

      This   Registration   Statement   contains  the   following  two  separate
prospectuses:

      1. A form of prospectus to be used in connection  with offerings by Public
Service Electric and Gas Company of its Senior Debt Securities.

      2. A form of prospectus to be used in connection  with  offerings by PSE&G
Capital  Trust III and PSE&G  Capital  Trust IV of Trust  Preferred  Securities,
together with related debt securities and guarantees of Public Service  Electric
and Gas Company.

<PAGE>

The  Information in this  prospectus is not complete and may be changed.  We may
not sell  these  securities  until the  registration  statement  filed  with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these  securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted

                 Subject to Completion, Dated December 27, 2001

PROSPECTUS

Public Service Electric and Gas Company
80 Park Plaza, P.O. Box 570
Newark, New Jersey 07101-0570
(973) 430-7000

                                 $1,000,000,000

                                  [LOGO] PSE&G

                                 Debt Securities

                                   ----------

      We may offer from time to time, together or separately, one or more series
of our unsecured  senior debt. The Debt Securities will rank equally with all of
our other unsubordinated and unsecured indebtedness.

      When a particular series of Debt Securities is offered,  we will prepare a
prospectus  supplement  setting forth the  particular  terms of the offered Debt
Securities.  You  should  read this  prospectus  and any  prospectus  supplement
carefully before you make any decision to invest in the Debt Securities.

      The aggregate  initial public offering price of all Debt Securities  which
may be sold  under this  prospectus  shall not  exceed  $1,000,000,000  less the
aggregate  initial  public  offering  price of any  securities of certain of our
funding  entities  which  are  sold  under  a  separate  prospectus  which  also
constitutes  a part of the  registration  statement  of  which  this  prospectus
constitutes a part.

      We will sell the Debt Securities  through  competitive  bidding procedures
set forth in our  Statement  of Terms and  Conditions  Relating  to Bids for New
Senior Debt  Securities.  See "Plan of  Distribution"  for a description  of the
applicable competitive bidding procedures.

      This prospectus may not be used to consummate sales of the Debt Securities
without the delivery of one or more prospectus supplements.

      These  Securities  have not been approved or disapproved by the Securities
and Exchange Commission or any state securities  commission nor has any of these
organizations  determined  that this  prospectus is accurate and  complete.  Any
representation to the contrary is a criminal offense.

                      The date of this prospectus is , 2002

<PAGE>

                              About This Prospectus

      This  prospectus is part of a  registration  statement that Public Service
Electric and Gas Company filed with the Securities and Exchange  Commission (the
"SEC") utilizing a "shelf"  registration  process.  Under this shelf process, we
may, from time to time, sell any combination of the Debt Securities described in
this  prospectus in one or more  offerings of one or more series.  The aggregate
principal  amount of Debt Securities which we may offer under this prospectus is
$1,000,000,000   less  the  aggregate  initial  public  offering  price  of  any
securities  of certain of our funding  entities  which are sold under a separate
prospectus filed with the same  registration  statement.  Each time we sell Debt
Securities,  we will provide a prospectus  supplement that will contain specific
information about the terms of that offering. The prospectus supplement may also
add, update or change information contained in this prospectus.  You should read
both this prospectus and any prospectus  supplement together with the additional
information described under the heading "Where You Can Find More Information".

      We  believe  that  we have  included  or  incorporated  by  reference  all
information  material to investors in this prospectus,  but certain details that
may be important for specific investment purposes have not been included. To see
more  detail,  you  should  read the  exhibits  filed  with or  incorporated  by
reference into the registration statement.

                       Where You Can Find More Information

      We file annual,  quarterly and special reports, proxy statements and other
information  with the SEC.  Our  filings  are  available  to the public over the
Internet at the SEC's web site at http://www.sec.gov.  You may read and copy any
material on file with the SEC at the SEC's  Public  Reference  Room at 450 Fifth
Street,  N.W., Judiciary Plaza,  Washington,  D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the Public Reference Room.

      You may also inspect these documents at the New York Stock Exchange,  Inc.
(the "New York Stock Exchange") where certain of our securities are listed.

      The SEC allows us to "incorporate by reference"  information  that we file
with it,  which  means  that we can  disclose  important  information  to you by
referring you to those documents.  The information  incorporated by reference or
deemed  incorporated by reference is an important part of this  prospectus,  and
information  that we file  later  with the SEC will be deemed  to  automatically
update and supersede this incorporated information.  We incorporate by reference
the  documents  listed  below  and any  future  filings  made with the SEC under
Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 prior
to the termination of any particular offering of Debt Securities.

      o     Our Annual Report on Form 10-K for the year ended December 31, 2000.

      o     Our Amended  Quarterly  Report on Form 10-Q/A for the quarter  ended
            March 31, 2001.

      o     Our Quarterly  Reports on Form 10-Q for the quarters  ended June 30,
            2001 and September 30, 2001.

      You can get a free copy of any of the documents  incorporated by reference
by making an oral or written request directed to:

                                 J. Brian Smith
                          Director, Investor Relations
                            PSEG Services Corporation
                            80 Park Plaza, 6th Floor
                                Newark, NJ 07101
                            Telephone (973) 430-6564

      You should rely only on the information  contained or incorporated in this
prospectus or in the prospectus  supplement.  We have not authorized anyone else
to provide you with different or additional information.  You should not rely on
any other representations.  Our affairs may change after this prospectus and the
prospectus   supplement  are  distributed.   You  should  not  assume  that  the
information in this prospectus and the prospectus  supplement are accurate as of
any date other than the dates on the front of those  documents.  You should read
all information supplementing this prospectus.


                                       2
<PAGE>

                           FORWARD-LOOKING STATEMENTS

      This prospectus,  any prospectus supplement and the documents incorporated
by reference into this prospectus  include certain  forward-looking  statements.
The  forward-looking  statements reflect our expectations,  objectives and goals
with  respect  to  future  events  and  financial  performance  and are based on
assumptions  and  estimates  that we believe  are  reasonable.  However,  actual
results could differ  materially from  anticipated  results.  Important  factors
which may affect the actual results  include,  but are not limited to, commodity
prices,  political  developments,   market  and  economic  conditions,  industry
competition,  the weather, changes in financial markets and changing legislation
and regulations.  The forward-looking  statements  contained in this prospectus,
any prospectus supplement and the documents  incorporated by reference into this
prospectus  and any  prospectus  supplement are intended to qualify for the safe
harbor  provisions  of Section 21E of the  Securities  Exchange Act of 1934,  as
amended.

                    PUBLIC SERVICE ELECTRIC AND GAS COMPANY

      We are an operating  public  utility  company  engaged  principally in the
transportation,  distribution and sale of electric energy and gas service in New
Jersey.  We  currently  supply  electric  energy and gas service in areas of New
Jersey  where  approximately  5.5  million  people,  about  70% of  the  State's
population,  reside.  Our  electric  and  gas  service  area  is a  corridor  of
approximately  2,600  square  miles  running  diagonally  across New Jersey from
Bergen  County  in the  northeast  to an area  below  the City of  Camden in the
southwest.  The greater portion of this area is served with both electricity and
gas,  but some parts are served with  electricity  only and other parts with gas
only. As of September 30, 2001, we provided service to approximately 2.0 million
electric  customers and  approximately  1.6 million gas customers.  This heavily
populated,  commercialized and industrialized  territory encompasses most of New
Jersey's  largest  municipalities,  including  its six  largest  cities--Newark,
Jersey  City,   Paterson,   Elizabeth,   Trenton  and  Camden--in   addition  to
approximately  300  suburban  and  rural  communities.  This  service  territory
contains a diversified mix of commerce and industry,  including major facilities
of many  corporations of national  prominence.  Our load requirements are almost
evenly split among residential,  commercial and industrial customers. We believe
that we have all the franchises  (including consents) necessary for our electric
and gas distribution operations in the territory we serve. Such franchise rights
are not exclusive.

      We are a New Jersey  corporation.  Our  principal  office is located at 80
Park Plaza,  Newark, New Jersey 07101; our telephone number is 973-430-7000.  In
this  prospectus,  unless  otherwise  indicated,  "we",  "our" and "us" refer to
Public Service Electric and Gas Company and its consolidated subsidiaries.

      You can obtain  additional  information  about us in the reports and other
documents incorporated by reference in this prospectus.  See "Where You Can Find
More Information."

                                 USE OF PROCEEDS

      Unless we state otherwise in the accompanying  prospectus supplement,  net
proceeds from the sale of the Debt Securities will be added to our general funds
and will be used for general  corporate  purposes  including  the  redemption or
refunding of our outstanding indebtedness.

                         DESCRIPTION OF DEBT SECURITIES

      We may issue our Debt  Securities  from time to time. The Debt  Securities
will be issued under an Indenture (the "Indenture") dated as of December 1, 2000
between us and First  Union  National  Bank,  as Trustee  (the  "Trustee").  The
Indenture is filed as an exhibit to the registration statement. The Indenture is
subject to and  governed by the Trust  Indenture  Act of 1939,  as amended  (the
"TIA").  Selected  provisions of the Indenture have been summarized  below. This
summary is not complete.  You should read the Indenture for provisions  that may
be important to you. In the summary below,  references to section numbers of the
Indenture  are  included  so  that  you  can  easily  locate  these  provisions.
Capitalized  terms  used in the  summary  have  the  meanings  specified  in the
Indenture. Parenthetical references below are to the Indenture or to the TIA, as
applicable.


                                       3
<PAGE>

General

      The Debt  Securities  will be our  unsecured  obligations.  They will rank
equally with all of our other  unsecured and  unsubordinated  indebtedness.  The
Indenture  (Section 301) provides that the Debt Securities which are the subject
of  this  prospectus  and  any  of our  additional  unsecured  debt  securities,
unlimited as to aggregate  principal amount, may be issued in one or more series
thereunder,  in each  case as  authorized  from time to time by or  pursuant  to
authority  granted by our Board of Directors.  Debt Securities  issued under the
Indenture are herein  collectively  referred to, when a single trustee is acting
for  all  debt  securities  issued  under  the  Indenture,   as  the  "Indenture
Securities".  We have the  ability  to issue  Indenture  Securities  with  terms
different from those of Indenture Securities  previously issued and, without the
consent  of the  holders  thereof,  to  reopen a  previous  issue of a series of
Indenture  Securities and issue additional  Indenture  Securities of such series
(unless such reopening was restricted when such series was created).

Provisions Applicable to Particular Series

      The  Indenture  provides  that any  Debt  Securities  proposed  to be sold
pursuant to this prospectus and an accompanying  prospectus supplement,  as well
as other of our unsecured debt securities,  may be issued under the Indenture in
one or more series,  as authorized by us from time to time. The particular terms
of such Offered  Securities and any modifications of or additions to the general
terms  of the  Debt  Securities  as  described  in this  prospectus  that may be
applicable  in the  case of the  Offered  Securities  will be  described  in the
applicable prospectus supplement. Accordingly, for a description of the terms of
any Offered Securities,  you should refer to both the prospectus  supplement for
that series and the description of Debt Securities set forth in this prospectus.

      You  should  refer  to  the   prospectus   supplement  for  the  following
information for each particular series of Offered Securities:

            (1) The title of such Debt Securities.

            (2) The aggregate  principal  amount of such Debt Securities and any
      limit on the aggregate principal amount of Debt Securities of such series.

            (3) If other than the principal  amount thereof,  the portion of the
      principal  amount thereof payable upon  declaration of acceleration of the
      maturity thereof or the method by which such portion will be determined.

            (4) The date or dates,  or the  method  by which  such date or dates
      will be  determined  or  extended,  on which  the  principal  of such Debt
      Securities will be payable.

            (5) The rate or  rates  at which  such  Debt  Securities  will  bear
      interest,  if any,  or the  method  by which  such  rate or rates  will be
      determined,  the date or dates from which such interest will accrue or the
      method by which such date or dates will be  determined,  the date or dates
      on which such  interest,  if any,  will be payable and the Regular  Record
      Date or Dates, if any, for the interest payable on any Registered Security
      on any Interest Payment Date, or the method by which any such date will be
      determined,  and the basis upon which interest will be calculated if other
      than that of a 360-day year of twelve 30-day months.

            (6) The  date or dates on which  or the  period  or  periods  within
      which,  the price or prices  at which and the other  terms and  conditions
      upon which, such Debt Securities may be redeemed,  in whole or in part, at
      our option and whether we are to have that option.

            (7) Our obligation,  if any, to redeem,  repay or purchase such Debt
      Securities, in whole or in part, pursuant to any sinking fund or analogous
      provision  or at the option of a holder  thereof and the period or periods
      within  which or the date or dates on which,  the price or prices at which
      and the other terms and conditions  upon which,  such Debt Securities will
      be so redeemed, repaid or purchased.

            (8) Whether such Debt  Securities  are to be issuable as  Registered
      Securities,  Bearer  Securities  (with or without  coupons)  or both,  any
      restrictions   applicable  to  the  offer,  sale  or  delivery


                                       4
<PAGE>

      of Bearer  Securities and the terms, if any, upon which Bearer  Securities
      of the series may be exchanged for Registered Securities of the series and
      vice versa (if permitted by applicable laws and regulations), whether such
      Debt  Securities  will be issuable  initially  in  temporary  global form,
      whether any such Debt Securities will be issuable in permanent global form
      with or without coupons and, if so, whether beneficial owners of interests
      in any such permanent global security may exchange such interests for Debt
      Securities  of such series in  certificated  form and of like tenor of any
      authorized form and  denomination  and the  circumstances  under which any
      such  exchanges  may occur,  if other than in the manner  provided  in the
      Indenture,  and, if Registered  Securities  are to be issuable as a global
      security, the identity of the depositary for such Debt Securities.

            (9) Whether the amount of payments of principal  of (or premium,  if
      any) or interest,  if any, on such Debt  Securities may be determined with
      reference to an index,  formula or other method (which  index,  formula or
      method may be based on one or more Currencies, commodities, equity indices
      or other indices) and the manner in which such amounts will be determined.

            (10) The place or places,  if any,  other than or in addition to The
      City of New  York,  where  the  principal  of (and  premium,  if any)  and
      interest,  if any,  on such Debt  Securities  will be  payable,  where any
      Registered  Securities may be surrendered  for  registration  of transfer,
      where such Debt  Securities  may be surrendered  for exchange,  where Debt
      Securities  of a  series  that  are  convertible  or  exchangeable  may be
      surrendered for conversion or exchange,  as applicable,  and where notices
      or  demands  to or upon us in  respect  of such  Debt  Securities  and the
      Indenture may be served.

            (11) The denomination or denominations in which such Debt Securities
      will be issuable,  if other than $1,000, or any integral multiple thereof,
      in the case of  Registered  Securities  and  $5,000  in the case of Bearer
      Securities.

            (12) If other  than  the  Trustee,  the  identity  of each  Security
      Registrar and/or Paying Agent.

            (13) The date as of which any  Bearer  Securities  of the series and
      any temporary Debt Security issued in global form representing Outstanding
      Securities  of the series will be dated if other than the date of original
      issuance of the first Debt Security of the series to be issued.

            (14) The  applicability,  if at all, to such Debt  Securities of the
      provisions  of  Article  Fourteen  of the  Indenture  described  under " -
      Satisfaction  and Discharge,  Defeasance and Covenant  Defeasance" and any
      provisions  in  modification  of, in  addition to or in lieu of any of the
      provisions of such Article.

            (15) The Person to whom any interest on any  Registered  Security of
      the series  will be  payable,  if other than the Person in whose name such
      Registered Security (or one or more Predecessor  Securities) is registered
      at the close of business on the Regular Record Date for such interest, the
      manner in  which,  or the  Person  to whom,  any  interest  on any  Bearer
      Security  of  the  series  shall  be  payable,   if  otherwise  than  upon
      presentation  and  surrender of the coupons  appertaining  thereto as they
      severally  mature,  and the extent to which,  or the manner in which,  any
      interest  payable on a temporary Debt Security  issued in global form will
      be paid if other than in the manner provided in the Indenture.

            (16) If such Debt  Securities are to be issuable in definitive  form
      (whether upon original issue or upon exchange of a temporary Debt Security
      of such  series)  only  upon  receipt  of  certain  certificates  or other
      documents or  satisfaction of other  conditions,  the form and/or terms of
      such certificates, documents or conditions.

            (17)  Whether and under what  circumstances  we will pay  Additional
      Amounts,  as contemplated  by Section 1004 of the Indenture,  on such Debt
      Securities to any holder who is not a United States person  (including any
      modification  to the definition of such term as contained in the Indenture
      as originally  executed) in respect of any tax, assessment or governmental
      charge  and,  if so,  whether we will have the option to redeem  such Debt
      Securities  rather than pay such Additional  Amounts (and the terms of any
      such option).


                                       5
<PAGE>

            (18) The provisions,  if any, granting special rights to the holders
      of such  Debt  Securities  upon the  occurrence  of such  events as may be
      specified.

            (19) Any deletions from, modifications of or additions to the Events
      of Default or covenants with respect to such Debt Securities (which Events
      of  Default  or  covenants  are  consistent  with the Events of Default or
      covenants set forth in the general provisions of the Indenture).

            (20)  Whether  such  Debt  Securities  will be  convertible  into or
      exchangeable for any other securities and, if so, the terms and conditions
      upon which such Debt Securities will be so convertible or exchangeable.

            (21) Any other terms of such Debt Securities.

      If applicable,  the prospectus supplement will also set forth a discussion
of federal  income tax  considerations  relevant  to the Debt  Securities  being
offered.

      For purposes of this prospectus, any reference to the payment of principal
of (or premium,  if any) or interest,  if any, on such Debt  Securities  will be
deemed to include mention of the payment of any Additional  Amounts  required by
the terms of such Debt Securities.

      Debt  Securities  may  provide for less than the entire  principal  amount
thereof to be payable upon  declaration of acceleration of the maturity  thereof
("Original   Issue   Discount   Securities").   Federal  income  tax  and  other
considerations pertaining to any such Original Issue Discount Securities will be
discussed in the applicable prospectus supplement.

      The  Indenture  also  provides  that  there may be more  than one  Trustee
thereunder,  each with  respect  to one or more  different  series of  Indenture
Securities.  See also "- Resignation and Removal of Trustee"  herein.  At a time
when two or more Trustees are acting under the  Indenture,  each with respect to
only certain series, the term Indenture  Securities,  as used herein,  will mean
the one or more series with respect to which each respective  Trustee is acting.
In the event that there is more than one Trustee under the Indenture, the powers
and trust  obligations  of each Trustee as described  herein will extend only to
the one or more series of Indenture  Securities for which it is Trustee.  If two
or more Trustees are acting under the Indenture,  then the Indenture  Securities
for which each  Trustee is acting  would in effect be treated as if issued under
separate indentures.

      The general provisions of the Indenture do not contain any provisions that
would limit our ability to incur  indebtedness  or that would afford  holders of
Debt  Securities  protection  in the  event of a  highly  leveraged  or  similar
transaction. Reference is made to the prospectus supplement for information with
respect to any deletions  from,  modifications  of or additions to the Events of
Default or the covenants that are described  below,  including any addition of a
covenant or other provision providing event risk or similar protection.

Denominations, Registration and Transfer

      Debt  Securities  of  a  series  may  be  issuable  solely  as  Registered
Securities,  solely as Bearer  Securities or as both  Registered  Securities and
Bearer Securities.  The Indenture also provides that Debt Securities of a series
may be issuable in global form.  (Section 203) See "Book-Entry Debt Securities".
Unless  otherwise  provided  in  the  prospectus  supplement,   Debt  Securities
denominated in U.S. dollars (other than Global  Securities,  which may be of any
denomination) are issuable in denominations of $1,000, or any integral multiples
of $1,000 (in the case of Registered  Securities),  and in the  denomination  of
$5,000  (in the case of  Bearer  Securities).  (Section  302)  Unless  otherwise
indicated in the prospectus  supplement,  Bearer  Securities  will have interest
coupons attached. (Section 201)

      Registered Securities will be exchangeable for other Registered Securities
of the same  series.  If (but only if)  provided in the  prospectus  supplement,
Bearer Securities (with all unmatured coupons, except as provided below, and all
matured  coupons which are in default) of any series may be similarly  exchanged
for Registered Securities of the same series of any authorized denominations and
of a  like  aggregate  principal  amount  and  tenor.  If  so  provided,  Bearer
Securities  surrendered in exchange for Registered  Securities between a Regular
Record  Date or a Special  Record  Date and the  relevant  date


                                       6
<PAGE>

for payment of interest will be surrendered  without the coupon relating to such
date for payment of interest, and interest will not be payable in respect of the
Registered  Security  issued in exchange for such Bearer  Security,  but will be
payable only to the holder of such coupon when due in accordance  with the terms
of the  Indenture.  Unless  otherwise  specified in the  prospectus  supplement,
Bearer  Securities  will not be issued in exchange  for  Registered  Securities.
(Section 305)

      Registered  Securities  of a series may be presented for  registration  of
transfer and Debt  Securities  of a series may be presented  for exchange (1) at
each office or agency required to be maintained by us for payment of such series
as  described in "Payment  and Paying  Agents",  and (2) at each other office or
agency that we may  designate  from time to time for such  purposes.  No service
charge will be made for any transfer or exchange of Debt Securities,  but we may
require  payment of any tax or other  governmental  charge payable in connection
therewith. (Section 305)

      We will not be required to (1) issue, register the transfer of or exchange
Debt  Securities  during a period  beginning  at the opening of business 15 days
before any selection of Debt Securities of that series to be redeemed and ending
at the close of business on (A) if Debt  Securities  of the series are  issuable
only as  Registered  Securities,  the day of mailing of the  relevant  notice of
redemption  and (B) if Debt  Securities  of the  series are  issuable  as Bearer
Securities,  the  day  of  the  first  publication  of the  relevant  notice  of
redemption, or, if Debt Securities of the series are also issuable as Registered
Securities  and there is no  publication,  the day of  mailing  of the  relevant
notice of  redemption;  (2) register the transfer of or exchange any  Registered
Security,  or portion  thereof,  called for  redemption,  except the  unredeemed
portion of any  Registered  Security  being  redeemed in part;  (3) exchange any
Bearer Security  called for redemption,  except to exchange such Bearer Security
for a Registered  Security of that series and like tenor that is  simultaneously
surrendered for redemption;  or (4) issue,  register the transfer of or exchange
any Debt Security which has been  surrendered for repayment at the option of the
holder,  except the portion,  if any, of such Debt Security not to be so repaid.
(Section 305)

Payment and Paying Agents

      Unless otherwise provided in the prospectus  supplement,  premium, if any,
and interest,  if any, and Additional Amounts, if any, on Registered  Securities
will be payable at any office or agency to be  maintained  by us in Newark,  New
Jersey and New York,  New York,  except that at our option  interest  (including
Additional  Amounts,  if any) may be paid (1) by check  mailed to the address of
the  Person  entitled  thereto  as such  address  shall  appear in the  Security
Register or (2) by wire transfer to an account maintained by the Person entitled
thereto as specified in the Security  Register.  (Sections  301,  1001 and 1002)
Unless  otherwise  provided  in  the  prospectus  supplement,   payment  of  any
installment of interest on Registered  Securities  will be made to the Person in
whose name such  Registered  Security is  registered at the close of business on
the Regular Record Date for such interest. (Section 307)

      If Debt Securities of a series are issuable solely as Bearer Securities or
as both Registered  Securities and Bearer Securities,  unless otherwise provided
in the  prospectus  supplement,  we will be  required  to  maintain an office or
agency (1) outside the United States at which,  subject to any  applicable  laws
and regulations, the principal of (and premium, if any) and interest, if any, on
such series will be payable  and (2) in The City of New York for  payments  with
respect to any  Registered  Securities  of such  series (and for  payments  with
respect  to  Bearer  Securities  of such  series  in the  limited  circumstances
described  below,  but not otherwise);  provided that, if required in connection
with any listing of such Debt Securities on the Luxembourg Stock Exchange or any
other stock  exchange  located  outside the United  States,  we will maintain an
office or agency for such Debt Securities in any city located outside the United
States required by such stock exchange.  (Section 1002) The initial locations of
such offices and agencies will be specified in the prospectus supplement. Unless
otherwise provided in the prospectus  supplement,  principal of (and premium, if
any) and interest,  if any, on Bearer Securities may be paid by wire transfer to
an account maintained by the Person entitled thereto with a bank located outside
the United  States.  (Sections  307 and 1002) Unless  otherwise  provided in the
prospectus  supplement,  payment  of  installments  of  interest  on any  Bearer
Securities on or before Maturity will be made only against  surrender of coupons
for such interest  installments as they severally mature.  (Section 1001) Unless
otherwise provided in the prospectus supplement,  no payment with respect to any
Bearer  Security  will be made at any office or agency we maintain in the United
States or by check mailed to


                                       7
<PAGE>

any address in the United States or by transfer to an account  maintained with a
bank located in the United States.  Notwithstanding  the foregoing,  payments of
principal of (and premium,  if any) and interest,  if any, on Bearer  Securities
payable in U.S.  dollars  will be made at the office of our Paying  Agent in The
City of New York if (but only if)  payment  of the full  amount  thereof in U.S.
dollars  at all  offices or  agencies  outside  the United  States is illegal or
effectively  precluded  by  exchange  controls  or other  similar  restrictions.
(Section 1002)

      We may from time to time designate additional offices or agencies, approve
a change in the location of any office or agency and,  except as provided above,
rescind the designation of any office or agency.

Events of Default

      The  following  will  constitute  Events of  Default  under the  Indenture
(Section 501):

      1.    default in the  payment of any  interest on or of any coupon upon or
            any  Additional  Amounts  payable in respect of any Debt Security of
            that series or of any coupon appertaining thereto and continuance of
            such default for a period of 30 days;

      2.    default in the payment of the principal of (or premium,  if any, on)
            any Debt  Security  of that  series  when the same  becomes  due and
            payable, whether at its maturity, earlier redemption or repayment or
            otherwise;

      3.    default in the deposit of any sinking  fund  payment when due by the
            terms of any Debt Security of that series;

      4.    default in the performance,  or breach, of any covenant or agreement
            of ours in the  Indenture  with respect to any Debt Security of that
            series, continued for 60 days after written notice to us;

      5.    certain events in bankruptcy, insolvency or reorganization affecting
            us; and

      6.    any other Event of Default  provided with respect to Debt Securities
            of that series.

      We  are  required  to  file  with  the  Trustee,  annually,  an  officer's
certificate  as to our compliance  with all  conditions and covenants  under the
Indenture.  (Section 1005) The Indenture  provides that the Trustee may withhold
notice to the  holders of Debt  Securities  of a series of any  default  (except
payment  defaults on such Debt  Securities of that series) if it considers it in
the interest of the holders of Debt Securities of such series to do so. (Section
601)

      If an Event of Default  with  respect to Debt  Securities  of a series has
occurred and is  continuing,  the Trustee or the holders of not less than 25% in
principal  amount of Outstanding  Debt Securities of that series may declare the
principal  amount (or, if the Debt  Securities of that series are Original Issue
Discount Securities or Indexed Securities,  such portion of the principal amount
as may be specified in the terms thereof) of all of the Debt  Securities of that
series due and payable immediately. (Section 502)

      Subject to the  provisions of the Indenture  relating to the duties of the
Trustee thereunder,  in case an Event of Default with respect to Debt Securities
of a series has occurred and is  continuing,  the Trustee is under no obligation
to exercise  any of its rights or powers  under the  Indenture  at the  request,
order or direction of the holders of Debt Securities of that series, unless such
holders have offered such Trustee reasonable  indemnity against the expenses and
liabilities  which  might be  incurred by it in  compliance  with such  request.
(Section  507  and  TIA  Section  315)  Subject  to  such   provisions  for  the
indemnification of the Trustee, the holders of a majority in principal amount of
the  Outstanding  Debt  Securities of a series will have the right to direct the
time,  method and place of conducting any proceeding for any remedy available to
the  Trustee,  or  exercising  any trust or power  conferred on the Trustee with
respect to the Debt Securities of that series. (Section 512)

      The  holders of a majority in  principal  amount of the  Outstanding  Debt
Securities  of a series may, on behalf of the holders of all Debt  Securities of
such series and any related coupons,  waive any past default under the Indenture
with  respect to such series and its  consequences,  except a default (1) in the
payment of the  principal  of (or premium,  if any) or  interest,  if any, on or
Additional Amounts payable in respect of any Debt Security of such series or any
related  coupons or (2) in respect of a covenant  or


                                       8
<PAGE>

provision  that cannot be modified or amended  without the consent of the holder
of each Outstanding Debt Security of such series affected thereby. (Section 513)

Merger or Consolidation

      The Indenture  provides that we may not consolidate  with or merge with or
into any other corporation or convey or transfer our properties and assets as an
entirety or substantially as an entirety to any Person, unless either we are the
continuing  corporation or such  corporation  or Person assumes by  supplemental
indenture  all  of  our  obligations  under  the  Indenture  and  the  Indenture
Securities  issued  thereunder and immediately  after the transaction no default
shall exist. (Section 801)

Modification or Waiver

      Modification  and  amendment  of the  Indenture  may be made by us and the
Trustee with the consent of the holders of a majority in principal amount of all
Outstanding  Indenture  Securities  that are  affected by such  modification  or
amendment;  provided that no such  modification  or amendment  may,  without the
consent of the holder of each Outstanding  Indenture  Security affected thereby,
among other things:

      1.    change the Stated Maturity of the principal of (or premium,  if any,
            on) or any  installment  of  principal  of or  interest  on any such
            Indenture Security;

      2.    reduce the principal amount of, or the rate or amount of interest in
            respect of, or any premium  payable upon the redemption of, any such
            Indenture Security;

      3.    change any of our  obligations to pay Additional  Amounts in respect
            of any such Indenture Security;

      4.    reduce the portion of the  principal of an Original  Issue  Discount
            Security or Indexed  Security  that would be due and payable  upon a
            declaration of acceleration  of the Maturity  thereof or provable in
            bankruptcy;

      5.    adversely  affect any right of repayment at the option of the holder
            of any such Indenture Security;

      6.    change the place or  Currency  of payment  of  principal  of, or any
            premium or interest on, any such Indenture Security;

      7.    impair the right to institute  suit for the  enforcement of any such
            payment on or after the Stated  Maturity  thereof or on or after any
            Redemption Date or Repayment Date therefor;

      8.    adversely  affect  any right to convert or  exchange  any  Indenture
            Security;

      9.    reduce  the  percentage  in  principal  amount  of such  Outstanding
            Indenture  Securities,  the consent of whose  holders is required to
            amend or waive  compliance with certain  provisions of the Indenture
            or to waive certain defaults thereunder;

      10.   reduce the requirements for voting or quorum described below; or

      11.   modify any of the foregoing  requirements  or any of the  provisions
            relating  to  waiving  past  defaults  or  compliance  with  certain
            restrictive provisions, except to increase the percentage of holders
            required to effect any such waiver or to provide that certain  other
            provisions of the Indenture cannot be modified or waived without the
            consent of the holder of each Indenture  Security  affected thereby.
            (Section 902)

      The holders of a majority in  aggregate  principal  amount of  Outstanding
Indenture  Securities  have the  right  to waive  our  compliance  with  certain
covenants in the Indenture. (Section 1006)

      Modification  and  amendment  of the  Indenture  may be made by us and the
Trustee thereunder,  without the consent of any holder, for any of the following
purposes:

      1.    to evidence the  succession of another Person to us as obligor under
            the Indenture;


                                       9
<PAGE>

      2.    to add to our covenants for the benefit of the holders of all or any
            series of Indenture  Securities  issued under the  Indenture and any
            related coupons or to surrender any right or power conferred upon us
            by the Indenture;

      3.    to add Events of Default  for the  benefit of the  holders of all or
            any series of Indenture Securities;

      4.    to add to or change any  provisions  of the  Indenture to facilitate
            the issuance of, or to liberalize  the terms of, Bearer  Securities,
            or to permit or facilitate  the issuance of Indenture  Securities in
            uncertificated form, provided that any such actions do not adversely
            affect  the  holders of such  Indenture  Securities  or any  related
            coupons;

      5.    to change or eliminate  any  provisions of the  Indenture,  provided
            that any such change or elimination  will become effective only when
            there are no Indenture Securities  Outstanding of any series created
            prior thereto which are entitled to the benefit of such provisions;

      6.    to secure the Indenture  Securities under the Indenture  pursuant to
            the requirements of Section 801, or otherwise;

      7.    to establish  the form or terms of the  Indenture  Securities of any
            series and any related coupons;

      8.    to provide for the acceptance of appointment by a successor  Trustee
            or facilitate the  administration  of the trusts under the Indenture
            by more than one Trustee;

      9.    to cure any  ambiguity,  defect or  inconsistency  in the Indenture,
            provided  such action does not  adversely  affect the  interests  of
            holders of Indenture Securities of any series or any related coupons
            in any material respect; or

      10.   to supplement  any of the  provisions of the Indenture to the extent
            necessary to permit or  facilitate  defeasance  and discharge of any
            series of Indenture Securities,  provided that such action shall not
            adversely  affect the interests of the holders of any such Indenture
            Securities and any related coupons in any material respect. (Section
            901)

      In determining  whether the holders of the requisite  principal  amount of
Outstanding Indenture Securities have given any request, demand,  authorization,
direction,  notice, consent or waiver under the Indenture or whether a quorum is
present  at a meeting  of holders of  Indenture  Securities,  (1) the  principal
amount  of an  Original  Issue  Discount  Security  that  will be  deemed  to be
outstanding  will be the amount of the  principal  thereof that would be due and
payable as of the date of such  determination  upon acceleration of the Maturity
thereof,  (2) the principal amount of an Indexed Security that may be counted in
making such determination or calculation and that will be deemed outstanding for
such purpose will be equal to the principal face amount of such Indexed Security
at original  issuance,  unless  otherwise  provided with respect to such Indexed
Security  pursuant to Section 301 of the Indenture and (3) Indenture  Securities
owned by us or any other obligor upon the Indenture  Securities or any Affiliate
of ours or of such other obligor shall be disregarded. (Section 101)

      The Indenture contains provisions for convening meetings of the holders of
Indenture  Securities  of a series if  Indenture  Securities  of that series are
issuable  as Bearer  Securities.  (Section  1501) A meeting may be called at any
time by the Trustee,  and also,  upon request,  by us or the holders of at least
10% in principal amount of the Outstanding  Indenture Securities of that series,
in any such case upon notice given as provided in the Indenture.  (Section 1502)
Except  for any  consent  that  must be given by the  holder  of each  Indenture
Security  affected  thereby,  as described above, any resolution  presented at a
meeting (or an adjourned  meeting duly  reconvened) at which a quorum is present
may be adopted by the affirmative vote of the holders of a majority in principal
amount  of the  Outstanding  Indenture  Securities  of  that  series;  provided,
however, that any resolution with respect to any request, demand, authorization,
direction,  notice,  consent,  waiver or other action that may be made, given or
taken by the holders of a specified  percentage which is less than a majority in
principal  amount of the  Outstanding  Indenture  Securities  of a series may be
adopted at a meeting (or an adjourned meeting duly reconvened) at which a quorum
is present by the affirmative  vote of the holders of such specified  percentage
in principal amount of the Outstanding  Indenture Securities of that series. Any
resolution  passed or  decision  taken at any  meeting of  holders of  Indenture
Securities  of a series  duly  held in  accordance  with the  Indenture  will be
binding on all holders of  Indenture  Securities  of that series and


                                       10
<PAGE>

any related coupons. The quorum at any meeting called to adopt a resolution will
be  persons  holding  or  representing  a majority  in  principal  amount of the
Outstanding Indenture Securities of a series;  provided,  however,  that, if any
action is to be taken at such  meeting with respect to a consent or waiver which
may be given by the holders of not less than a specified percentage in principal
amount of the Outstanding  Indenture Securities of a series, the persons holding
or representing such specified percentage in principal amount of the Outstanding
Indenture Securities of that series will constitute a quorum. (Section 1504)

      Notwithstanding the foregoing provisions,  if any action is to be taken at
a meeting of holders of  Indenture  Securities  of a series with  respect to any
request,  demand,  authorization,  direction,  notice,  consent, waiver or other
action that the Indenture  expressly provides may be made, given or taken by the
holders  of a  specified  percentage  in  principal  amount  of all  Outstanding
Indenture  Securities  affected thereby or of the holders of such series and one
or more additional  series: (1) there shall be no minimum quorum requirement for
such  meeting  and  (2)  the  principal  amount  of  the  Outstanding  Indenture
Securities  of  such  series  that  vote  in  favor  of  such  request,  demand,
authorization,  direction, notice, consent, waiver or other action will be taken
into  account  in  determining  whether  such  request,  demand,  authorization,
direction, notice, consent, waiver or other action has been made, given or taken
under the Indenture. (Section 1504)

Satisfaction and Discharge, Defeasance and Covenant Defeasance

      We may discharge  certain  obligations to holders of Debt  Securities of a
series that have not already been delivered to the Trustee for  cancellation and
that  either  have  become due and payable or are by their terms due and payable
within one year (or scheduled  for  redemption  within one year) by  irrevocably
depositing with the Trustee,  in trust, funds in an amount sufficient to pay the
entire  indebtedness on such Debt Securities for principal (and premium, if any)
and interest,  if any, and any Additional  Amounts with respect thereto,  to the
date of such deposit (if such Debt Securities have become due and payable) or to
the Stated Maturity or Redemption Date, as the case may be. (Section 401)

      The Indenture  provides  that, if the  provisions of Article  Fourteen are
made  applicable to the Debt  Securities of or within any series and any related
coupons pursuant to Section 301 thereunder, we may elect either

      o     to  defease  and be  discharged  from any and all  obligations  with
            respect to such Debt  Securities and any related coupons (except for
            the  obligations  to  pay  Additional  Amounts,  if  any,  upon  the
            occurrence  of certain  events of tax,  assessment  or  governmental
            charge  with  respect to payments  on such Debt  Securities  and the
            obligations  to  register  the  transfer  or  exchange  of such Debt
            Securities  and  any  related  coupons,   to  replace  temporary  or
            mutilated, destroyed, lost or stolen Debt Securities and any related
            coupons,  to  maintain  an office or agency in  respect of such Debt
            Securities and any related  coupons,  and to hold moneys for payment
            in trust) (defeasance) (Section 1402) or

      o     to be released  from its  obligations  under any covenant  specified
            pursuant to Section 301 with respect to such Debt Securities and any
            related  coupons,  and any omission to comply with such  obligations
            shall not  constitute  a default or an Event of Default with respect
            to  such  Debt   Securities  and  any  related   coupons   (covenant
            defeasance)  (Section  1403),  in either  case upon the  irrevocable
            deposit by us with the Trustee  (or other  qualifying  trustee),  in
            trust, of:

            o     an amount in U.S. dollars;

            o     Government  Obligations (as defined below)  applicable to such
                  Debt  Securities  and  coupons  that  through  the  payment of
                  principal  and  interest in  accordance  with their terms will
                  provide money in an amount; or

            o     a  combination  thereof  in an amount,  sufficient  to pay the
                  principal of (and premium,  if any) and  interest,  if any, on
                  such  Debt  Securities  and  any  related  coupons,   and  any
                  mandatory sinking fund or analogous  payments thereon,  on the
                  scheduled due dates therefor.


                                       11
<PAGE>

      Such a trust may only be  established  if,  among  other  things,  we have
delivered to the Trustee an Opinion of Counsel (as  specified in the  Indenture)
to the effect that the holders of such Debt  Securities and any related  coupons
will not recognize  income,  gain or loss for United States  federal  income tax
purposes  as a result of such  defeasance  or  covenant  defeasance  and will be
subject to United States  federal  income tax on the same  amounts,  in the same
manner and at the same times as would have been the case if such  defeasance  or
covenant  defeasance had not occurred,  and such Opinion of Counsel, in the case
of defeasance  under the first clause  above,  must refer to and be based upon a
ruling of the Internal  Revenue Service or a change in applicable  United States
federal income tax law occurring after the date of the Indenture. (Section 1404)

      Government  Obligations means securities which are (1) direct  obligations
of the United States or (2) obligations of a Person  controlled or supervised by
and acting as an agency or  instrumentality of the United States, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States,  which are not callable or redeemable at the option of the issuer
thereof.  Government  Obligations also include a depositary  receipt issued by a
bank  or  trust  company  as  custodian  with  respect  to any  such  Government
Obligation  or a  specific  payment  of  interest  on or  principal  of any such
Government  Obligation held by such custodian for the account of the holder of a
depositary receipt;  provided that (except as required by law) such custodian is
not  authorized to make any deduction  from the amount  payable to the holder of
such depositary  receipt from the amount received by the custodian in respect of
the Government Obligation or the specific payment of interest on or principal of
the Government Obligation evidenced by such depositary receipt. (Section 101)

      In the  event we  effect  covenant  defeasance  with  respect  to any Debt
Securities  and any  related  coupons and such Debt  Securities  and coupons are
declared due and payable because of the occurrence of any Event of Default other
than the Events of Default described in clause 4 or 6 under "-Events of Default"
(Section  501) with respect to any covenant to which there has been  defeasance,
the amount of Government  Obligations and funds on deposit with the Trustee will
be sufficient to pay amounts due on such Debt Securities and coupons at the time
of their Stated  Maturity but may not be  sufficient  to pay amounts due on such
Debt Securities and coupons at the time of the acceleration  resulting from such
Event of Default.  In such case,  we would remain liable to make payment of such
amounts due at the time of, acceleration. (Section 501)

      If the  Trustee  or any  Paying  Agent is  unable  to apply  any  money in
accordance with the Indenture by reason of any order or judgment of any court or
governmental  authority  enjoining,  restraining or otherwise  prohibiting  such
application,  then our obligations  under the Indenture and such Debt Securities
and any related coupons shall be revived and reinstated as though no deposit had
occurred  pursuant to the  Indenture,  until such time as such Trustee or Paying
Agent is permitted  to apply all such money in  accordance  with the  Indenture;
provided,  however,  that if we make any payment of principal of (or premium, if
any) or  interest,  if any,  on any such Debt  Security  or any  related  coupon
following the  reinstatement of its  obligations,  we shall be subrogated to the
rights of the holders of such Debt Securities and any related coupons to receive
such payment from the money held by the Trustee or Paying Agent.

      The prospectus  supplement may further  describe the  provisions,  if any,
permitting such defeasance or covenant  defeasance,  including any modifications
to the provisions  described  above,  with respect to the Debt  Securities of or
within a particular series and any related coupons.

Book-Entry Debt Securities

      Debt Securities of a series may be issued,  in whole or in part, in global
form that will be deposited  with,  or on behalf of, a depositary  identified in
the prospectus supplement.  Global securities may be issued in either registered
or bearer form and in either temporary or permanent form (a "Global  Security").
Unless otherwise provided in the prospectus supplement, Debt Securities that are
represented by a Global Security will be issued in  denominations  of $1,000 and
any  integral  multiple  thereof,  and will be issued in  registered  form only,
without coupons. Payments of principal of (and premium, if any) and interest, if
any, on Debt  Securities  represented by a Global Security will be made by us to
the Trustee, and then by such Trustee to the depositary.


                                       12
<PAGE>

      We anticipate  that any Global  Securities  will be deposited  with, or on
behalf of, The Depository  Trust Company (the "DTC"),  New York, New York,  that
such Global Securities will be registered in the name of DTC's nominee, and that
the following provisions will apply to the depositary  arrangements with respect
to any such Global  Securities.  Additional or differing terms of the depositary
arrangements will be described in the prospectus supplement.

      So  long  as DTC or  its  nominee  is the  registered  owner  of a  Global
Security,  DTC or its nominee,  as the case may be, will be considered  the sole
holder  of the Debt  Securities  represented  by such  Global  Security  for all
purposes under the  Indenture.  Except as provided  below,  owners of beneficial
interests  in a Global  Security  will not be entitled  to have Debt  Securities
represented by such Global Security  registered in their names, will not receive
or be entitled to receive  physical  delivery of Debt Securities in certificated
form and will  not be  considered  the  owners  or  holders  thereof  under  the
Indenture. The laws of some states require that certain purchasers of securities
take physical  delivery of such securities in  certificated  form; such laws may
limit the transferability of beneficial interests in a Global Security.

      If (1) DTC is at any time  unwilling,  unable or ineligible to continue as
depositary  and a successor  depositary  is not  appointed  by us within 90 days
following notice to us; (2) we determine,  in our sole  discretion,  not to have
any Debt  Securities  represented  by one or more Global  Securities,  or (3) an
Event of Default  under the Indenture  has occurred and is  continuing,  then we
will issue  individual Debt Securities in certificated  form in exchange for the
relevant  Global  Securities.  In any such  instance,  an owner of a  beneficial
interest  in a  Global  Security  will  be  entitled  to  physical  delivery  of
individual Debt Securities in certificated form of like tenor and rank, equal in
principal amount to such beneficial interest and to have such Debt Securities in
certificated  form  registered  in its name.  Unless  otherwise  provided in the
prospectus  supplement,  Debt Securities so issued in certificated  form will be
issued in denominations  of $1,000 or any integral  multiple thereof and will be
issued in registered form only, without coupons.

      The following is based on information  furnished by DTC and applies to the
extent that it is the depositary,  unless  otherwise  provided in the prospectus
supplement:

      Registered  Owner.  The Debt Securities will be issued as fully registered
securities in the name of Cede & Co., which is DTC's  partnership  nominee.  The
Trustee will deposit the Global Securities with the depositary. The deposit with
the  depositary and its  registration  in the name of Cede & Co. will not change
the nature of the actual purchaser's ownership interest in the Debt Securities.

      DTC's Organization. DTC is a limited-purpose trust company organized under
the New York  Banking Law, a "banking  organization"  within the meaning of that
law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning  of the  New  York  Uniform  Commercial  Code  and a  "clearing  agency"
registered  pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934.

      DTC is owned by a number of its direct participants and the New York Stock
Exchange,  the American  Stock  Exchange,  Inc. and the National  Association of
Securities  Dealers,  Inc. Direct  participants  include  securities brokers and
dealers,   banks,  trust  companies,   clearing   corporations  and  some  other
organizations  who directly  participate in DTC. Other entities may access DTC's
system by clearing transactions through or maintaining a custodial  relationship
with direct  participants.  The rules applicable to DTC and its participants are
on file with the SEC.

      DTC's Activities.  DTC holds securities that its participants deposit with
it.  DTC also  facilitates  the  settlement  among  participants  of  securities
transactions,  such as transfers and pledges,  in deposited  securities  through
electronic computerized  book-entry changes in participants' accounts.  Doing so
eliminates the need for physical movement of securities certificates.

      Participants' Records.  Except as otherwise provided in this prospectus or
a prospectus supplement, purchases of Debt Securities must be made by or through
a direct participant, which will receive a credit for the Debt Securities on the
depositary's  records. The purchaser's interest is in turn to be recorded on the
participants'  records.  Actual purchasers will not receive written confirmation
from


                                       13
<PAGE>

the depositary of their purchase, but they generally receive confirmations along
with periodic  statements of their holdings from the participants  through which
they entered into the transaction.

      Transfers of interest in the Global  Securities  will be made on the books
of  the   participants  on  behalf  of  the  actual   purchasers.   Certificates
representing  the interest in Debt  Securities will not be issued unless the use
of Global Securities is suspended.

      The  depositary  has no  knowledge  of the  actual  purchasers  of  Global
Securities.  The  depositary's  records  only reflect the identity of the direct
participants,  who are  responsible  for  keeping  account of their  holdings on
behalf of their customers.

      Notices Among the Depositary,  Participants and Actual Owners. Notices and
other  communications  by  the  depositary,  its  participants  and  the  actual
purchasers  will be governed by  arrangements  among them,  subject to any legal
requirements in effect.

      Voting  Procedures.  Neither DTC nor Cede & Co. will give  consents for or
vote the Global Securities.  The depositary  generally mails an omnibus proxy to
us just after the applicable record date. That proxy assigns Cede & Co.'s voting
rights to the direct  participants  to whose  accounts the Debt  Securities  are
credited at that time.

      Payments.  Principal and interest payments made by us will be delivered to
the depositary. DTC's practice is to credit direct participants' accounts on the
applicable payment date unless it has reason to believe that it will not receive
payment on that date.  Payments by  participants  to actual  purchasers  will be
governed by standing  instructions and customary practices,  as is the case with
securities  held for customers in bearer form or  registered  in "street  name."
Those  payments  will  be the  responsibility  of that  participant  and not the
depositary,  the Trustee or us, subject to any legal  requirements  in effect at
that time.

      We are responsible for payment of principal, interest and premium, if any,
to  the  Trustee  who is  responsible  for  paying  it to  the  depositary.  The
depositary is responsible for disbursing those payments to direct  participants.
The  participants  are  responsible  for  disbursing   payments  to  the  actual
purchasers.

      DTC may discontinue  providing its services as securities  depositary with
respect to the Debt  Securities at any time by giving  reasonable  notice to the
applicable  Paying  Agent or us. Under such  circumstances,  in the event that a
successor securities depositary is not appointed, Debt Security certificates are
required to be printed and delivered.

      We may decide to  discontinue  use of the system of  book-entry  transfers
through DTC (or a successor securities depositary). In that event, Debt Security
certificates will be printed and delivered.

      The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources  (including  DTC) that we believe to be reliable,
but we take no responsibility for the accuracy thereof.

      Unless stated otherwise in the prospectus supplement,  the underwriters or
agents with respect to a series of Debt Securities  issued as Global  Securities
will be direct participants in DTC.

      None of any underwriter or agent, the Trustee, any applicable Paying Agent
or us will have any  responsibility  or liability  for any aspect of the records
relating  to or payments  made on account of  beneficial  interests  in a Global
Security,  or for maintaining,  supervising or reviewing any records relating to
such beneficial interests.

Resignation and Removal of Trustee

      The Trustee may resign or be removed with respect to one or more series of
Indenture  Securities  and a  successor  Trustee  may be  appointed  to act with
respect to such series.  (Section 608) In the event that two or more persons are
acting as Trustee with respect to different series of Indenture Securities under
the  Indenture,  each  such  Trustee  shall be a Trustee  of a trust  thereunder
separate  and  apart  from the trust  administered  by any  other  such  Trustee
(Section  609), and any action  described  herein to be


                                       14
<PAGE>

taken by the Trustee may then be taken by each such Trustee with respect to, and
only with respect to, the one or more series of Indenture  Securities  for which
it is Trustee.

The Trustee

      We maintain ordinary banking relationships with First Union National Bank,
including credit facilities and lines of credit.  First Union National Bank also
serves as trustee under the Indenture  dated August 1, 1924, with respect to our
First and Refunding  Mortgage Bonds and under other indentures under which we or
our affiliates are the obligor.

                              PLAN OF DISTRIBUTION

      We will sell the Offered Securities through competitive bidding procedures
set forth in our  Statement  of Terms and  Conditions  Relating  to Bids for New
Senior Debt  Securities  (the "Terms and  Conditions")  filed as Exhibit 1-1a to
this registration statement. Written notice of bidding for any series of Offered
Securities will be provided,  in accordance  with the Terms and  Conditions,  to
prospective bidders or, in the case of a group of bidders, to the representative
of the group,  who have notified us that they intend to submit a bid and wish to
be provided  with notice of the time and date of bidding,  at least  twenty-four
hours prior to the time  designated  for the opening of bids for a new series or
issue of Offered Securities. Such notice will advise bidders of:

      (1)   the date and time for receipt of bids,

      (2)   whether bids will be received in writing,  by telephone confirmed in
            writing or either in writing or by telephone confirmed in writing,

      (3)   the  principal  amount  of the  particular  series  or  issue of the
            Offered Securities,

      (4)   the series designation of the Offered Securities,

      (5)   the minimum and maximum percentages of principal amount which may be
            specified  in  the  bid  as  the  purchase  price  for  the  Offered
            Securities,

      (6)   the term of the Offered Securities,

      (7)   the terms and conditions  upon which such Offered  Securities may be
            redeemed,  either at our option,  pursuant  to any  sinking  fund or
            otherwise, and

      (8)   such other  provisions  that we may set to  establish  the terms and
            conditions  of the Offered  Securities  and the terms of the bidding
            therefore.

      Thereafter,  we may also notify such  bidders or  representative,  orally,
confirmed in writing,  not less than 30 minutes prior to the time designated for
receiving bids, of any reduced  principal  amount of the Offered  Securities for
which we may elect to receive bids.

      Upon  the  acceptance  of a bid  for a  series  or  issue  of the  Offered
Securities,  a Purchase Agreement,  substantially in the form of Exhibit 1-1b to
this registration  statement,  will become effective  providing for the issuance
and sale of such Offered Securities  pursuant to a firm commitment  underwriting
on the terms set forth therein.

      The prospectus  supplement will set forth the terms of the offering of the
particular  series  or issue of  Offered  Securities  to which  such  prospectus
supplement relates, including, as applicable:

      1.    the  name or  names  of the  successful  bidders  with  whom we have
            entered into the Purchase Agreement;

      2.    the  initial  public  offering  or  purchase  price of such  Offered
            Securities;

      3.    any underwriting discounts, commissions and other items constituting
            underwriters'   compensation   from  us  and  any  other  discounts,
            concessions  or  commissions  allowed  or  reallowed  or paid by any
            underwriters to other dealers;

      4.    the net proceeds to us; and

      5.    the securities  exchanges,  if any, on which such Offered Securities
            will be listed.


                                       15
<PAGE>

      Some of the  underwriters,  dealers or agents and some of their affiliates
who participate in the  distribution  of Offered  Securities may engage in other
transactions  with, and perform other services for, us and our affiliates in the
ordinary course of business.

      The form of the Purchase  Agreement  provides that the consummation of the
purchase of each series or issue of the  Offered  Securities  will be subject to
certain  conditions  precedent and that we will  indemnify  each  underwriter or
purchaser  against certain civil  liabilities,  including  liabilities under the
Securities Act.

                                 LEGAL OPINIONS

      The validity of the Debt Securities will be passed upon for us by James T.
Foran, Esquire,  General Corporate Counsel or R. Edwin Selover,  Esquire, Senior
Vice President and General Counsel, and for any underwriters,  dealers or agents
by Sidley Austin Brown & Wood LLP, New York, New York. Messrs. Selover and Foran
are also employees of our affiliate, PSEG Services Corporation.

                                     EXPERTS

      Our  consolidated   financial  statements  and  the  related  consolidated
financial  statement schedule  incorporated in this prospectus by reference from
our Annual  Report on Form 10-K for the year ended  December  31, 2000 have been
audited  by  Deloitte & Touche  LLP,  independent  auditors,  as stated in their
report which is  incorporated  herein by reference and have been so incorporated
in reliance  upon the report of such firm given upon their  authority as experts
in accounting and auditing.


                                       16
<PAGE>

The  Information in this  prospectus is not complete and may be changed.  We may
not sell  these  securities  until the  registration  statement  filed  with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these  securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted

      Subject to Completion, Preliminary Prospectus Dated December 27, 2001

PROSPECTUS

                             PSE&G CAPITAL TRUST III
                             PSE&G CAPITAL TRUST IV
                           TRUST PREFERRED SECURITIES
                 GUARANTEED TO THE EXTENT THE ISSUER THEREOF HAS
                     AVAILABLE FUNDS AS SET FORTH HEREIN BY
                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY

                                   ----------

      PSE&G Capital  Trust III and PSE&G  Capital Trust IV may severally  offer,
from time to time, their  respective trust preferred  securities (the "Preferred
Securities")  representing  undivided beneficial interests in the assets of such
Issuer.  Public Service Electric and Gas Company  ("PSE&G") will be the owner of
beneficial interests represented by the common securities of each Issuer.

      Pursuant to a guarantee agreement to be entered into by PSE&G with respect
to each series of  Preferred  Securities,  PSE&G will agree to make  payments of
cash distributions  with respect to the Preferred  Securities of each Issuer and
payments on liquidation or redemption with respect to such Preferred  Securities
but only to the extent that such Issuer holds funds  available  therefor and has
not made such payments as more fully described herein.

      The Preferred Securities may be offered in amounts, at prices and on terms
to be determined at the time of offering;  provided, however, that the aggregate
initial public offering price of all Preferred Securities issued pursuant to the
registration  statement of which this  prospectus  forms a part shall not exceed
$1,000,000,000,  less  the  aggregate  initial  public  offering  price  of  any
securities  of PSE&G  which are sold  under a  separate  prospectus  which  also
constitutes  a part of the  registration  statement  of  which  this  prospectus
constitutes a part. Certain specific terms of an Issuer's  Preferred  Securities
will be set forth in an accompanying prospectus supplement.

      The Preferred  Securities  may be sold in a public  offering to or through
underwriters   or  dealers   designated   from  time  to  time.   See  "Plan  of
Distribution".  The names of any such  underwriters  or dealers  involved in the
sale of the Preferred Securities of a particular Issuer, the number of Preferred
Securities  to be  purchased  by  any  such  underwriters  or  dealers  and  any
applicable  commissions  or  discounts  will be set  forth  in the  accompanying
prospectus supplement. The net proceeds to each Issuer will also be set forth in
the accompanying prospectus supplement.

      These  Securities  have not been approved or disapproved by the Securities
and Exchange Commission or any state securities  commission nor has any of these
organizations  determined  that this  prospectus is accurate and  complete.  Any
representation to the contrary is a criminal offense.

                  The date of this prospectus is     , 2002.

<PAGE>

                              ABOUT THIS PROSPECTUS

      This  prospectus is part of a  registration  statement that Public Service
Electric and Gas Company and the Issuers filed with the  Securities and Exchange
Commission  (the "SEC")  utilizing a "shelf"  registration  process.  Under this
shelf  process,  the  Issuers  may,  from time to time,  sell any  amount of the
Preferred  Securities  described in this  prospectus in one or more offerings of
one or more series. The aggregate principal amount of Preferred  Securities that
the Issuers may offer under this prospectus is $1,000,000,000 less the aggregate
principal  amount of any PSE&G  debt  securities  that are sold under a separate
prospectus  filed with the same  registration  statement.  Each time the Issuers
sell Preferred  Securities,  they will provide a prospectus supplement that will
contain specific  information  about the terms of that offering.  The prospectus
supplement  may  also  add,  update  or  change  information  contained  in this
prospectus.  You should read both this prospectus and any prospectus  supplement
together with the additional  information described under the heading "Where You
Can Find More Information".

      The Issuers  believe that they have included or  incorporated by reference
all information  material to investors in this  prospectus,  but certain details
that may be important for specific  investment  purposes have not been included.
To see more detail,  you should read the exhibits filed with or  incorporated by
reference into this registration statement.

                       WHERE YOU CAN FIND MORE INFORMATION

      PSE&G files annual,  quarterly and special  reports,  proxy statements and
other information with the SEC. PSE&G's filings are available to the public over
the Internet at the SEC's web site at http://www.sec.gov.  You may read and copy
any  material  on file with the SEC at the SEC's  Public  Reference  Room at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. Please call the SEC
at 1-800-SEC-0330 for further information on the Public Reference Room.

      You may also inspect these documents at the New York Stock Exchange,  Inc.
(the "New York Stock Exchange") where certain of PSE&G's securities are listed.

      The SEC allows the Issuers to "incorporate by reference"  information that
PSE&G files with the SEC,  which means that the Issuers can  disclose  important
information  to you  by  referring  you  to  those  documents.  The  information
incorporated  by reference or deemed  incorporated  by reference is an important
part of this  prospectus,  and  information  that PSE&G files later with the SEC
will  be  deemed  to  automatically   update  and  supersede  this  incorporated
information.  PSE&G incorporates by reference the documents listed below and any
future filings made with the SEC under Sections  13(a),  13(c),  14, or 15(d) of
the Securities  Exchange Act of 1934 prior to the  termination of any particular
offering of Preferred Securities.

      o     PSE&G's  Annual Report on Form 10-K for the year ended  December 31,
            2000.

      o     PSE&G's  Amended  Quarterly  Report on Form  10-Q/A for the  quarter
            ended March 31, 2001.

      o     PSE&G's  Quarterly  Reports on Form 10-Q for the quarters ended June
            30, 2001 and September 30, 2001.

      You can get a free copy of any of the documents  incorporated by reference
by making an oral or written request directed to:

                                 J. Brian Smith
                          Director, Investor Relations
                            PSEG Services Corporation
                            80 Park Plaza, 6th Floor
                                Newark, NJ 07101
                            Telephone (973) 430-6564

      You should  rely only on the  information  contained  or  incorporated  by
reference  in this  prospectus  or in the  prospectus  supplement.  Neither  the
Issuers nor PSE&G have  authorized  anyone else to provide you with different or
additional  information.  You  should  not  rely on any  other  representations.
PSE&G's affairs may change after this  prospectus and any prospectus  supplement
is distributed. You should not assume that the information in this prospectus or
any prospectus  supplement is accurate as of any date other than the date on the
front of those  documents.  You should read all information  supplementing  this
prospectus.


                                       2
<PAGE>

                           FORWARD-LOOKING STATEMENTS

      This prospectus,  any prospectus supplement and the documents incorporated
by reference into this prospectus  include certain  forward-looking  statements.
The  forward-looking  statements reflect the Issuers' and PSE&G's  expectations,
objectives and goals with respect to future events and financial performance and
are based on  assumptions  and estimates  that the Issuers and PSE&G believe are
reasonable.  However,  actual results could differ  materially from  anticipated
results.  Important factors which may affect the actual results include, but are
not limited to, commodity prices,  political  developments,  market and economic
conditions,  industry competition, the weather, changes in financial markets and
changing legislation and regulations.  The forward-looking  statements contained
in this prospectus,  any prospectus supplement and the documents incorporated by
reference into this  prospectus  and any  prospectus  supplement are intended to
qualify for the safe harbor provisions of Section 21E of the Securities Exchange
Act of 1934, as amended.

                                   THE ISSUERS

      Each of PSE&G  Capital  Trust III and  PSE&G  Capital  Trust IV (each,  an
"Issuer" and jointly, the "Issuers") is a statutory business trust created under
Delaware law pursuant to (1) a trust agreement executed by PSE&G, as sponsor for
each Issuer, and the Issuer Trustees (as defined below) (except for the Property
Trustee  with  respect  to  PSE&G  Capital  Trust  IV) and (2) the  filing  of a
certificate of trust with the Delaware  Secretary of State. Each trust agreement
will be amended and restated in its entirety  (each, as so amended and restated,
a "Trust  Agreement")  substantially  in the form  filed  as an  exhibit  to the
Registration  Statement  of  which  this  prospectus  forms a part.  Each  Trust
Agreement  will be qualified as an indenture  under the Trust  Indenture  Act of
1939, as amended (the "Trust Indenture Act").

      Each Issuer exists for the  exclusive  purposes of issuing and selling its
Trust Securities and using the proceeds from the sale of its Trust Securities to
acquire a  corresponding  series of  Debentures,  maintaining  the status of the
Issuer as a grantor trust for federal  income tax purposes and engaging in those
activities  necessary,  convenient or incidental  to the  foregoing.  All of the
beneficial interests  represented by common securities (the "Common Securities")
of each Issuer will be owned by PSE&G.  The Common  Securities of an Issuer will
rank pari passu,  and payments will be made thereon pro rata, with the Preferred
Securities of that Issuer, except that upon the occurrence and continuance of an
event of default  with  respect to the  corresponding  series of  Debentures  (a
"Debenture  Event of Default")  under the Indenture dated as of June 1, 1996 (as
amended and supplemented  from time to time, the "Indenture")  between PSE&G and
First Union National Bank, as trustee (the "Debenture  Trustee"),  the rights of
the  holders  of  such  Common  Securities  to  payment  of  cash  distributions
("Distributions")   and  payments  upon  redemption  and  liquidation   will  be
subordinated  to the rights of the  holders of such  Preferred  Securities.  The
Indenture will be qualified as an indenture under the Trust Indenture Act.

      Each Issuer's  business and affairs are conducted by three trustees,  each
appointed by PSE&G as holder of the Common Securities:  (1) First Union National
Bank (the "Property Trustee"); (2) an affiliate of the Property Trustee that has
its  principal  place of  business  in the  State  of  Delaware  (the  "Delaware
Trustee");  and (3) one  individual  trustee who is an employee or officer of or
affiliated with PSE&G (the "Administrative  Trustee",  and collectively with the
Property Trustee and the Delaware Trustee, the "Issuer Trustees"). The holder of
the  Common  Securities,  or the  holders of at least a  majority  in  aggregate
liquidation  amount of an Issuer's  Preferred  Securities if an event of default
under the Trust  Agreement (a "Trust  Agreement  Event of Default") has occurred
and is continuing,  will be entitled to remove and replace the Property  Trustee
and the  Delaware  Trustee.  In no  event  will  the  holders  of the  Preferred
Securities   have  the  right  to  vote  to  appoint,   remove  or  replace  the
Administrative Trustee, which voting rights are vested exclusively in the holder
of the  Common  Securities.  The duties  and  obligations  of each of the Issuer
Trustees are governed by the applicable Trust Agreement.

      Pursuant to the Trust  Agreement of each  Issuer,  PSE&G will pay all fees
and expenses related to that Issuer and the offering of its Preferred Securities
and  will  pay,  directly  or  indirectly,   all  ongoing  costs,  expenses  and
liabilities of that Issuer except such Issuer's  obligations under its Preferred
Securities.


                                       3
<PAGE>

      The principal  place of business of each Issuer is 80 Park Plaza,  Newark,
New Jersey 07101, and its telephone number is (973) 430-7000.

                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY

      PSE&G is an operating  public utility company  engaged  principally in the
transportation,  distribution and sale of electric energy and gas service in New
Jersey.  It currently  supplies  electric energy and gas service in areas of New
Jersey  where  approximately  5.5  million  people,  about  70% of  the  State's
population,  reside.  Its  electric  and  gas  service  area  is a  corridor  of
approximately  2,600  square  miles  running  diagonally  across New Jersey from
Bergen  County  in the  northeast  to an area  below  the City of  Camden in the
southwest.  The greater portion of this area is served with both electricity and
gas,  but some parts are served with  electricity  only and other parts with gas
only. As of September 30, 2001,  PSE&G  provided  service to  approximately  2.0
million electric  customers and  approximately  1.6 million gas customers.  This
heavily populated,  commercialized and industrialized territory encompasses most
of  New   Jersey's   largest   municipalities,   including   its   six   largest
cities--Newark,   Jersey  City,  Paterson,  Elizabeth,  Trenton  and  Camden--in
addition to  approximately  300  suburban  and rural  communities.  This service
territory  contains a diversified mix of commerce and industry,  including major
facilities  of  many   corporations   of  national   prominence.   PSE&G's  load
requirements  are  almost  evenly  split  among   residential,   commercial  and
industrial  customers.  PSE&G believes that it has all the franchises (including
consents)  necessary  for its electric and gas  distribution  operations  in the
territory it serves. Such franchise rights are not exclusive.

      It is a New Jersey corporation. Its principal office is located at 80 Park
Plaza, Newark, New Jersey 07101; its telephone number is 973-430-7000.

      You can obtain additional information about PSE&G in the reports and other
documents incorporated by reference in this prospectus.  See "Where You Can Find
More Information."

                                 USE OF PROCEEDS

      The proceeds to be received by the Issuers from the sale of the  Preferred
Securities  offered  hereby will be used by the  Issuers to purchase  Debentures
from  PSE&G.   Unless  otherwise   specified  in  the  accompanying   prospectus
supplement,  the  proceeds  from  the  sale of the  Debentures  will be added to
PSE&G's  corporate  funds  and  used by PSE&G  for  general  corporate  purposes
including the redemption or refunding of its outstanding indebtedness.

                     DESCRIPTION OF THE PREFERRED SECURITIES

      Pursuant to the terms of each Trust Agreement,  the Issuers will issue the
Preferred  Securities and the Common Securities.  The Preferred Securities of an
Issuer  will  represent  undivided  beneficial  interests  in the assets of such
Issuer and the  holders  thereof  will be entitled  to a  preference  in certain
circumstances  with respect to the payment of Distributions  and amounts payable
on redemption or liquidation over the Common  Securities of such Issuer, as well
as other benefits as described in the applicable  Trust  Agreement.  Each of the
Issuers is a legally  separate entity and the assets of one are not available to
satisfy the obligations of the other.

General

      The Preferred Securities of each Issuer will rank pari passu, and payments
will be made thereon pro rata, with the Common  Securities of that Issuer except
as described under " -- Subordination  of Common  Securities." The proceeds from
the sale of the Preferred  Securities and the Common  Securities will be used by
the related Issuer to purchase a corresponding  series of Debentures from PSE&G.
The Debentures will be held in trust by the Property  Trustee for the benefit of
the holders of the related Trust Securities.  Each Guarantee  Agreement executed
by PSE&G for the benefit of the holders of each  Issuer's  Preferred  Securities
(each, a "Guarantee")  will be subordinate and junior in right of payment to all
general  liabilities of PSE&G.  Pursuant to each Guarantee,  PSE&G will agree to
make payments of  Distributions  and payments on redemption or liquidation  with
respect to such Preferred Securities,  but only to the extent the related Issuer
holds funds available therefor and has not made such payments.  See "Description
of the Guarantee."


                                       4
<PAGE>

      It  is  anticipated   that  the  assets  of  each  Issuer   available  for
distribution  to the  holders  of its  Preferred  Securities  will be limited to
payments from PSE&G under the  corresponding  series of Debentures in which such
Issuer  will  invest  the  proceeds  from the  issuance  and  sale of its  Trust
Securities.  See  "Description  of the  Debentures."  If  PSE&G  fails to make a
payment on a series of Debentures,  the related Issuer will not have  sufficient
funds  to make  related  payments,  including  Distributions,  on its  Preferred
Securities.

Distributions

      Distributions  on the Preferred  Securities of each Issuer will be payable
at a rate specified (or at a rate whose method of determination is described) in
the accompanying  prospectus  supplement for such Preferred  Securities.  Unless
otherwise specified in such prospectus  supplement,  the amount of Distributions
payable for any period will be computed on the basis of a 360-day year of twelve
30-day months.

      Unless otherwise specified in such prospectus supplement, distributions on
the Preferred Securities will be cumulative and will accumulate from the date of
original  issuance and will be payable in arrears on the dates  specified in the
accompanying  prospectus  supplement except as otherwise described below. Unless
otherwise specified in such prospectus supplement, in the event that any date on
which  Distributions are otherwise payable on the Preferred  Securities is not a
Business Day (as defined below),  payment of such  Distributions will be made on
the next  succeeding  day that is a Business  Day (and  without any  interest or
other payment in respect to any such delay), except that if such Business Day is
in the next succeeding  calendar year,  payment of such  Distributions  shall be
made on the immediately preceding Business Day, in each case with the same force
and effect as if made on such date (each date on which Distributions are payable
in  accordance  with the  foregoing  is  referred  to herein as a  "Distribution
Date").  Unless otherwise specified in such prospectus  supplement,  a "Business
Day" shall mean any day other than a Saturday,  Sunday or a day on which banking
institutions  in The City of New York or the State of New Jersey are required by
law or executive order to remain closed.

      Distributions  on the Preferred  Securities will be payable to the holders
thereof as they appear on the  securities  register of the related Issuer on the
relevant  record date,  which,  as long as the  Preferred  Securities  remain in
book-entry-only   form,   will  be  one  Business  Day  prior  to  the  relevant
Distribution  Date.  Subject  to any  applicable  laws and  regulations  and the
provisions of the applicable Trust Agreement,  each such payment will be made as
described under "--  Book-Entry-Only  Issuance -- The Depository Trust Company."
In the event that any Preferred Securities are not in book-entry-only  form, the
relevant  record date for such  Preferred  Securities  will be  specified in the
applicable prospectus supplement.

      So long as no Debenture  Event of Default has  occurred and is  continuing
with  respect to a series of  Debentures,  PSE&G will have the right at any time
and from time to time to defer  payments of interest by  extending  the interest
payment  period  on such  series  of  Debentures  for up to the  maximum  period
specified  in  the  accompanying   prospectus  supplement  for  such  series  of
Debentures  (each,  an "Extension  Period"),  provided  that any such  Extension
Period  shall not  extend  beyond the  maturity  or any  redemption  date of the
Debentures of such series. As a consequence,  Distributions on the corresponding
Preferred  Securities  would be  deferred  by the  Issuer  thereof  during  such
Extension  Period,  but the  amount of  Distributions  to which  holders  of the
Preferred Securities would be entitled will continue to accumulate at the annual
rate  applicable to  Distributions  thereon,  compounded with the same frequency
with which Distributions are payable. During any Extension Period, PSE&G may not
declare  or pay  any  dividend  on,  or  redeem,  purchase,  acquire,  or make a
liquidation  payment with respect to, any shares of PSE&G's capital stock. Prior
to the termination of any Extension Period,  PSE&G may shorten or further extend
the  interest  payment  period on a series  of  Debentures,  provided  that such
Extension  Period,  together  with  all such  previous  and  further  extensions
thereof,  may not  exceed  the  maximum  Extension  Period or extend  beyond the
maturity or any redemption date of such Debentures.  Upon the termination of any
Extension  Period and the  payment of all amounts  then due,  PSE&G may elect to
begin  a  new  Extension  Period,   subject  to  the  above  requirements.   See
"Description of the Debentures -- Option to Extend Interest Payment Period."


                                       5
<PAGE>

Redemption

      Upon  the  payment  of any  series  of  Debentures  at  maturity  or  upon
redemption,  the  proceeds  from such  payment  will be applied by the  Property
Trustee to redeem a like amount of the  corresponding  Trust  Securities  of the
Issuer  thereof at a  redemption  price (the  "Redemption  Price")  equal to the
liquidation  amount of such Trust  Securities  plus all  accumulated  and unpaid
Distributions  to the redemption date (the  "Redemption  Date").  The redemption
terms  of  a  particular  series  of  Debentures  and  the  corresponding  Trust
Securities will be set forth in the accompanying prospectus supplement.

      If less than all the Trust  Securities  of the  Issuer  thereof  are to be
redeemed  on a  Redemption  Date,  then  the  aggregate  amount  of  such  Trust
Securities to be redeemed  shall be selected by the Property  Trustee among such
Issuer's  Preferred  Securities  and  Common  Securities  pro rata  based on the
respective aggregate liquidation amounts of such Preferred Securities and Common
Securities,   subject  to  the  provisions  of  "--   Subordination   of  Common
Securities."

Redemption Procedures

      Notice of any redemption of Trust Securities will be given by the Property
Trustee to the holders of such Trust  Securities to be redeemed not less than 30
nor more than 60 days prior to the Redemption Date. If a notice of redemption is
given  with  respect to any Trust  Securities,  then,  to the  extent  funds are
available therefor,  the Issuer thereof will irrevocably deposit with the paying
agent  for  such  Trust  Securities  funds  sufficient  to  pay  the  applicable
Redemption  Price for the Trust Securities being redeemed on the Redemption Date
and will give such paying agent  irrevocable  instructions  and authority to pay
the  Redemption  Price to the holders of such Trust  Securities  upon  surrender
thereof. Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any Trust Securities  called for redemption shall be payable
to the holders of such Trust  Securities  on the  relevant  record dates for the
related Distribution Dates.

      If notice  of  redemption  shall  have  been  given and funds  irrevocably
deposited as  required,  then upon the date of such  deposit,  all rights of the
holders of such Trust Securities so called for redemption will cease, except the
right of the holders of such Trust  Securities to receive the Redemption  Price,
but  without  interest  thereon,  and such  Trust  Securities  will  cease to be
outstanding. In the event that any Redemption Date for Trust Securities is not a
Business Day, then the Redemption  Price will be payable on the next  succeeding
day that is a Business Day (and without any interest or other payment in respect
of any such delay),  except that if such Business Day is in the next  succeeding
calendar year, the Redemption Price will be payable on the immediately preceding
Business  Day,  in each case with the same  force and  effect as if made on such
date. In the event that payment of the Redemption  Price in respect of any Trust
Securities called for redemption is improperly  withheld or refused and not paid
either by the Issuer  thereof or by PSE&G pursuant to the Guarantee as described
under Description of the Guarantee,  Distributions on such Trust Securities will
continue to accumulate at the then applicable rate from the original  Redemption
Date to the date of  payment,  in which  case the  actual  payment  date will be
considered the Redemption Date for purposes of calculating the Redemption Price.

      Subject to applicable law, PSE&G or its  subsidiaries  may at any time and
from time to time purchase  outstanding  Preferred  Securities by tender, in the
open market or by private agreement.

Subordination of Common Securities

      Payment of  Distributions  on, and the Redemption  Price of, each Issuer's
Trust Securities, as applicable,  shall be made pro rata based on the respective
aggregate liquidation amounts of such Trust Securities;  provided, however, that
if a Debenture  Event of Default has occurred and is continuing  with respect to
the  corresponding  series of Debentures,  no payment of any Distribution on, or
Redemption  Price  of,  any of such  Issuer's  Common  Securities,  and no other
payment on account of the liquidation of such Common  Securities,  shall be made
unless payment in full in cash of all  accumulated and unpaid  Distributions  on
all of such  Issuer's  outstanding  Preferred  Securities  for all  Distribution
periods  terminating  on or prior thereto,  or in the case of a redemption,  the
full  amount  of  such  Redemption  Price  on all of such  Issuer's  outstanding
Preferred  Securities  shall  have  been  made or  provided  for,  and all funds
available to the Property  Trustee shall first be applied to the payment in full
in cash of all


                                       6
<PAGE>

Distributions  on, or  Redemption  Price of,  all of such  Issuer's  outstanding
Preferred Securities then due and payable.

      If a  Debenture  Event of Default  has  occurred  and is  continuing  with
respect to a series of  Debentures,  the holder of the related  Issuer's  Common
Securities  will be deemed to have waived any right to act with  respect to such
Debenture  Event of Default until the effect of such Debenture  Event of Default
has been cured,  waived or otherwise  eliminated  with respect to the  Preferred
Securities.  Until any such Debenture Event of Default has been so cured, waived
or otherwise eliminated,  the Property Trustee shall act solely on behalf of the
holders of the corresponding Preferred Securities and not on behalf of PSE&G, as
holder  of such  Common  Securities,  and only  the  holders  of such  Preferred
Securities  will have the right to direct the  Property  Trustee to act on their
behalf.

Liquidation Distribution upon Dissolution

      Pursuant to its Trust  Agreement,  each Issuer  shall be  dissolved on the
earliest to occur of:

      (1)   the expiration of the term of such Issuer;

      (2)   the   bankruptcy,   dissolution   or  liquidation  of  PSE&G  or  an
            acceleration  of  the  maturity  of  the  corresponding   series  of
            Debentures held by such Issuer;

      (3)   if provided  for in the  accompanying  prospectus  supplement,  upon
            PSE&G's election to dissolve such Issuer and, after  satisfaction of
            liabilities to creditors of such Issuer,  cause the  distribution of
            the  corresponding  series  of  Debentures  to the  holders  of such
            Issuer's Trust Securities;

      (4)   the redemption of all of such Issuer's Trust Securities; and

      (5)   an order for the  dissolution of such Issuer shall have been entered
            by a court of competent jurisdiction.

      PSE&G's  election  pursuant  to clause  (3) above  shall be made by giving
written notice to the Issuer Trustees not less than 30 days prior to the date of
distribution of the corresponding  series of Debentures and shall be accompanied
by an  opinion of  counsel  that such  event will not be a taxable  event to the
holders of the Trust Securities for federal income tax purposes.

      If a dissolution event occurs as described in clause (1), (2) or (5) above
with  respect to any  Issuer,  such  Issuer  shall be  liquidated  by the Issuer
Trustees as  expeditiously  as the Issuer  Trustees  determine to be possible by
distributing,  after  satisfaction of liabilities to creditors of such Issuer as
provided by applicable law, to the holders of its Trust Securities a like amount
of  the  corresponding  series  of  Debentures,   unless  such  distribution  is
determined  by the  Property  Trustee not to be  practical,  in which event such
holders  will be entitled to receive out of the assets of such Issuer  available
for distribution to holders,  after  satisfaction of liabilities to creditors of
such Issuer as provided by  applicable  law, an amount  equal to, in the case of
holders of Trust Securities, the aggregate liquidation amount per Trust Security
specified in the accompanying  prospectus supplement plus accumulated and unpaid
Distributions  thereon to the date of payment  (such  amount,  the  "Liquidation
Distribution").  If the  Liquidation  Distribution  with  respect to an Issuer's
Preferred  Securities  can  be  paid  only  in  part  because  such  Issuer  has
insufficient  assets  available  to  pay  in  full  the  aggregate   Liquidation
Distribution,  then  the  amounts  payable  by such  Issuer  on  such  Preferred
Securities  shall be paid on a pro rata  basis.  The  holders  of such  Issuer's
Common Securities will be entitled to receive the Liquidation  Distribution upon
any such  liquidation  pro rata with the  holders of its  Preferred  Securities,
except that if a Debenture  Event of Default has occurred and is continuing  the
Preferred  Securities  shall have a priority  over the  Common  Securities  with
respect to payment of such Liquidation Distribution.

Trust Agreement Event of Default; Notice

      A Debenture  Event of Default shall  constitute a Trust Agreement Event of
Default with respect to the Preferred  Securities  issued by the related  Issuer
under its Trust Agreement.

      Within  90 days  after the  occurrence  of any  Trust  Agreement  Event of
Default  actually  known to the Property  Trustee,  the Property  Trustee  shall
transmit  notice of such Trust  Agreement Event of Default


                                       7
<PAGE>

to the holders of the corresponding Trust Securities, the Administrative Trustee
and PSE&G, unless such Trust Agreement Event of Default shall have been cured or
waived. PSE&G and the Administrative  Trustee are required to file annually with
the Property  Trustee a certificate  as to whether or not they are in compliance
with all the  conditions  and  covenants  applicable  to them  under  each Trust
Agreement.

      Under each Trust Agreement,  if the Property Trustee has failed to enforce
its rights  under the Trust  Agreement or the  Indenture  to the fullest  extent
permitted  by law and  subject  to the  terms  of the  Trust  Agreement  and the
Indenture,  any holder of the corresponding Preferred Securities may institute a
legal  proceeding  directly to enforce the Property  Trustee's  rights under the
Trust  Agreement or the Indenture with respect to Debentures  having a principal
amount equal to the aggregate  liquidation amount of the Preferred Securities of
such holder without first  instituting a legal  proceeding  against the Property
Trustee or any other  person.  To the extent that any action under the Indenture
is entitled to be taken by the holders of at least a specified percentage of the
principal  amount  of a  series  of  Debentures,  holders  of the  corresponding
Preferred  Securities  may take such  action if such  action is not taken by the
Property Trustee.  Notwithstanding the foregoing,  if a Trust Agreement Event of
Default  attributable to PSE&G's failure to pay principal of or premium, if any,
or interest on the Debentures of any series has occurred and is continuing, then
each holder of Preferred  Securities of the corresponding series may institute a
legal  proceeding  directly against PSE&G for enforcement of any such payment to
such holder, all as provided in the Indenture.

      If a  Debenture  Event of Default  has  occurred  and is  continuing  with
respect to a series of Debentures,  the corresponding Preferred Securities shall
have a preference over the related  Issuer's  Common  Securities with respect to
the payment of  Distributions  and amounts payable on redemption and liquidation
as described above. See "-- Liquidation  Distribution  Upon Dissolution" and "--
Subordination of Common Securities."

Removal of Issuer Trustees

      Unless a Trust  Agreement Event of Default has occurred and is continuing,
any Issuer  Trustee may be removed and replaced at any time by the holder of the
Common  Securities.  If a Trust  Agreement  Event of Default has occurred and is
continuing,  the Property  Trustee and the  Delaware  Trustee may be removed and
replaced at such time only by the  holders of at least a majority  in  aggregate
liquidation amount of the outstanding Preferred Securities. In no event will the
holders of the Preferred Securities have the right to vote to appoint, remove or
replace the Administrative  Trustee,  which voting rights are vested exclusively
in the holder of the Common  Securities.  No resignation or removal of an Issuer
Trustee and no appointment of a successor  trustee shall be effective  until the
acceptance  of  appointment  by the  successor  trustee in  accordance  with the
provisions of the applicable Trust Agreement.

Co-Trustees and Separate Property Trustee

      Unless a Trust  Agreement Event of Default has occurred and is continuing,
at any  time and from  time to  time,  for the  purpose  of  meeting  the  legal
requirements of the Trust Indenture Act or of any jurisdiction in which any part
of the Trust  Property (as defined in each Trust  Agreement) may at such time be
located,  the holder of the Common  Securities  and the  Administrative  Trustee
shall have the power (1) to appoint one or more persons approved by the Property
Trustee either to act as co-trustee,  jointly with the Property Trustee,  of all
or any part of such Trust  Property,  or to act as separate  trustee of any such
Trust  Property,  in  either  case with such  powers as may be  provided  in the
instrument  of  appointment,  and (2) to vest in such  person or persons in such
capacity any  property,  title,  right or power deemed  necessary or  desirable,
subject  to the  provisions  of  the  applicable  Trust  Agreement.  If a  Trust
Agreement  Event of Default has  occurred and is  continuing,  only the Property
Trustee shall have power to make such appointment.

Merger or Consolidation of Issuer Trustees

      Any  corporation  or other  entity  into which any Issuer  Trustee  may be
merged or converted or with which it may be consolidated,  or any corporation or
other entity resulting from any merger, conversion


                                       8
<PAGE>

or  consolidation  to  which  any  Issuer  Trustee  shall  be a  party,  or  any
corporation or other entity succeeding to all or substantially all the corporate
trust  business of any Issuer  Trustee,  shall be the  successor  of such Issuer
Trustee under the applicable Trust Agreement, provided such corporation or other
entity shall be otherwise qualified and eligible.

Mergers, Consolidations, Amalgamations or Replacements of the Issuers

      An  Issuer  may not merge  with or into,  consolidate,  amalgamate,  or be
replaced  by, or  convey,  transfer  or lease its  properties  and  assets as an
entirety or  substantially  as an entirety to any  corporation  or other entity,
except as described below or in "-- Liquidation  Distribution Upon Dissolution."
An Issuer  may,  at PSE&G's  request,  with the  consent  of the  Administrative
Trustee and without  the  consent of the  holders of its  Preferred  Securities,
merge with or into, consolidate, amalgamate, or be replaced by a trust organized
as such under the laws of any state, provided that

      (1)   such  successor  entity  either  (a)  expressly  assumes  all of the
            obligations of such Issuer with respect to such Preferred Securities
            or (b) substitutes for such Preferred  Securities  other  securities
            substantially  similar to such Preferred  Securities (the "Successor
            Securities")  so long as the Successor  Securities  rank the same as
            such  Preferred  Securities  rank with  respect  to the  payment  of
            Distributions and payments upon redemption and liquidation;

      (2)   PSE&G  expressly   appoints  a  trustee  of  such  successor  entity
            possessing  the same powers and duties as the Property  Trustee with
            respect to the corresponding series of Debentures;

      (3)   the Successor  Securities  are listed,  or any Successor  Securities
            will be  listed  upon  notification  of  issuance,  on any  national
            securities  exchange or other  organization  on which such Preferred
            Securities are then listed;

      (4)   such merger,  consolidation,  amalgamation  or replacement  does not
            cause such Preferred Securities (including any Successor Securities)
            to be downgraded by any  nationally  recognized  statistical  rating
            organization;

      (5)   such merger,  consolidation,  amalgamation  or replacement  does not
            adversely  affect the  rights,  preferences  and  privileges  of the
            holders  of  such  Preferred  Securities  (including  any  Successor
            Securities) in any material respect;

      (6)   such successor entity has a purpose substantially similar to that of
            such Issuer;

      (7)   prior to such merger,  consolidation,  amalgamation  or replacement,
            PSE&G has  received  an opinion  of  counsel  to such  Issuer to the
            effect  that  (a)  such  merger,   consolidation,   amalgamation  or
            replacement  does not adversely  affect the rights,  preferences and
            privileges of the holders of such  Preferred  Securities  (including
            any Successor Securities) in any material respect, and (b) following
            such merger,  consolidation,  amalgamation or  replacement,  neither
            such Issuer nor such  successor  entity will be required to register
            as an investment  company under the Investment  Company Act of 1940,
            as amended (the "Investment Company Act"); and

      (8)   PSE&G or any  permitted  successor  assignee  owns all of the common
            securities of such successor  entity and guarantees the  obligations
            of such successor entity under the Successor  Securities at least to
            the extent provided by the related Guarantee and Trust Agreement.

      Notwithstanding  the  foregoing,  an Issuer  shall  not,  except  with the
consent of all holders of its  Preferred  Securities,  consolidate,  amalgamate,
merge with or into,  or be replaced  by, any other  entity,  or permit any other
entity to  consolidate,  amalgamate,  merge with or into,  or replace it if such
consolidation,  amalgamation,  merger or replacement  would cause such Issuer or
the successor  entity not to be classified as a grantor trust for federal income
tax purposes.

Voting Rights; Amendment of Trust Agreement

      Except  as  provided   below  and  under  "--   Mergers,   Consolidations,
Amalgamations  or Replacements of the Issuers" and "Description of the Guarantee
--  Amendments  and  Assignment"  and  as  otherwise  required  by law  and  the
applicable Trust Agreement, the holders of the Preferred Securities will have no
voting rights.


                                       9
<PAGE>

      A Trust Agreement may be amended from time to time by PSE&G and the Issuer
Trustees,  without  the consent of the  holders of the  corresponding  Preferred
Securities,  (1) to cure any ambiguity,  defect or  inconsistency or (2) to make
any other  change that does not  adversely  affect in any  material  respect the
interests of any holder of such Preferred Securities.

      A Trust  Agreement may be amended by PSE&G and the Issuer  Trustees in any
other  respect,  with the  consent  of the  holders  of at least a  majority  in
aggregate liquidation amount of such Preferred Securities, except to

      (1)   change the amount,  timing or currency or otherwise adversely affect
            the   method  of  payment  of  any   Distribution   or   Liquidation
            Distribution,

      (2)   restrict  the right of a holder of any such  Preferred  Security  to
            institute suit for enforcement of any Distribution, Redemption Price
            or Liquidation Distribution,

      (3)   change the purpose of the related Issuer,

      (4)   authorize the issuance of any additional beneficial interests in the
            related Issuer,

      (5)   change the redemption provisions,

      (6)   change the  conditions  precedent for PSE&G to elect to dissolve the
            related Issuer and distribute the corresponding series of Debentures
            to the holders of such Preferred Securities or

      (7)   affect  the  limited  liability  of any  holder  of  such  Preferred
            Securities,  which amendment  requires the consent of each holder of
            the related Preferred Securities affected thereby.

      Notwithstanding the foregoing, no amendment may be made without receipt by
the related  Issuer of an opinion of counsel to the effect  that such  amendment
will not affect such Issuer's  status as a grantor trust for federal  income tax
purposes or its exemption  from  regulation  as an investment  company under the
Investment Company Act.

      The Issuer Trustees shall not

      (1)   direct the time,  method and place of conducting  any proceeding for
            any remedy available to the Debenture Trustee or executing any trust
            or power  conferred  on the  Debenture  Trustee  with respect to the
            corresponding series of Debentures,

      (2)   waive any past default under the Indenture,

      (3)   exercise  any  right to  rescind  or annul  an  acceleration  of the
            principal of the corresponding series of Debentures or

      (4)   consent to any amendment or  modification  of the  Indenture,  where
            such consent shall be required,

without,  in each  case,  obtaining  the  consent  of the  holders of at least a
majority in aggregate liquidation amount of all outstanding Preferred Securities
of the  related  Issuer;  provided,  however,  that  where a  consent  under the
Indenture  would  require  the  consent of each  holder of  Debentures  affected
thereby,  no such  consent  shall be given by the Property  Trustee  without the
prior  consent of each holder of the  corresponding  Preferred  Securities.  The
Issuer Trustees shall not revoke any action previously authorized or approved by
a vote of the holders of such Preferred  Securities except by subsequent vote of
the holders thereof.  The Property Trustee shall notify all holders of Preferred
Securities of any notice received from the Debenture  Trustee as a result of the
Issuer thereof being the holder of the corresponding  Debentures. In addition to
obtaining  the  consent  of the  holders  of  the  Preferred  Securities  of the
corresponding  series,  prior to taking any of the foregoing actions, the Issuer
Trustees  shall  obtain an opinion of  counsel  to the effect  that the  related
Issuer will not be classified as an  association  taxable as a corporation  or a
partnership  for federal  income tax purposes on account of such action and will
continue to be classified as a grantor trust for federal income tax purposes.


                                       10
<PAGE>

      Any required consent of holders of Preferred  Securities may be given at a
meeting of holders of such  Preferred  Securities  convened  for such purpose or
pursuant to written  consent.  The  Property  Trustee will cause a notice of any
meeting at which holders of Preferred Securities are entitled to vote, or of any
matter upon which action by written  consent of such holders is to be taken,  to
be given to each holder of record of such Preferred Securities in the manner set
forth in the applicable Trust Agreement.

      Notwithstanding  that holders of Preferred Securities are entitled to vote
or consent under certain circumstances,  any Preferred Securities that are owned
by PSE&G,  the Issuer  Trustees or any affiliate of PSE&G or any Issuer  Trustee
shall,  for  purposes  of such vote or  consent,  be treated as if they were not
outstanding.

Book-Entry-Only Issuance -- The Depository Trust Company

      The Depository Trust Company (the "DTC") will act as securities depositary
for all of the Preferred  Securities.  The Preferred  Securities  will be issued
only as fully registered  securities registered in the name of Cede & Co. (DTC's
nominee) as the holder thereof.  One or more fully registered  global securities
will be issued for the Preferred Securities of each Issuer,  representing in the
aggregate the total number of such Issuer's  Preferred  Securities,  and will be
deposited with DTC. The Issuers  anticipate  that the following  provisions will
apply to the depositary arrangements with respect to any such global securities.
Additional or differing terms of the depositary  arrangements  will be described
in the prospectus supplement.

      So  long  as DTC or  its  nominee  is the  registered  owner  of a  global
security,  DTC or its nominee,  as the case may be, will be considered  the sole
holder of the Preferred  Securities  represented by such global security for all
purposes under the applicable Trust Agreement.  Except as provided below, owners
of  beneficial  interests  in a global  security  will not be  entitled  to have
Preferred  Securities  represented by such global  security  registered in their
names, will not receive or be entitled to receive physical delivery of Preferred
Securities in certificated form and will not be considered the owners or holders
thereof under the applicable  Trust  Agreement.  The laws of some states require
that certain  purchasers of securities take physical delivery of such securities
in  certificated  form;  such laws may limit the  transferability  of beneficial
interests in a global security.

      The following is based on information  furnished by DTC and applies to the
extent that it is the depositary,  unless  otherwise  provided in the prospectus
supplement:

      Registered  Owner.  The  Preferred  Securities  will be  issued  as  fully
registered  securities  in the name of Cede & Co.,  which  is DTC's  partnership
nominee. The Trustee will deposit the global securities with the depositary. The
deposit with the depositary and its  registration in the name of Cede & Co. will
not  change  the  nature of the actual  purchaser's  ownership  interest  in the
Preferred Securities.

      DTC's Organization. DTC is a limited-purpose trust company organized under
the New York  Banking Law, a "banking  organization"  within the meaning of that
law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning  of the  New  York  Uniform  Commercial  Code  and a  "clearing  agency"
registered  pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934.

      DTC is owned by a number of its direct participants and the New York Stock
Exchange,  the American  Stock  Exchange,  Inc. and the National  Association of
Securities  Dealers,  Inc. Direct  participants  include  securities brokers and
dealers,   banks,  trust  companies,   clearing   corporations  and  some  other
organizations  who directly  participate in DTC. Other entities may access DTC's
system by clearing transactions through or maintaining a custodial  relationship
with direct  participants.  The rules applicable to DTC and its participants are
on file with the SEC.

      DTC's Activities.  DTC holds securities that its participants deposit with
it.  DTC also  facilitates  the  settlement  among  participants  of  securities
transactions,  such as transfers and pledges,  in deposited  securities  through
electronic computerized  book-entry changes in participants' accounts.  Doing so
eliminates the need for physical movement of securities certificates.


                                       11
<PAGE>

      Participants' Records.  Except as otherwise provided in this prospectus or
a prospectus  supplement,  purchases of Preferred  Securities must be made by or
through a direct  participant,  which will  receive a credit  for the  Preferred
Securities on the depositary's  records.  The purchaser's interest is in turn to
be recorded on the  participants'  records.  Actual  purchasers will not receive
written  confirmation from the depositary of their purchase,  but they generally
receive  confirmations along with periodic statements of their holdings from the
participants through which they entered into the transaction.

      Transfers of interest in the global  securities  will be made on the books
of the  participants  acting on behalf of the  actual  purchasers.  Certificates
representing the interest of the actual purchasers in Preferred  Securities will
not be issued unless the use of global securities is suspended.

      The depositary has no knowledge of the actual  purchasers of the Preferred
Securities.  The  depositary's  records  only reflect the identity of the direct
participants who are responsible for keeping account of their holdings on behalf
of their customers.

      Notices Among the Depositary,  Participants and Actual Owners. Notices and
other  communications  by  the  depositary,  its  participants  and  the  actual
purchasers  will be governed by  arrangements  among them,  subject to any legal
requirements  in effect.  Redemption  notices shall be sent to Cede & Co. as the
registered holder of the Preferred  Securities.  If less than all of an Issuer's
Preferred  Securities are being redeemed,  DTC's practice is to determine by lot
the amount of the interest of each Direct Participant to be redeemed.

      Voting  Procedures.  Neither DTC nor Cede & Co. will give  consents for or
vote the Preferred  Securities.  The depositary generally mails an omnibus proxy
to the Issuer just after the applicable  record date.  That proxy assigns Cede &
Co.'s voting rights to the direct  participants  to whose accounts the Preferred
Securities are credited at that time.

      Payments.  Payments in respect of the Preferred Securities made by us will
be delivered to the depositary. DTC's practice is to credit direct participants'
accounts on the applicable  payment date unless it has reason to believe that it
will not  receive  payment  on that date.  Payments  by  participants  to actual
purchasers will be governed by standing instructions and customary practices, as
is the case with  securities  held for customers in bearer form or registered in
"street name." Those payments will be the  responsibility  of that  participant,
not the depositary, the Issuer Trustees or us, subject to any legal requirements
in effect at that time.

      We are responsible  for payment in respect of the Preferred  Securities to
the Issuer  Trustees  who are  responsible  for payment to the  depositary.  The
depositary is responsible for disbursing those payments to direct  participants.
The  participants  are  responsible  for  disbursing   payments  to  the  actual
purchasers.

      DTC may discontinue  providing its services as securities  depositary with
respect to any series of Preferred  Securities at any time by giving  reasonable
notice  to the  Property  Trustee  and  PSE&G.  In the  event  that a  successor
securities   depositary  is  not   obtained,   definitive   Preferred   Security
certificates  representing such Preferred  Securities are required to be printed
and delivered. PSE&G, at its option, may decide to discontinue use of the system
of book-entry  transfers through DTC (or a successor  depositary) as a result of
such  discontinuance  or as a result of DTC's  ineligibility to so act, in which
case definitive certificates for such Preferred Securities will be issued. After
a Trust  Agreement  Event of Default,  the related Issuer will issue  definitive
certificates  for such  Issuer's  Preferred  Securities.  Upon  distribution  of
definitive   Preferred  Securities   certificates,   owners  of  such  Preferred
Securities will become the registered holders of such Preferred Securities.

      The information set forth above concerning DTC and DTC's book-entry system
has been  obtained  from  sources  that the  Issuers  and  PSE&G  believe  to be
accurate,  but the Issuers and PSE&G assume no  responsibility  for the accuracy
thereof.   Neither  the  Issuers  nor  PSE&G  has  any  responsibility  for  the
performance  by DTC or its  Participants  of  their  respective  obligations  as
described  herein or under the rules and procedures  governing their  respective
operations.

      In the event that the book-entry-only system is discontinued,  the payment
of any Distribution, Redemption Price and Liquidation Distribution in respect of
such of  Preferred  Securities  will be payable in the manner  described  in the
accompanying  prospectus  supplement,  and the following provisions


                                       12
<PAGE>

would apply.  The Property  Trustee shall keep the  registration  books for such
Preferred  Securities at its corporate office. Such Preferred  Securities may be
transferred or the Preferred Securities certificates representing such Preferred
Securities  may be exchanged for one or more Preferred  Securities  certificates
upon surrender  thereof at the corporate  office of the Property  Trustee by the
holders  or their  duly  authorized  attorneys  or legal  representatives.  Upon
surrender of any Preferred  Securities or certificates for Preferred  Securities
to be transferred or for Preferred Securities certificates to be exchanged,  the
Property  Trustee shall record the  registration  of transfer or exchange in the
registration  books and shall  deliver new  Preferred  Securities  appropriately
registered.  The Property Trustee shall not be required to register the transfer
of any Preferred  Securities that have been called for redemption or on or after
the liquidation  date. The Issuers and the Property Trustee shall be entitled to
treat the holders of the related Preferred Securities,  as their names appear in
the  registration  books,  as the owners of those  Preferred  Securities for all
purposes under the applicable Trust Agreement.

Information Concerning the Property Trustee

      The Property  Trustee is the sole Trustee  under each Trust  Agreement for
purposes of the Trust  Indenture Act and shall have and be subject to all of the
duties and responsibilities specified with respect to an indenture trustee under
the Trust Indenture Act. The Property Trustee,  other than during the occurrence
and  continuance of a Trust  Agreement  Event of Default,  undertakes to perform
only such duties as are specifically set forth in each Trust Agreement and, upon
a Trust Agreement  Event of Default,  must use the same degree of care and skill
in the exercise thereof as a prudent person would exercise or use in the conduct
of his or her own affairs.  Subject to this provision,  the Property  Trustee is
under no  obligation  to  exercise  any of the powers  vested in it by any Trust
Agreement  at the  request of any holder of  Preferred  Securities  unless it is
offered  reasonable  security  or  indemnity  against  the costs,  expenses  and
liabilities  that might be  incurred  thereby.  If no Trust  Agreement  Event of
Default has occurred and is continuing,  and the Property Trustee is required to
decide between alternative courses of action, construe ambiguous provisions in a
Trust  Agreement  or is unsure of the  application  of any  provision of a Trust
Agreement,  and the matter is not one on which  holders of Preferred  Securities
are entitled under such Trust Agreement to vote, then the Property Trustee shall
take such action as is directed by PSE&G and, if not so directed,  may take such
action as it deems  advisable  and in the best  interests  of the holders of the
corresponding  Trust  Securities  and will have no liability  except for its own
negligent action, negligent failure to act or willful misconduct.

Miscellaneous

      The  Administrative  Trustee is  authorized  and  directed  to conduct the
affairs of and to operate the Issuers in such a way that

      (1)   no Issuer will be deemed to be an investment  company required to be
            registered  under  the  Investment  Company  Act or to be taxed as a
            corporation or partnership for federal income tax purposes,

      (2)   each Issuer will be classified as a grantor trust for federal income
            tax purposes and

      (3)   the  Debentures  held by such  Issuers  will be  treated  as PSE&G's
            indebtedness for federal income tax purposes.

      In this connection, PSE&G and the Administrative Trustee are authorized to
take  any  action,   not  inconsistent   with  applicable  law,  the  applicable
certificate of trust of the related Issuer or the  applicable  Trust  Agreement,
that PSE&G and the  Administrative  Trustee  determine in their discretion to be
necessary or desirable for such purposes,  even if such action adversely affects
the interests of the holders of the corresponding Preferred Securities.

      Holders of the Preferred Securities have no preemptive or similar rights.

      No Issuer may borrow money, issue debt, execute mortgages or pledge any of
its assets.

      Except as otherwise provided in the Trust Agreements, any action requiring
the  consent  or  vote  of  the  Issuer   Trustees  shall  be  approved  by  the
Administrative Trustee.


                                       13
<PAGE>

Governing Law

      The Trust  Agreements will be governed by and construed in accordance with
the laws of the State of Delaware.

                          DESCRIPTION OF THE GUARANTEE

      Each Guarantee will be executed and delivered by PSE&G  concurrently  with
the issuance by each Issuer of its Preferred  Securities  for the benefit of the
holders from time to time of such Preferred  Securities.  Each Guarantee will be
qualified as an indenture under the Trust Indenture Act and First Union National
Bank  will  act as  indenture  trustee  (the  "Guarantee  Trustee")  under  each
Guarantee for the purposes of compliance with the Trust Indenture Act. Reference
under this caption to Preferred  Securities  means the  Preferred  Securities to
which a Guarantee  relates.  The Guarantee  Trustee will hold each Guarantee for
the benefit of the holders of the related Issuer's Preferred Securities.

General

      PSE&G will  irrevocably  agree, to the extent set forth in each Guarantee,
to pay in full, to the holders of the related Issuer's Preferred Securities, the
Guarantee Payments (as defined below) (except to the extent previously paid), as
and when due, regardless of any defense,  right of set-off or counterclaim which
such Issuer may have or assert. The following  payments,  to the extent not paid
by an Issuer  (the  "Guarantee  Payments"),  will be subject  to the  applicable
Guarantee (without duplication):

      (1)   any accumulated and unpaid Distributions required to be paid on such
            Preferred  Securities,  to the  extent  that such  Issuer  has funds
            available therefor,

      (2)   the  Redemption  Price to the  extent  that  such  Issuer  has funds
            available therefor, and

      (3)   upon a voluntary or involuntary  dissolution and liquidation of such
            Issuer   (unless  the   corresponding   series  of  Debentures   are
            distributed to holders of such Preferred Securities),  the lesser of
            (a)  the  aggregate  of  the  liquidation  amount  specified  in the
            prospectus  supplement per Preferred  Security plus all  accumulated
            and unpaid  Distributions on the Preferred Securities to the date of
            payment,  to the extent the Issuer has funds available  therefor and
            (b) the  amount of assets of such  Issuer  remaining  available  for
            distribution  to holders of Preferred  Securities upon a dissolution
            and liquidation of such Issuer.

      PSE&G's  obligation to make a Guarantee Payment may be satisfied by direct
payment by it of the required amounts the holders of the corresponding Preferred
Securities or by causing the related Issuer to pay such amounts to such holders.
While  PSE&G's  assets will not be available  pursuant to the  Guarantee for the
payment of any Distribution, Liquidation Distribution or Redemption Price on any
Preferred  Securities  if the  related  Issuer  does  not have  funds  available
therefor  as  described  above,  PSE&G has  agreed  under the  applicable  Trust
Agreement to pay all expenses of such Issuer  except such  Issuer's  obligations
under its Preferred Securities.  Accordingly, the applicable Guarantee, together
with the  backup  undertakings  consisting  of  PSE&G's  obligations  under  the
applicable  Trust  Agreement,  the  corresponding  series of Debentures  and the
Indenture,  provide for PSE&G's full, irrevocable and unconditional guarantee of
the Preferred Securities.

      No single document  executed by PSE&G in connection with the issuance of a
series of Preferred  Securities  will provide for PSE&G's full,  irrevocable and
unconditional  guarantee of the  Preferred  Securities.  It is only the combined
operation of PSE&G's obligations under the applicable Guarantee,  the applicable
Trust Agreement,  the corresponding  series of Debentures and the Indenture that
has the effect of providing a full,  irrevocable and unconditional  guarantee of
an Issuer's obligations under its Preferred Securities.  See "Relationship Among
the Preferred Securities, the Debentures and the Guarantee."

Status of the Guarantee

      Each Guarantee will constitute PSE&G's unsecured  obligation and will rank
subordinate   and  junior  in  right  of  payment  to  all  of  PSE&G's  general
liabilities.  The  Trust  Agreements  provide  that  each  holder  of  Preferred
Securities by acceptance  thereof  agrees to the  subordination  provisions  and
other terms


                                       14
<PAGE>

of the related  Guarantee.  Each  Guarantee  will rank pari passu with all other
Guarantees  issued by PSE&G.  Each  Guarantee  will  constitute  a guarantee  of
payment and not of collection  (i.e., the guaranteed party may institute a legal
proceeding  directly  against  PSE&G to enforce its rights  under the  Guarantee
without  first  instituting  a legal  proceeding  against  any  other  person or
entity).  Each  Guarantee  will  not be  discharged  except  by  payment  of the
Guarantee   Payments  in  full  to  the  extent  not  previously  paid  or  upon
distribution  to the holders of the Preferred  Securities  of the  corresponding
series of Debentures pursuant to the applicable Trust Agreement.

Amendments and Assignment

      Except  with  respect to any  changes  which do not  materially  adversely
affect the rights of holders of the corresponding Preferred Securities (in which
case no consent of the holders will be  required),  no Guarantee  may be amended
without the prior  approval  of the holders of at least a majority in  aggregate
liquidation  amount  of  such  Preferred  Securities  (excluding  any  Preferred
Securities held by PSE&G or an affiliate  thereof).  The manner of obtaining any
such  approval  will  be as  set  forth  under  "Description  of  the  Preferred
Securities  -- Voting  Rights;  Amendment of Trust  Agreement".  All  agreements
contained  in each  Guarantee  shall bind the  successors,  assigns,  receivers,
trustees  and  representatives  of PSE&G and shall  inure to the  benefit of the
holders of the corresponding Preferred Securities.

Guarantee Events of Default

      An event of default  under a Guarantee  (a  "Guarantee  Event of Default")
will occur upon the  failure  of PSE&G to  perform  any of its  payment or other
obligations  thereunder,  provided that except with respect to a Guarantee Event
of Default resulting from a failure to make any of the Guarantee Payments, PSE&G
shall have received notice of such Guarantee Event of Default from the Guarantee
Trustee and shall not have cured such Guarantee  Event of Default within 60 days
after  receipt of such  notice.  The holders of at least a majority in aggregate
liquidation  amount of the  corresponding  Preferred  Securities  (excluding any
Preferred  Securities held by PSE&G or an affiliate thereof) will have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of such Guarantee or to direct the
exercise of any trust or power  conferred upon the Guarantee  Trustee under such
Guarantee.

      Any holder of the corresponding Preferred Securities may institute a legal
proceeding  directly  against PSE&G to enforce such  holder's  rights under such
Guarantee  without  first  instituting  a legal  proceeding  against the related
Issuer, the Guarantee Trustee or any other person or entity.

      PSE&G, as guarantor,  will be required to file annually with the Guarantee
Trustee a  certificate  as to  whether or not it is in  compliance  with all the
conditions and covenants applicable to it under each Guarantee.

Information Concerning the Guarantee Trustee

      The Guarantee Trustee, other than during the occurrence and continuance of
a Guarantee  Event of  Default,  undertakes  to perform  only such duties as are
specifically set forth in each Guarantee and, upon a Guarantee Event of Default,
must exercise such of the rights and powers vested in it by the Guarantee and to
use the same  degree  of care and  skill in the  exercise  thereof  as a prudent
person would  exercise or use in the conduct of his or her own affairs.  Subject
to this provision,  the Guarantee Trustee is under no obligation to exercise any
of the  powers  vested in it by any  Guarantee  at the  request of any holder of
Preferred  Securities  unless it is offered  reasonable  indemnity  against  the
costs, expenses and liabilities that might be incurred thereby.

Termination of the Guarantee

      Each  Guarantee  will terminate and be of no further force and effect upon
full  payment  of the  Redemption  Price  or  Liquidation  Distribution  for the
corresponding  Preferred  Securities or upon  distribution of the  corresponding
series of Debentures to the holders of the corresponding  Preferred  Securities.
Each Guarantee will continue to be effective or will be reinstated,  as the case
may be, if at any time any holder of the corresponding Preferred Securities must
restore  payment  of any sums  paid  under  such  Preferred  Securities  or such
Guarantee.


                                       15
<PAGE>

Governing Law

      Each  Guarantee  will be governed by and construed in accordance  with the
laws of the State of New Jersey.

                          DESCRIPTION OF THE DEBENTURES

General

      The  Debentures  will be issued in one or more series under the Indenture.
Each  series  of  Debentures  will  rank pari  passu  with all  other  series of
Debentures.   Each  series  of  Debentures  will  be  unsecured  and  will  rank
subordinate and junior in right of payment,  to the extent and in the manner set
forth in the  Indenture,  to all of  PSE&G's  Senior  Indebtedness  (as  defined
below). See " -- Subordination".  The Indenture does not limit the incurrence or
issuance of Senior Indebtedness by PSE&G.

      The accompanying  prospectus  supplement will describe the following terms
of any series of Debentures: (1) the title of such series of Debentures; (2) the
aggregate  principal amount of such series of Debentures;  (3) the date or dates
on which the  principal  of such  series of  Debentures  shall be payable or the
method of  determination  thereof;  (4) the rate or rates, if any, at which such
series of Debentures  shall bear interest,  the interest  payment dates on which
any such  interest  shall be payable or the method by which any of the foregoing
shall  be  determined;  (5) any  terms  regarding  redemption;  (6) the  maximum
Extension Period for such series of Debentures;  and (7) any other terms of such
series of Debentures not inconsistent with the provisions of the Indenture.

      Certain  federal  income  tax  consequences  and  special   considerations
relating  to the  applicable  series  of  Debentures  will be  described  in the
accompanying prospectus supplement.

Option to Extend Interest Payment Period

      Under the Indenture,  PSE&G shall have the right at any time and from time
to time, so long as no Debenture Event of Default has occurred and is continuing
with  respect to such  series of  Debentures,  to defer  payments of interest by
extending the interest  payment  period for such series of Debentures  for up to
the maximum  Extension  Period provided for such series of Debentures,  provided
that no Extension Period shall extend beyond the maturity or any redemption date
of such series of Debentures. At the end of the Extension Period, PSE&G shall be
obligated to pay all interest  then accrued and unpaid  (together  with interest
thereon to the extent permitted by applicable law). During any Extension Period,
PSE&G may not declare or pay any dividend on, or redeem,  purchase,  acquire, or
make a  liquidation  payment with  respect to, any shares of its capital  stock.
Prior to the termination of any Extension  Period,  PSE&G may shorten or further
extend  the  interest  payment  period,  provided  that such  Extension  Period,
together with all such previous and further extensions  thereof,  may not exceed
the maximum  Extension Period for such series of Debentures or extend beyond the
maturity  or any  redemption  date  of  such  series  of  Debentures.  Upon  the
termination  of any  Extension  Period and the payment of all amounts  then due,
PSE&G  may  elect  to  begin  a new  Extension  Period,  subject  to  the  above
requirements.  PSE&G shall be required to give notice to the  Debenture  Trustee
and cause the Debenture  Trustee to give notice to the holders of the applicable
series of  Debentures  of its  election  to begin an  Extension  Period,  or any
shortening or extension thereof, at least one Business Day prior to the date the
notice  of the  record  or  payment  date  of the  related  Distribution  on the
corresponding  series of  Preferred  Securities  or payment of  interest on such
Debentures is required to be given to any national  securities exchange on which
such Debentures or such Preferred Securities are then listed or other applicable
self-regulatory  organization  but in any event not less than two Business  Days
prior to such record date.

Subordination

      All payments by PSE&G in respect of the Debentures  shall be  subordinated
to the prior payment in full of all amounts payable on Senior Indebtedness.  The
term "Senior Indebtedness" means:

      (1)   the principal of and premium, if any, in respect of (a) indebtedness
            of PSE&G  for  money  borrowed  and (b)  indebtedness  evidenced  by
            securities, debentures, bonds or other similar instruments issued by
            PSE&G;


                                       16
<PAGE>

      (2)   all capital lease obligations of PSE&G;

      (3)   all obligations of PSE&G issued or assumed as the deferred  purchase
            price of property, all conditional sale obligations of PSE&G and all
            obligations  of PSE&G  under  any  title  retention  agreement  (but
            excluding  trade accounts  payable arising in the ordinary course of
            business);

      (4)   certain   obligations  of  PSE&G  for  the   reimbursement   of  any
            obligation,  any letter of  credit,  banker's  acceptance,  security
            purchase facility or similar credit transaction  entered into in the
            ordinary course of business of PSE&G;

      (5)   all  obligations  of the type referred to in clauses (1) through (4)
            of other persons and all dividends of other persons  (other than the
            Preferred  Securities  or  similar  securities)  for the  payment of
            which,  in either case,  PSE&G is  responsible or liable as obligor,
            guarantor or otherwise  (other than each  Guarantee and  obligations
            ranking pari passu with such Guarantee); and

      (6)   certain  obligations  of the type referred to in clauses (1) through
            (5) of other persons secured by any lien on any property or asset of
            PSE&G (whether or not such  obligation is assumed by PSE&G),  except
            for any such  indebtedness  that is by its terms  subordinated to or
            pari passu with the Debentures and for indebtedness between or among
            PSE&G and its affiliates.

      Upon any payment or distribution of PSE&G's assets or securities, upon any
dissolution or winding-up or total or partial  liquidation or  reorganization of
PSE&G,  whether  voluntary  or  involuntary,   or  in  bankruptcy,   insolvency,
receivership or other  proceedings,  all amounts payable on Senior  Indebtedness
(including any interest accruing on such Senior  Indebtedness  subsequent to the
commencement of a bankruptcy, insolvency or similar proceeding) shall be paid in
full before the holders of the Debentures or the Debenture  Trustee on behalf of
such  holders  shall be entitled to receive  from PSE&G any payment of principal
of,  premium,  if any, or interest on, the  Debentures or  distributions  of any
assets or securities.

      No direct or indirect  payment by or on behalf of PSE&G of  principal  of,
premium,  if any, or interest on, the Debentures,  whether pursuant to the terms
of the Debentures or upon  acceleration  or otherwise,  shall be made if, at the
time of such  payment,  there  exists (1) a default in the payment of all or any
portion of any Senior  Indebtedness  or (2) any other default  pursuant to which
the maturity of Senior  Indebtedness  has been  accelerated and, in either case,
requisite notice has been given to the Debenture  Trustee and such default shall
not have been  cured or waived by or on  behalf of the  holders  of such  Senior
Indebtedness.

      If the  Debenture  Trustee  or any  holder of the  Debentures  shall  have
received  any  payment on account  of the  principal  of,  premium,  if any,  or
interest  on, the  Debentures  when such  payment is  prohibited  and before all
amounts payable on Senior Indebtedness are paid in full, then such payment shall
be received and held in trust for the holders of Senior  Indebtedness  and shall
be paid to the holders of the Senior Indebtedness remaining unpaid to the extent
necessary to pay such Senior Indebtedness in full.

      Nothing in the Indenture shall limit the right of the Debenture Trustee or
the holders of the  Debentures to take any action to accelerate  the maturity of
the Debentures or to pursue any rights or remedies against PSE&G,  provided that
all Senior  Indebtedness  shall be paid  before  holders of the  Debentures  are
entitled to receive any payment from PSE&G of principal of, premium,  if any, or
interest on, the Debentures.

      Upon the  payment in full of all Senior  Indebtedness,  the holders of the
Debentures  shall be  subrogated  to the rights of the  holders  of such  Senior
Indebtedness  to receive  payments or  distributions  of assets of PSE&G made on
such Senior Indebtedness until the Debentures shall be paid in full.

Certain PSE&G Covenants

      PSE&G will  covenant  that it may not declare or pay any  dividend  on, or
redeem,  purchase,  acquire or make a  liquidation  payment with respect to, any
shares of its capital  stock (1) during an  Extension  Period,  (2) if there has
occurred and is  continuing  any event that is, or, with the giving of notice or
the


                                       17
<PAGE>

lapse of time or both would  constitute,  a Debenture Event of Default or (3) if
it is in default  with  respect to its  payment or other  obligations  under any
Guarantee.  See "-- Debenture Events of Default and Description of the Guarantee
-- Guarantee Events of Default."

      Any waiver of any Debenture  Event of Default will require the approval of
at least a  majority  of the  aggregate  principal  amount of the  corresponding
series of Debentures or, if such Debentures are held by an Issuer,  the approval
of at  least  a  majority  in  aggregate  liquidation  amount  of the  Preferred
Securities of such Issuer; provided,  however, that a Debenture Event of Default
resulting from the failure to pay the principal of, premium, if any, or interest
on, such Debentures may not be waived.

Modification of the Indenture

      From time to time, PSE&G and the Debenture  Trustee,  without notice to or
the consent of any holders of Debentures,  may amend or supplement the Indenture
for any of the following purposes:

      (1)   to cure any ambiguity, defect or inconsistency;

      (2)   to  comply  with  the   provisions   of  the   Indenture   regarding
            consolidation,  merger or sale, conveyance, transfer or lease of the
            properties as an entirety or substantially as an entirety of PSE&G;

      (3)   to provide for uncertificated  Debentures in addition to or in place
            of certificated Debentures;

      (4)   to make  any  other  change  that  does  not in  PSE&G's  reasonable
            judgment   adversely   affect  the  rights  of  any  holder  of  the
            Debentures;

      (5)   to comply with any  requirement  of the SEC in  connection  with the
            qualification of the Indenture under the Trust Indenture Act; or

      (6)   to  set  forth  the  terms  and  conditions,   which  shall  not  be
            inconsistent with the Indenture, of any series of Debentures and the
            form of Debentures of such series.

      In addition,  PSE&G and the Debenture  Trustee may modify the Indenture or
any  supplemental  indenture  or  waive  future  compliance  by  PSE&G  with the
provisions  of the  Indenture,  with the  consent  of the  holders of at least a
majority of the  aggregate  principal  amount of the  Debentures  of each series
affected  thereby,  provided that no such  modification,  without the consent of
each holder of such Debentures, may

      (1)   reduce the principal amount of such Debentures,

      (2)   reduce the principal amount of outstanding  Debentures of any series
            the holders of which must consent to an  amendment of the  Indenture
            or a waiver,

      (3)   change the stated  maturity of the  principal of, or interest on, or
            the rate of interest on, such Debentures,

      (4)   change  the  redemption  provisions  applicable  to such  Debentures
            adversely to the holders thereof,

      (5)   impair  the  right  to  institute  suit for the  enforcement  of any
            payment with respect to such Debentures,

      (6)   change  the  currency  in  which   payments  with  respect  to  such
            Debentures are to be made, or

      (7)   change the  subordination  provisions  applicable to such Debentures
            adversely to the holders thereof,

provided that if such Debentures are held by an Issuer, no modification shall be
made that  adversely  affects the holders of the  Preferred  Securities  of such
Issuer,  and no waiver of any  Debenture  Event of Default  with respect to such
Debentures  or  compliance  with  any  covenant  under  the  Indenture  shall be
effective,  without  the prior  consent of the holders of at least a majority of
the aggregate  liquidation amount of the Preferred  Securities of such Issuer or
the holder of each such Preferred Security, as applicable.


                                       18
<PAGE>

Debenture Events of Default

      The  following  are  Debenture  Events  of  Default  with  respect  to the
Debentures of any series:

      (1)   default for 30 days in payment of any  interest on any  Debenture of
            that series (other than the payment of interest  during an Extension
            Period);

      (2)   default  in payment  of  principal  of or  premium,  if any,  on any
            Debenture of that series when the same becomes due and payable;

      (3)   default for 60 days after receipt by PSE&G of a Notice of Default in
            the  performance  of or failure to comply with any other covenant or
            agreement  for such series of  Debentures or in the Indenture or any
            supplemental  indenture  under which such series of  Debentures  may
            have been issued or

      (4)   certain events of bankruptcy, insolvency or reorganization of PSE&G.

      In case a Debenture Event of Default has occurred and is continuing, other
than one relating to bankruptcy, insolvency or reorganization of PSE&G, in which
case  the  principal  of,  premium,  if any,  and any  interest  on,  all of the
Debentures of the applicable  series shall become  immediately  due and payable,
the  Debenture  Trustee or the  holders of at least 25% in  aggregate  principal
amount of the Debentures of that series may declare the principal, together with
interest  accrued  thereon,  of all the  Debentures of that series to be due and
payable;  provided,  however,  that if a Debenture Event of Default has occurred
and is continuing with respect to such  Debentures and the Debenture  Trustee or
the  holders of at least 25% in  aggregate  principal  amount of such  series of
Debentures  fail to declare the  principal  of such series of  Debentures  to be
immediately due and payable, then, if such Debentures are held by an Issuer, the
holders of at least 25% in  aggregate  liquidation  amount of the  corresponding
Preferred  Securities  shall have such right by written  notice to PSE&G and the
Debenture  Trustee.  The holders of at least a majority in  aggregate  principal
amount of such series of  Debentures,  by notice to the Debenture  Trustee,  may
rescind an  acceleration,  provided that if the principal of such Debentures has
been  declared  due and  payable by the holders of the  corresponding  Preferred
Securities,  no  rescission  of  such  acceleration  will  be  effective  unless
consented  to by the  holders of at least a majority  in  aggregate  liquidation
amount of the corresponding Preferred Securities.

      PSE&G will be  required  to furnish to the  Debenture  Trustee  annually a
statement as to the compliance by PSE&G with all conditions and covenants  under
the Indenture and the Debentures and as to any Debenture Event of Default.

Consolidation, Merger, Sale or Conveyance

      PSE&G may not  consolidate  with or merge with or into any other person or
sell,  convey,  transfer  or lease its  properties  and assets as an entirety or
substantially  as an  entirety to any person,  unless (1) the  successor  person
shall be organized and existing under the laws of the United States or any state
thereof or the District of Columbia and shall expressly assume by a supplemental
indenture all of PSE&G's  obligations  under the Debentures,  the Guarantees and
the  Indenture;  (2)  immediately  after giving effect to such  transaction,  no
Debenture Event of Default,  and no event which after notice or lapse of time or
both would become a Debenture Event of Default,  has occurred and is continuing;
and (3) certain other conditions prescribed in the Indenture are met.

Defeasance and Discharge

      Under the terms of the  Indenture,  PSE&G will be discharged  from any and
all  obligations  in respect of the  Debentures of any series if PSE&G  deposits
with the  Debenture  Trustee,  in  trust,  (1) cash  and/or  (2)  United  States
Government Obligations (as defined in the Indenture),  which through the payment
of interest  thereon and principal  thereof in accordance  with their terms will
provide cash in an amount  sufficient to pay all the principal of,  premium,  if
any, and interest on, the  Debentures  of such series on the dates such payments
are due in accordance with the terms of such Debentures.


                                       19
<PAGE>

Information Concerning the Debenture Trustee

      Subject to the  provisions  of the Indenture  relating to its duties,  the
Debenture  Trustee will be under no  obligation to exercise any of its rights or
powers under the Indenture at the request,  order or direction of the holders of
any  series  of  Debentures  or  the  holders  of  the  corresponding  Preferred
Securities,  unless such  holders  shall have offered to the  Debenture  Trustee
reasonable   security   and   indemnity.   Subject   to   such   provision   for
indemnification,  the  holders of at least a  majority  in  aggregate  principal
amount  of any  series  of  Debentures  affected  or the  holders  of at least a
majority  in  aggregate  liquidation  amount  of  the  corresponding   Preferred
Securities (with each such series voting as a class),  as applicable,  will have
the right to direct the time,  method and place of conducting any proceeding for
any remedy  available  to the  Debenture  Trustee with respect to such series of
Debentures or exercising any trust or power conferred on the Debenture Trustee.

      The  Indenture  will  contain  limitations  on the right of the  Debenture
Trustee,  as a creditor of PSE&G,  to obtain payment of claims in certain cases,
or to  realize  on  certain  property  received  in respect of any such claim as
security or otherwise.  In addition, the Debenture Trustee may be deemed to have
a conflicting  interest and may be required to resign as Debenture Trustee if at
the time of a  Debenture  Event of Default  (1) it is a creditor of PSE&G or (2)
there is a default under the indenture(s) referred to below.

      First Union  National Bank is the Trustee under  PSE&G's  Indenture  dated
August 1, 1924,  with respect to PSE&G's First and Refunding  Mortgage Bonds and
on  various  indentures  relating  to PSE&G.  PSE&G,  its  subsidiaries  and its
affiliates  maintain  other  normal  banking  relationships,   including  credit
facilities and lines of credit, with First Union National Bank.

Governing Law

      The Indenture  will be governed by and  construed in  accordance  with the
laws of the State of New Jersey.

                  RELATIONSHIP AMONG THE PREFERRED SECURITIES,
                        THE DEBENTURES AND THE GUARANTEE

      Payments of Distributions and redemption and liquidation payments due on a
series of  Preferred  Securities  (to the extent the  Issuer  thereof  has funds
available  for such  payments)  will be guaranteed by PSE&G as and to the extent
set forth under  "Description of the Guarantee".  No single document executed by
PSE&G in connection  with the issuance of a series of Preferred  Securities will
provide  for  PSE&G's  full,  irrevocable  and  unconditional  guarantee  of the
Preferred  Securities.  It is only the combined operation of PSE&G's obligations
under  the  applicable   Guarantee,   the  applicable   Trust   Agreement,   the
corresponding  series of  Debentures  and the  Indenture  that has the effect of
providing  a  full,  irrevocable  and  unconditional  guarantee  of an  Issuer's
obligations under its Preferred Securities.

      A holder of any  corresponding  Preferred  Security may  institute a legal
proceeding  directly  against  PSE&G to enforce its rights under the  applicable
Trust  Agreement,  Indenture  or Guarantee  without  first  instituting  a legal
proceeding against the Property Trustee, Debenture Trustee or Guarantee Trustee,
the related Issuer or any other person or entity if the applicable Trustee fails
to enforce that particular holder's rights thereunder.

      As long as PSE&G makes payments of interest and other payments when due on
a series of Debentures, such payments will be sufficient to cover the payment of
Distributions   and  redemption  and  Liquidation   Distributions   due  on  the
corresponding Preferred Securities, primarily because

      (1)   the aggregate  principal amount of such series of Debentures will be
            equal  to  the  sum  of  the  aggregate  liquidation  amount  of the
            corresponding Preferred Securities and Common Securities,

      (2)   the  interest  rate and  interest  and other  payment  dates on such
            series  of  Debentures   will  match  the   Distribution   rate  and
            Distribution and other payment dates for the corresponding Preferred
            Securities,


                                       20
<PAGE>

      (3)   the applicable Trust Agreement provides that PSE&G shall pay for all
            and any  costs,  expenses  and  liabilities  of the  Issuer  of such
            Preferred  Securities  except such  Issuer's  obligations  under its
            Preferred Securities and Common Securities, and

      (4)   the applicable Trust  Agreements  provide that no Issuer will engage
            in any activity that is not consistent with the limited  purposes of
            such Issuer.

      If and to the extent  that PSE&G does not make  payments  on any series of
Debentures,  such  Issuer  will not have funds  available  to make  payments  of
Distributions or other amounts due on the corresponding Preferred Securities.

      A  principal  difference  between  the  rights of a holder of a  Preferred
Security (which represents an undivided beneficial interest in the assets of the
Issuer thereof) and a holder of a Debenture is that a holder of a Debenture will
accrue,  and  (subject to the  permissible  extension  of the  interest  payment
period) is entitled to receive,  interest on the principal  amount of Debentures
held,   while  a  holder  of  Preferred   Securities   is  entitled  to  receive
Distributions  only if and to the extent such Issuer has funds available for the
payment of such Distributions.

      Upon any voluntary or involuntary dissolution or liquidation of any Issuer
not involving a distribution of any series of Debentures,  after satisfaction of
liabilities  to  creditors  of such  Issuer,  the  holders of the  corresponding
Preferred  Securities  will be entitled  to receive,  out of assets held by such
Issuer, the Liquidation  Distribution in cash. See "Description of the Preferred
Securities -- Liquidation  Distribution  Upon  Dissolution".  Upon any voluntary
liquidation or bankruptcy of PSE&G,  each Issuer,  as holder of the  Debentures,
would be a  creditor  of PSE&G,  subordinated  in right of payment to all Senior
Indebtedness,  but entitled to receive payment in full of principal, premium, if
any,  and  interest,  before  any  stockholders  of PSE&G  receive  payments  or
distributions.  Since PSE&G will be the guarantor  under each  Guarantee and has
agreed to pay for all costs, expenses and liabilities of each Issuer (other than
an Issuer's  obligations  to the holders of its Preferred  Securities and Common
Securities), the positions of a holder of such Preferred Securities and a holder
of such  Debentures  relative to other creditors and to stockholders of PSE&G in
the event of liquidation or bankruptcy of PSE&G would be substantially the same.

      A default or event of  default  under any  Senior  Indebtedness  would not
constitute  a  Debenture  Event of  Default.  However,  in the event of  payment
defaults under,  or  acceleration  of, Senior  Indebtedness,  the  subordination
provisions of the Debentures  provide that no payments may be made in respect of
the  Debentures  until  such  Senior  Indebtedness  has been paid in full or any
payment  default  thereunder has been cured or waived.  Failure to make required
payments on any series of  Debentures  would  constitute  a  Debenture  Event of
Default.

                             UNITED STATES TAXATION

General

      This  section is a summary of certain  Federal  income tax  considerations
that may be relevant to prospective  purchasers of the Preferred  Securities and
represents  the opinion of Ballard Spahr Andrews & Ingersoll,  llp,  special tax
counsel  to PSE&G and the  Issuers,  insofar as it relates to matters of law and
legal conclusions. This section is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"),  existing regulations  thereunder
and current administrative rulings and court decisions, all of which are subject
to change,  possibly on a retroactive  basis.  Subsequent  changes may cause tax
consequences to vary substantially from the consequences described below.

      This summary is limited to the tax  consequences  to the initial owners of
the  Preferred  Securities  who are  treated  as having  purchased  the  related
Debentures at their "issue price" within the meaning of Section 1273 of the Code
and does not  address  the tax  consequences  to  subsequent  purchasers  of the
Preferred Securities. This summary does not purport to be a complete analysis of
all of the potential Federal income tax consequences relating to the purchase of
the Preferred  Securities,  nor does it describe any Federal estate and gift tax
consequences or any state,  local or foreign tax  consequences.  There can be no
assurance that the Internal Revenue Service (the "IRS") will take a similar view
of the


                                       21
<PAGE>

tax  consequences  described  herein.  This  summary  deals only with  Preferred
Securities  held as capital assets.  Furthermore,  this summary does not address
all aspects of taxation that might be relevant to particular purchasers in light
of their individual  circumstances (for example, the alternative minimum tax) or
special rules  applicable to certain  categories of purchasers,  such as Foreign
Holders (as defined below), dealers in securities or currencies,  life insurance
companies,  regulated investment companies, persons holding Preferred Securities
as part of a hedge, straddle, conversion, constructive ownership or constructive
sale  transaction  or  other  risk  reduction  transaction,   or  persons  whose
functional currency is not the United States dollar.

      POTENTIAL  INVESTORS  ARE ADVISED TO CONSULT  THEIR TAX ADVISORS AS TO THE
UNITED  STATES  FEDERAL  INCOME TAX  CONSEQUENCES  OF THE  PURCHASE OF PREFERRED
SECURITIES  PURSUANT  TO THE  OFFERING  MADE  HEREBY  AND OF THE  OWNERSHIP  AND
DISPOSITION OF PREFERRED SECURITIES IN LIGHT OF THEIR PARTICULAR  CIRCUMSTANCES,
AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR OTHER LAWS.

Classification of the Debentures as Indebtedness

      Ballard  Spahr  Andrews & Ingersoll,  llp has advised  PSE&G that,  in its
opinion,  the Debentures will be classified as  indebtedness  for Federal income
tax purposes.  PSE&G will agree, and each owner of the Preferred Securities will
agree  by its  purchase  of the  Preferred  Securities,  to  treat  the  related
Debentures  held by the  Issuer as  indebtedness  for  Federal,  state and local
income and franchise tax purposes.  However,  this opinion is not binding on the
IRS or  any  court.  The  discussion  below  assumes  that  the  Debentures  are
classified as indebtedness for Federal income tax purposes.

Income from Preferred Securities

      In connection with the issuance of the Debentures, Ballard Spahr Andrews &
Ingersoll llp will render its opinion to the effect that, under then current law
and  assuming  full  compliance  with the  terms  of the  Trust  Agreement,  the
applicable  Issuer  will  be  classified  as a  grantor  trust  and  not  as  an
association  taxable as a  corporation  or  partnership  for Federal  income tax
purposes.  As  a  consequence,  each  owner  of  Preferred  Securities  will  be
considered  the owner of a pro rata portion of the related  series of Debentures
held by the Issuer. As a further consequence, each owner of Preferred Securities
will be  required  to include  in gross  income its pro rata share of the income
accrued on the Debentures held by the Issuer.  Such income should not exceed the
Distributions  received by the owners of Preferred  Securities  on the Preferred
Securities except in limited circumstances  described under "Potential Extension
of Interest  Payment  Period and Original  Issue  Discount."  No portion of such
income will be eligible  for the  dividends-received  deduction  available  to C
corporations.

Potential Extension of Interest Payment Period and Original Issue Discount

      Under the Debenture  Indenture,  PSE&G has the right at any time from time
to time to extend the interest  payment periods on a series of Debentures for up
to 20 consecutive quarters but not beyond the maturity or any redemption date of
such  Debentures.  PSE&G's right to defer  payments of interest by extending the
interest  payment periods will cause the Debentures to be treated as issued with
"original issue discount" for Federal income tax purposes. Accordingly, an owner
of a related  Preferred  Securities will accrue interest income (i.e.,  original
issue  discount)  under a  constant-yield  basis over the term of the Debentures
(including any Extension Period),  regardless of whether the owner receives cash
during the period to which such income is attributable  and/or the method of tax
accounting the owner normally uses.

      As a result,  owners of Preferred  Securities  during an Extension  Period
will include interest in gross income in advance of the receipt of cash, and any
owners of Preferred  Securities who dispose of Preferred Securities prior to the
record date for the payment of  Distributions  following such  Extension  Period
will  include  interest in gross  income,  but will not receive any cash related
thereto.  The tax basis of a series of Preferred  Security  will be increased by
the amount of any original  issue  discount that is included in income without a
receipt  of cash and will be  decreased  when and if such  cash is  subsequently
received by the owner of that series of Preferred Security.


                                       22
<PAGE>

Disposition of the Preferred Securities

      Gain or loss will be  recognized  on a sale,  including a  redemption  for
cash, of Preferred  Securities in an amount equal to the difference  between the
amount realized and the tax basis of an owner of Preferred Securities in its pro
rata share of the related  Debentures  represented  by such series of  Preferred
Securities.  Gain or loss recognized by an owner of Preferred  Securities on the
sale or  exchange  of those  Preferred  Securities  held for more  than one year
generally will be taxable as long-term capital gain or loss.

Foreign Holders

      For  purposes  of this  discussion,  a  "Foreign  Holder" is any holder or
beneficial  owner who or which is (1) a  nonresident  alien  individual or (2) a
foreign corporation, partnership, estate or trust, in either case not subject to
Federal  income  tax on a net income  basis in respect of a series of  Preferred
Security.

      Under present Federal income tax law, subject to the discussion below with
respect to backup withholding:

      (1)   payments  by the Issuer or any of its paying  agents to any  Foreign
            Holder  will not be subject to Federal  income or  withholding  tax,
            provided  that (a) the  owner  of the  Preferred  Security  does not
            actually  or  constructively  own 10% or more of the total  combined
            voting power of all classes of stock of PSE&G,  (b) the owner of the
            Preferred Securities is not a controlled foreign corporation that is
            related  to  PSE&G  through  stock  ownership  or a  bank  receiving
            interest  described  in Section  881(c)(3)(A)  of the Code,  and (c)
            either (i) the owner of the  Preferred  Securities  certifies to the
            applicable Issuer or its agent, under penalties of perjury,  that it
            is a Foreign  Holder and  provides  its name and address or (ii) the
            holder  of  the  Preferred   Securities  is  a  securities  clearing
            organization,   bank  or  other  financial  institution  that  holds
            customers'  securities  in  the  ordinary  course  of its  trade  or
            business (a "financial  institution"),  and such holder certifies to
            the Issuer or its  agent,  under  penalties  of  perjury,  that such
            statement  has been  received from the owner by it or by a financial
            institution  between it and the owner and furnishes the payor with a
            copy thereof, and

      (2)   a Foreign  Holder of a  Preferred  Security  will not be  subject to
            Federal income or  withholding  tax on any gain realized on the sale
            or exchange of a Preferred Security unless such person is present in
            the United States for 183 days or more in the calendar year of sale,
            such  person is subject to United  States  Federal  income tax under
            certain rules  applicable to certain United States  expatriates,  or
            such income is  effectively  connected with a United States trade or
            business.

Backup Withholding and Information Reporting

      In general,  information reporting  requirements will apply to payments to
non-corporate  United States holders of interest and the proceeds of the sale of
the Preferred  Securities within the United States and "backup withholding" will
apply to such  payments  if the  seller  fails to  provide  a  correct  taxpayer
identification number or is otherwise subject to backup withholding.

      Payments of the  proceeds  from the sale by a Foreign  Holder of Preferred
Securities  made to or through a foreign  office of a broker will not be subject
to information reporting or backup withholding,  except that, if the broker is a
United States person,  a controlled  foreign  corporation  for United States tax
purposes or a foreign  person 50% or more of whose gross  income is  effectively
connected  with a United  States  trade or business  for a specified  three-year
period,  information  reporting  may  apply  to such  payment.  Payments  of the
proceeds  from the sale of Preferred  Securities to or through the United States
office of a broker is subject to  information  reporting and backup  withholding
unless the holder or  beneficial  owner  certifies as to its  non-United  States
status  or  otherwise   establishes  an  exemption  from  reporting  and  backup
withholding.


                                       23
<PAGE>

Receipt of Debentures Upon Liquidation of an Issuer

      PSE&G may cause an Issuer to be terminated and cause the related series of
Debentures  to  be  distributed  to  the  holders  of  Preferred  Securities  in
liquidation  of such holders'  interests in the Issuer,  provided that PSE&G has
delivered to the Issuer Trustees an opinion of nationally recognized tax counsel
(which may be regular tax counsel to PSE&G or an  affiliate  but not an employee
of PSE&G and which must be  acceptable  to the Property  Trustee)  that any such
distribution  will  not be a  taxable  event  to  the  owners  of the  Preferred
Securities for Federal income tax purposes. Under current Federal income tax law
and  assuming  the  Issuer is treated as a grantor  trust,  such a  distribution
should not be treated as a taxable event to owners of the Preferred  Securities.
Such a tax-free  transaction  would result in the owner of Preferred  Securities
receiving an aggregate  tax basis in the  Debentures  equal to its aggregate tax
basis in the owner's  Preferred  Securities.  An owner's holding period for such
Debentures would include the period during which it had a beneficial interest in
the Preferred Securities.

                              PLAN OF DISTRIBUTION

      The Issuers may sell the Preferred Securities to or through  underwriters,
dealers, or agents or directly to one or more other purchasers.

      The prospectus  supplement will set forth the terms of the offering of the
particular  series or issue of  Preferred  Securities  to which such  prospectus
supplement relates, including, as applicable:

      o     the name or names of any  underwriters  or agents  with whom we have
            entered into arrangements with respect to the sale of such Preferred
            Securities;

      o     the initial  public  offering or  purchase  price of such  Preferred
            Securities;

      o     any underwriting discounts, commissions and other items constituting
            underwriters' compensation from the Issuers and any other discounts,
            concessions  or  commissions  allowed  or  reallowed  or paid by any
            underwriters to other dealers;

      o     any commissions paid to any agents;

      o     the net proceeds to the Issuers; and

      o     the securities exchanges, if any, on which such Preferred Securities
            will be listed.

      Any  underwriting  compensation  paid by PSE&G on behalf of the Issuers to
underwriters  in connection with the offering of Preferred  Securities,  and any
discounts,  concessions or commissions  allowed by underwriters to participating
dealers,   will  be  set  forth  in  an  accompanying   prospectus   supplement.
Underwriters  and dealers  participating  in the  distribution  of the Preferred
Securities may be deemed to be  underwriters,  and any discounts and commissions
received  by them and any  profit  realized  by them on resale of the  Preferred
Securities may be deemed to be underwriting discounts and commissions, under the
Securities  Act of 1933, as amended (the  "Securities  Act").  Underwriters  and
dealers  may be  entitled,  under  agreement  with  PSE&G  and the  Issuers,  to
indemnification  against and  contribution  toward  certain  civil  liabilities,
including  liabilities  under the Securities Act, and to  reimbursement by PSE&G
for certain expenses.

      Underwriters  and dealers and their  affiliates may engage in transactions
with, or perform  services for, the Issuers and PSE&G and/or their affiliates in
the ordinary course of business.

      The Preferred  Securities of each Issuer will be a new issue of securities
and will have no established  trading market. Any underwriters to whom Preferred
Securities  are sold by the  Issuers  for  public  offering  and sale may make a
market in such Preferred  Securities but such underwriters will not be obligated
to do so and may discontinue  any market making at any time without notice.  The
Preferred Securities may or may not be listed on a national securities exchange.
No assurance  can be given as to the  liquidity  of or the  existence of trading
markets for any Preferred Securities.


                                       24
<PAGE>

                                  LEGAL MATTERS

      Certain  legal  matters  will be passed  upon for PSE&G by James T. Foran,
Esquire,  General Corporate Counsel of PSE&G or R. Edwin Selover,  Esquire, Vice
President  and General  Counsel of PSE&G,  by Ballard Spahr Andrews & Ingersoll,
llp, Philadelphia,  Pennsylvania,  special tax counsel to PSE&G and the Issuers,
and by Richards,  Layton & Finger,  P.A.,  special Delaware counsel to PSE&G and
the Issuers, and for any underwriters,  dealers or agents by Sidley Austin Brown
& Wood LLP, New York,  New York,  who may rely on the opinion of Mr.  Selover or
Mr. Foran as to matters of New Jersey law.  Mr.  Selover or Mr. Foran and Sidley
Austin  Brown & Wood LLP may rely on the  opinion  of  Ballard  Spahr  Andrews &
Ingersoll, llp as to matters of Pennsylvania law and on the opinion of Richards,
Layton & Finger,  P.A. as to matters of Delaware law. Messrs.  Selover and Foran
are also employees of PSE&G's affiliate, PSEG Services Corporation.

                                     EXPERTS

      PSE&G's  consolidated  financial  statements and the related  consolidated
financial statement schedule,  incorporated in this prospectus by reference from
its Annual Report on Form 10-K for the year ended  December 31, 2000,  have been
audited  by  Deloitte & Touche  LLP,  independent  auditors,  as stated in their
report which is  incorporated  herein by reference and have been so incorporated
in reliance  upon the report of such firm given upon their  authority as experts
in accounting and auditing.


                                       25
<PAGE>

                 PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution.

      The  following  table  sets  forth the  expenses  in  connection  with the
issuance  and  distribution  of the  securities  being  registered,  other  than
underwriting discounts and commissions.  All of the amounts shown are estimates,
except the SEC registration fee.

      SEC registration fee ........................................   $ 227,767
      Printing and engraving ......................................     318,000
      Legal fees and expenses .....................................     500,000
      Fees of accountants .........................................      95,000
      Fees of trustees and transfer agents ........................     125,000
      Blue sky fees and expenses ..................................       5,000
      NYSE Listing Fee ............................................     212,000
      Rating agency fees ..........................................     555,000
      Miscellaneous ...............................................      12,233
                                                                     ----------
      Total .......................................................  $2,050,000
                                                                     ==========

Item 15. Indemnification of Directors and Officers.

      Under Section 14A:3-5 of the New Jersey Business Corporation Act, PSE&G

            (1) has power to indemnify  each of its  directors  and officers (as
      well as its  employees and agents)  against  expenses and  liabilities  in
      connection  with any  proceeding  involving  him by reason of his being or
      having been such director or officer, other than a proceeding by or in the
      right of PSE&G, if (a) such director or officer acted in good faith and in
      a manner he  reasonably  believed to be in or not opposed to PSE&G's  best
      interest,  and (b) with respect to any criminal proceeding,  such director
      or officer had no reasonable cause to believe his conduct was unlawful;

            (2) has  power  to  indemnify  each of its  directors  and  officers
      against  expenses in connection  with any proceeding by or in the right of
      PSE&G to procure a judgment in its favor which  involves  such director or
      officer by reason of his being or having been such director or officer, if
      he acted in good faith and in a manner he reasonably  believed to be in or
      not opposed to the best interests of PSE&G; however, in such proceeding no
      indemnification  may be provided in respect to any claim,  issue or matter
      as to which such director or officer shall have been adjudged to be liable
      to PSE&G, unless and only to the extent that the court determines that the
      director or officer is fairly  reasonably  entitled to indemnity  for such
      expenses as the court shall deem proper;

            (3) must indemnify each director and officer against expenses to the
      extent  that he has been  successful  on the  merits or  otherwise  in any
      proceeding  referred  to in (1) and (2) above or in  defense of any claim,
      issue or matter therein; and

            (4) has power to  purchase  and  maintain  insurance  on behalf of a
      director or officer  against any expenses  incurred in any  proceeding and
      any liabilities asserted against him by reason of his being or having been
      a  director  or  officer,  whether  or not PSE&G  would  have the power to
      indemnify him against such expenses and liabilities under the statute.

      As used in the statute, expenses means reasonable costs, disbursements and
counsel  fees,  liabilities  means amounts paid or incurred in  satisfaction  of
settlements,  judgments,  fines and penalties, and proceeding means any pending,
threatened or completed civil,  criminal,  administrative or arbitrative action,
suit or  proceeding,  and any appeal  therein and any  inquiry or  investigation
which could lead to such action, suit or proceeding.

      Indemnification  may be  awarded  by a court  under  (1) or (2) as well as
under  (3)  above,  notwithstanding  a prior  determination  by  PSE&G  that the
director or officer has not met the applicable standard of conduct.

      Indemnification  under the statute  does not  exclude any other  rights to
which  a  director  or  officer  may  be  entitled   under  a   certificate   of
incorporation, by-law, or otherwise.


                                      II-1
<PAGE>

      Article 8, Section 1 of PSE&G's Certificate of Amendment of Certificate of
Incorporation provides as follows:

      1. Indemnification:

      The  corporation  shall  indemnify  to the full  extent  from time to time
permitted  by law any person  made,  or  threatened  to be made,  a party to any
pending, threatened or completed civil, criminal,  administrative or arbitrative
action,  suit,  or  proceeding  and any  appeal  therein  (and  any  inquiry  or
investigation  which could lead to such action, suit or proceeding) by reason of
the fact that he is or was a director, officer or employee of the corporation or
serves or served any PSE&G subsidiary as a director,  officer or employee at the
request of the  corporation.  Such right of  indemnification  shall inure to the
benefit of the legal representative of any such person.

      Article 8, Section 2 of PSE&G's Certificate of Amendment of Certificate of
Incorporation provides as follows:

      2. Limitation of Liability:

      To the full  extent  from time to time  permitted  by law,  directors  and
officers of the corporation shall not be personally liable to the corporation or
its  shareholders  for damages for breach of any duty owed to the corporation or
its  shareholders.  No amendment  or repeal of this  provision  shall  adversely
affect  any right or  protection  of a director  or  officer of the  corporation
existing at the time of such amendment or repeal.

      Each form of  Underwriting  Agreement  between PSE&G and the  Underwriters
contains a  provision  under  which each  Underwriter  agrees to  indemnify  the
directors  of  PSE&G  and  each of its  officers  who  signed  the  registration
statement against certain liabilities which might arise under the Securities Act
of 1933 (the "1933 Act") from information furnished to PSE&G in writing by or on
behalf of such Underwriter.

      The  directors  and  officers  of PSE&G  are  insured  under  policies  of
insurance,  within the limits and subject to the  limitations  of the  policies,
against claims made against them for acts in the discharge of their duties,  and
PSE&G is  insured to the  extent  that it is  required  or  permitted  by law to
indemnify  the  directors  and  officers  for such loss.  The  premiums for such
insurance are paid by PSE&G.

Item 16. List of Exhibits.

Exhibit
-------
1-1a  Form of Terms and Conditions Relating to Bids for Senior Debt Securities.*
1-1b  Form of Bid with Form of Purchase Agreement Attached.*
 1-2  Form of Underwriting Agreement for Trust Preferred Securities.*
 3-1  Certificate of Trust for PSE&G Capital Trust III.(1)
 3-2  Certificate of Trust for PSE&G Capital Trust IV.
 3-3  Trust Agreement for PSE&G Capital Trust III.(2)
 3-4  Trust Agreement for PSE&G Capital Trust IV.
 3-5  Form of Amended and  Restated  Trust  Agreement  for PSE&G  Capital  Trust
      III.(3)
 3-6  Form of Amended and Restated Trust Agreement for PSE&G Capital Trust IV.*
 4-1  Form of  Preferred  Security  Certificate  for  PSE&G  Capital  Trust  III
      (included in Exhibit 3-5).
 4-2  Form  of  Preferred  Security  Certificate  for  PSE&G  Capital  Trust  IV
      (included in Exhibit 3-6).
 4-3  Form of Deferrable  Interest  Subordinated  Debenture (included in Exhibit
      4-5).
 4-4  Deferrable Interest Subordinated Debenture Indenture.(4)
 4-5  Form  of   Deferrable   Interest   Subordinated   Debenture   Supplemental
      Indenture.(5)
 4-6  Indenture  dated as of  December  1, 2000  between  PSE&G and First  Union
      National Bank, as Trustee, providing for Senior Debt Securities.
 4-7  Form of Senior Debt Security.
 4-8  Form of  Guarantee  Agreement  for PSE&G  Capital  Trust III.6 4-9 Form of
      Guarantee Agreement for PSE&G Capital Trust IV.*
 5-1  Opinion of James T. Foran,  Esquire  relating to the  validity of the Debt
      Securities, the Debentures and the Guarantees, including consent.


                                      II-2
<PAGE>

Exhibit
-------
 5-2  Opinion of Richards,  Layton & Finger,  P.A.,  special  Delaware  counsel,
      relating to the  validity of the  Preferred  Securities  of PSE&G  Capital
      Trust III, including consent.
 5-3  Opinion of Richards,  Layton & Finger,  P.A.,  special  Delaware  counsel,
      relating to the  validity of the  Preferred  Securities  of PSE&G  Capital
      Trust IV, including consent.
   8  Opinion of Ballard Spahr Andrews & Ingersoll, LLP, special tax counsel, as
      to tax matters, including consent. 12-1 Computations of Ratios of Earnings
      to Fixed  Charges  (incorporated  by reference to Exhibit 12(a) to PSE&G's
      Annual Report on Form 10-K for the year ended December 31, 2000).
12-2  Computations  of Ratios of Earnings to Fixed Charges plus Preferred  Stock
      Dividend  Requirements  (incorporated  by  reference  to Exhibit  12(b) to
      PSE&G's Annual Report on Form 10-K for the year ended December 31, 2000).
23-1  Consent of Independent Auditors.
23-2  Consent of James T. Foran, Esquire (included in Exhibit 5-1).
23-3  Consents of Richards,  Layton & Finger, P.A. (included in Exhibits 5-2 and
      5-3).
23-4  Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 8).
  24  Power of Attorney.
25-1  Statement of  Eligibility  under the Trust  Indenture Act of 1939 of First
      Union National Bank, as Indenture  Trustee under the Senior  Indenture for
      Public Service Electric and Gas Company.
25-2  Statement of  Eligibility  under the Trust  Indenture Act of 1939 of First
      Union  National Bank, as Indenture  Trustee under the Deferrable  Interest
      Subordinated  Debenture  Indenture and  Deferrable  Interest  Subordinated
      Debenture Supplemental Indenture.
25-3  Statement of  Eligibility  under the Trust  Indenture Act of 1939 of First
      Union  National  Bank, as Property  Trustee under the Amended and Restated
      Trust Agreement for PSE&G Capital Trust III.
25-4  Statement of  Eligibility  under the Trust  Indenture Act of 1939 of First
      Union  National  Bank, as Property  Trustee under the Amended and Restated
      Trust Agreement for PSE&G Capital Trust IV.
25-5  Statement of  Eligibility  under the Trust  Indenture Act of 1939 of First
      Union  National Bank, as Guarantee  Trustee under the Guarantee  Agreement
      for PSE&G Capital Trust III.
25-6  Statement of  Eligibility  under the Trust  Indenture Act of 1939 of First
      Union  National Bank, as Guarantee  Trustee under the Guarantee  Agreement
      for PSE&G Capital Trust IV.

----------
*     To be filed by amendment.
(1)   Previously filed as Exhibit 3-3 to Registration Statement on Form S-3, No.
      333-2763, and incorporated herein by reference.
(2)   Previously filed as Exhibit 3-6 to Registration Statement on Form S-3, No.
      333-2763, and incorporated herein by reference.
(3)   Previously filed as Exhibit 3-9 to Registration Statement on Form S-3, No.
      333-2763, and incorporated herein by reference.
(4)   Previously  filed as Exhibit 4e(1) to Quarterly  Report on Form 10-Q dated
      May 13, 1998, File No.001-00973, and incorporated by reference.
(5)   Previously filed as Exhibit 4-4 to Registration Statement on Form S-3, No.
      333-2763, and incorporated herein by reference.
(6)   Previously filed as Exhibit 4-7 to Registration Statement on Form S-3, No.
      333-2763, and incorporated herein by reference.

Item 17. Undertakings.

      The undersigned registrants hereby undertake:

      (a)(1)To file,  during any period in which offers or sales are being made,
            a post-effective  amendment to this Registration  Statement:

            (i)   To include any prospectus  required by section 10(a)(3) of the
                  Securities Act of 1933;

            (ii)  To reflect in the prospectus any facts or events arising after
                  the effective date of the registration  statement (or the most
                  recent post-effective  amendment thereof) which,  individually
                  or in the  aggregate,  represent a  fundamental  change in the
                  information set forth in the registration statement;


                                      II-3
<PAGE>

            (iii) To include any material  information  with respect to the plan
                  of distribution  not previously  disclosed in the registration
                  statement or any material  change to such  information  in the
                  registration statement;

            PROVIDED, HOWEVER, that paragraphs (a)(1) (i) and (a)(1) (ii) do not
            apply if the information required to be included in a post-effective
            amendment by those paragraphs is contained in periodic reports filed
            by the  registrants  pursuant to section 13 or section  15(d) of the
            Securities  Exchange Act of 1934 that are  incorporated by reference
            in the registration statement.

      (2)   That,  for the  purpose  of  determining  any  liability  under  the
            Securities Act of 1933, each such post-effective  amendment shall be
            deemed to be a new registration statement relating to the securities
            offered  therein,  and the offering of such  securities at that time
            shall be deemed to be the initial BONA FIDE offering thereof.

      (3)   To remove from  registration by means of a post-effective  amendment
            any of the securities  being  registered  which remain unsold at the
            termination of the offering.

(b)   That, for purposes of determining  any liability  under the Securities Act
      of 1933, each filing of the registrants' annual report pursuant to section
      13(a) or  section  15(d) of the  Securities  Exchange  Act of 1934 that is
      incorporated by reference in this  registration  statement shall be deemed
      to be a new  registration  statement  relating to the  securities  offered
      thereby,  and the offering of such securities at that time shall be deemed
      to be the initial BONA FIDE offering thereof.

(c)   Insofar as  indemnification  for liabilities  arising under the Securities
      Act of 1933  may be  permitted  to  directors,  officers  and  controlling
      persons of the registrants  pursuant to the provisions referred to in Item
      15 of this registration statement,  or otherwise,  the registrant has been
      advised that in the opinion of the Securities and Exchange Commission such
      indemnification  is against  public policy as expressed in the  Securities
      Act of 1933 and is,  therefore,  unenforceable.  In the event that a claim
      for  indemnification  against such liabilities  (other than the payment by
      the  registrant  of expenses  incurred  or paid by a director,  officer or
      controlling  person of the  registrant  in the  successful  defense of any
      action,  suit or  proceeding)  is  asserted by such  director,  officer or
      controlling person in connection with the securities being registered, the
      registrants will, unless in the opinion of its counsel the matter has been
      settled  by  controlling  precedent,  submit  to a  court  of  appropriate
      jurisdiction the question whether such  indemnification by them is against
      public  policy as  expressed  in the Act and will be governed by the final
      adjudication of such issue.

(d)   The  registrants  hereby  undertake to provide to the  underwriter  at the
      closing  specified  in the  underwriting  agreement  certificates  in such
      denominations  and registered in such names as required by the underwriter
      to permit prompt delivery to each purchaser.

(e)   The registrants hereby undertake that:

      (1)   For purposes of determining  any liability  under the Securities Act
            of 1933, the information  omitted from the form of prospectus  filed
            as part of this  registration  statement in reliance  upon Rule 430A
            and  contained  in a form  of  prospectus  filed  by the  registrant
            pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
            shall be deemed to be part of this registration  statement as of the
            time it was declared effective.

      (2)   For the purpose of  determining  any liability  under the Securities
            Act of 1933, each  post-effective  amendment that contains a form of
            prospectus  shall  be  deemed  to  be a new  registration  statement
            relating to the securities offered therein, and the offering of such
            securities  at that time shall be deemed to be the initial bona fide
            offering thereof.


                                      II-4
<PAGE>

                                   SIGNATURES

      Pursuant  to  the   requirements  of  the  Securities  Act  of  1933,  the
registrants,  PSE&G Capital Trust III and PSE&G Capital Trust IV each  certifies
that it has reasonable  grounds to believe it meets all of the  requirements for
filing on Form S-3 and has duly caused this Registration  Statement to be signed
on its behalf by the  undersigned,  thereunto  duly  authorized,  in the City of
Newark, State of New Jersey, on this 27th day of December, 2001.

                                       PSE&G CAPITAL TRUST III

                                       BY: PUBLIC SERVICE ELECTRIC AND
                                           GAS COMPANY, AS DEPOSITOR

                                       BY:          /s/ ROBERT E. BUSCH
                                           -------------------------------------
                                                      Robert E. Busch

                                       PSE&G CAPITAL TRUST IV

                                       BY: PUBLIC SERVICE ELECTRIC AND
                                           GAS COMPANY, AS DEPOSITOR

                                       BY:          /s/ ROBERT E. BUSCH
                                           -------------------------------------
                                                      Robert E. Busch


                                      II-5
<PAGE>

                                   SIGNATURES

      Pursuant  to  the   requirements  of  the  Securities  Act  of  1933,  the
registrant,  Public  Service  Electric  and Gas Company,  certifies  that it has
reasonable  grounds to believe  it meets all of the  requirements  for filing on
Form S-3 and has duly caused  this  Registration  Statement  to be signed on its
behalf by the  undersigned,  thereunto duly  authorized,  in the City of Newark,
State of New Jersey, on this 27th day of December, 2001.

                                       Public Service Electric and Gas Company

                                       BY:          /s/ ROBERT E. BUSCH
                                           -------------------------------------
                                                      Robert E. Busch
                                                   Senior Vice President

      Pursuant  to  the  requirements  of  the  Securities  Act  of  1933,  this
Registration  Statement  has  been  signed  by  the  following  persons  in  the
capacities and on the dates indicated.

        Signature                      Capacity                      Date
        ---------                      --------                      ----
  /s/ E. James Ferland        Principal Executive Officer      December 27, 2001
--------------------------    and Director
    E. James Ferland

   /s/ Robert E. Busch        Principal Financial Officer      December 27, 2001
--------------------------
     Robert E. Busch

  /s/ Patricia A. Rado        Principal Accounting Officer     December 27, 2001
--------------------------
    Patricia A. Rado

      This  Registration  Statement  has also been  signed  by Robert E.  Busch,
Attorney-in-Fact, on behalf of the following Directors on December 27, 2001.

Albert R. Gamper, Jr.
Conrad K. Harper
Marilyn M. Pfaltz

                                       BY:          /s/ ROBERT E. BUSCH
                                          --------------------------------------
                                                      Robert C. Busch
                                                      Attorney-in-Fact


                                      II-6
<PAGE>

                                 EXHIBIT INDEX

Exhibit
-------

1-1a     Form  of  Terms  and  Conditions  Relating  to  Bids  for  Senior  Debt
         Securities.*
1-1b     Form of Bid with Form of Purchase Agreement Attached.*
1-2      Form of Underwriting Agreement for Trust Preferred Securities.*
3-1      Certificate of Trust for PSE&G Capital Trust III.(1)
3-2      Certificate of Trust for PSE&G Capital Trust IV.
3-3      Trust Agreement for PSE&G Capital Trust III.(2)
3-4      Trust Agreement for PSE&G Capital Trust IV.
3-5      Form of Amended and Restated  Trust  Agreement  for PSE&G Capital Trust
         III.(3)
3-6      Form of Amended and Restated  Trust  Agreement  for PSE&G Capital Trust
         IV.*
4-1      Form of Preferred  Security  Certificate  for PSE&G  Capital  Trust III
         (included in Exhibit 3-5).
4-2      Form of  Preferred  Security  Certificate  for PSE&G  Capital  Trust IV
         (included in Exhibit 3-6).
4-3      Form of Deferrable Interest Subordinated Debenture (included in Exhibit
         4-5).
4-4      Deferrable Interest Subordinated Debenture Indenture.(4)
4-5      Form  of  Deferrable  Interest  Subordinated   Debenture   Supplemental
         Indenture.(5)
4-6      Indenture dated as of December 1, 2000 between Public Service  Electric
         and Gas Company and First Union  National  Bank, as Trustee,  providing
         for Senior Debt Securities.
4-7      Form of Senior Debt Security.
4-8      Form of Guarantee Agreement for PSE&G Capital Trust III.(6)
4-9      Form of Guarantee Agreement for PSE&G Capital Trust IV.*
5-1      Opinion of James T. Foran, Esquire relating to the validity of the Debt
         Securities, the Debentures and the Guarantees, including consent.
5-2      Opinion of Richards,  Layton & Finger,  P.A., special Delaware counsel,
         relating to the validity of the  Preferred  Securities of PSE&G Capital
         Trust III, including consent.
5-3      Opinion of Richards,  Layton & Finger,  P.A., special Delaware counsel,
         relating to the validity of the  Preferred  Securities of PSE&G Capital
         Trust IV, including consent.
8        Opinion of Ballard Spahr Andrews & Ingersoll, LLP, special tax counsel,
         as to tax matters, including consent.
12-1     Computations  of Ratios of Earnings to Fixed Charges  (incorporated  by
         reference to Exhibit  12(a) to PSE&G's  Annual  Report on Form 10-K for
         the year ended December 31, 2000).
12-2     Computations  of Ratios of Earnings  to Fixed  Charges  plus  Preferred
         Stock Dividend Requirements (incorporated by reference to Exhibit 12(b)
         to PSE&G's  Annual Report on Form 10-K for the year ended  December 31,
         2000).
23-1     Consent of Independent Auditors.
23-2     Consent of James T. Foran, Esquire (included in Exhibit 5-1).
23-3     Consents of Richards,  Layton & Finger,  P.A. (included in Exhibits 5-2
         and 5-3).
23-4     Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 8).
24       Power of Attorney.
25-1     Statement of Eligibility under the Trust Indenture Act of 1939 of First
         Union  National Bank, as Indenture  Trustee under the Senior  Indenture
         for Public Service Electric and Gas Company.
25-2     Statement of Eligibility under the Trust Indenture Act of 1939 of First
         Union National Bank, as Indenture Trustee under the Deferrable Interest
         Subordinated  Debenture Indenture and Deferrable Interest  Subordinated
         Debenture Supplemental Indenture.
25-3     Statement of Eligibility under the Trust Indenture Act of 1939 of First
         Union National Bank, as Property Trustee under the Amended and Restated
         Trust Agreement for PSE&G Capital Trust III.
25-4     Statement of Eligibility under the Trust Indenture Act of 1939 of First
         Union National Bank, as Property Trustee under the Amended and Restated
         Trust Agreement for PSE&G Capital Trust IV.

<PAGE>

Exhibit
-------

25-5     Statement of Eligibility under the Trust Indenture Act of 1939 of First
         Union National Bank, as Guarantee Trustee under the Guarantee Agreement
         for PSE&G Capital Trust III.
25-6     Statement of Eligibility under the Trust Indenture Act of 1939 of First
         Union National Bank, as Guarantee Trustee under the Guarantee Agreement
         for PSE&G Capital Trust IV.

----------
*     To be filed by amendment.
(1)   Previously filed as Exhibit 3-3 to Registration Statement on Form S-3, No.
      333-2763, and incorporated herein by reference.
(2)   Previously filed as Exhibit 3-6 to Registration Statement on Form S-3, No.
      333-2763, and incorporated herein by reference.
(3)   Previously filed as Exhibit 3-9 to Registration Statement on Form S-3, No.
      333-2763, and incorporated herein by reference.
(4)   Previously  filed as Exhibit 4e(1) to Quarterly  Report on Form 10-Q dated
      May 13, 1998, File No.001-00973, and incorporated herein by reference.
(5)   Previously filed as Exhibit 4-4 to Registration Statement on Form S-3, No.
      333-2763, and incorporated herein by reference.
(6)   Previously filed as Exhibit 4-7 to Registration Statement on Form S-3, No.
      333-2763, and incorporated herein by reference