WHOLESALE POWER CONTRACT

                                     between

                        PSEG ENERGY RESOURCES & TRADE LLC

                                       and

                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY

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                                TABLE OF CONTENTS


Section Title                                                             Page
-------------                                                             ----

1.0      Definitions.........................................................1

2.0      Commitments and Availability........................................4

3.0      Point of Delivery...................................................4

4.0      Scheduling .........................................................5

5.0      Scheduling Coordination Services....................................5

6.0      Authority to Act as Agent...........................................6

7.0      Billing and  Payment ...............................................7

8.0      Price...............................................................8

9.0      Events of Default...................................................9

10.0     Interruptions and Curtailments.....................................10

11.0     Indemnification....................................................10

12.0     Limitation of Liability............................................10

13.0     Force Majeure......................................................10

14.0     Term ..............................................................11

15.0     Miscellaneous......................................................11


<PAGE>

                            WHOLESALE POWER CONTRACT

      THIS WHOLESALE POWER CONTRACT  ("Agreement"),  made and entered into as of
this day of, 1999 by and between  PSEG Energy  Resources & Trade LLC, a Delaware
limited  liability  company,  herein  referred to as "ERT",  and Public  Service
Electric  and Gas  Company,  a New Jersey  Corporation,  herein  referred  to as
"PSE&G".

                                   WITNESSETH

      WHEREAS,  on April  21,  1999 the New  Jersey  Board of  Public  Utilities
("NJBPU")  issued an order  summarizing  the terms of a final order to be issued
("NJBPU  Order")  requiring  PSE&G to  transfer  all of its  nuclear  and fossil
electric  generating  assets  to  one  or  more  separate  affiliated  corporate
entities;

      WHEREAS,  the NJBPU Order directs PSE&G to supply Basic Generation Service
("BGS") for a period of at least three years to those  retail  customers  served
from its system that choose not to purchase their power supply from  alternative
competitive suppliers;

      WHEREAS, the NJBPU Order requires that, in order to ensure the reliability
of supply for BGS provided by PSE&G, to remove the risk of price volatility from
the  regulated  utility in providing  such service,  and to further  ensure that
PSE&G can meet its obligations under its Off-Tariff Rate Agreements, PSE&G shall
enter into a full requirements contract with an affiliate for energy,  capacity,
losses and ancillary  services  needed by PSE&G for such  specified  retail load
during the time period  that PSE&G is acting as the BGS  supplier in its service
territory,

      WHEREAS, ERT and PSE&G are entering into this Agreement for the purpose of
establishing  the terms and  conditions  under  which ERT will  supply such full
requirements  service  to PSE&G  for  energy,  capacity,  losses  and  ancillary
services.

      NOW, THEREFORE,  in consideration of the premises and the mutual covenants
set forth herein, the Parties hereto agree as follows:

1.0 DEFINITIONS

      For all purposes of this  Agreement  the  following  terms as used in this
Agreement shall have the following meanings.  Except where the context otherwise
requires,  definitions  and terms  expressed  in the  singular  will include the
plural and vice versa.

      "Adjustment  Interest  Rate" means the prime interest rate for currency as
published from time to time under "Money Rates" by The Wall Street  Journal,  or
its successor,  as of the payment due date and/or default date,  plus 2%, but in
no event shall the  Adjustment  Interest  Rate exceed the maximum  interest rate
permitted by law.

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      "Aggregate Retail Load" means the BGS and Off-Tariff Rate Agreement retail
load of PSE&G during the Delivery Term.

      "Agreement"  means this Wholesale Power Contract,  including  attachments,
and any amendments hereto entered into by PSE&G and ERT.

      "Ancillary  Services" means one or more of those services that are defined
as ancillary  services  under the PJM OATT or under the  applicable  open access
transmission tariff of another  transmission  service provider pursuant to which
ERT is or may be supplying such services.

      "BGS" means the retail electric  generation  service  provided by PSE&G to
its customers in New Jersey in accordance with the New Jersey Electric  Discount
and Energy Competition Act of 1999, the BPU Order and PSE&Gs BGS tariffs on file
with the BPU;

      "Capacity"  means the capacity  reserves that ERT agrees to sell and PSE&G
agrees  to  purchase  pursuant  to  this  Agreement  in  order  to  satisfy  the
requirements for capacity  pursuant to the PJM Reliability  Assurance  Agreement
during the Delivery Term.

      "Commission"  means  the  Federal  Energy  Regulatory  Commission  or  any
successor federal agency having regulatory jurisdiction over the Agreement.

      "Energy"  means  the  electric  energy  that ERT  agrees to sell and PSE&G
agrees to purchase pursuant to this Agreement to serve the Aggregate Retail Load
during the Delivery Term.

      "ERT" means PSEG  Energy  Resources  & Trade LLC, a  subsidiary  of Public
Service Enterprise Group Incorporated, and a limited liability company organized
under the laws of the State of Delaware, its successors or assigns.

      "Delivery  Term" means the period  commencing on the latest of (a) October
1, 1999, (b) the date on which all acceptances  and approvals  required for this
Agreement to become effective have been obtained, or (c) the date this Agreement
is executed by the Parties at closing, and ending on July 31, 2002, during which
ERT will be obligated  to sell and PSE&G will be  obligated  to purchase  Power,
losses and Ancillary Services for PSE&G's Aggregate Retail Load.

      "Due  Diligence"  means the  exercise  of good faith  efforts to perform a
required act on a timely basis and in accordance with Prudent Utility  Practice,
using the technical and manpower resources reasonably available.

      "NJBPU" means the New Jersey Board of Public Utilities.

      "NJBPU Order" means the April 21, 1999 Order issued by the NJBPU ordering,
among other  things,  PSE&G to transfer  all  electric  generating  assets to an
affiliate(s) and to enter into a full  requirements  agreement with an affiliate
for energy,  capacity,  Ancillary Services, and losses for PSE&G's BGS customers
and Off-Tariff Rate Agreement Customers;

      "Off-Tariff  Rate Amendments"  Those  agreements  implemented by the NJBPU
prior to the


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execution of this Agreement whereby PSE&G provides electric service to specified
customers. The list of such agreements is attached hereto as Attachment 1.

      "Parties"  means ERT and PSE&G or the  assignee or successor of rights and
obligations to this Agreement. Party means one of the Parties.

      "PJM" means PJM Interconnection,  LLC, the independent system operator for
the PJM control  area  organized  and  operating  pursuant to the PJM  Operating
Agreement.

      "PJM  Operating  Agreement  " means the  Amended  and  Restated  Operating
Agreement of PJM Interconnection,  LLC, dated June 2, 1997 and effective January
1, 1998, as such agreement may be amended from time to time.

      "PJM OATT" means the PJM Open Access  Transmission  Tariff administered by
PJM, as such Tariff may be amended from time to time.

      "Point of  Delivery"  means a point on the electric  transmission  system,
where Power is to be made available to PSE&G under this Agreement.  The Point of
Delivery shall be the PSE&G Zone within PJM.

      "Power" means Capacity and Energy.

      "Physically  Firm" means that (1)  Capacity to meet the  Aggregate  Retail
Load shall be provided  throughout  the Delivery  Term and (2) that either Party
shall be relieved of its  obligations  to deliver or receive  Energy (but not of
its  obligation to make payment then due and becoming due with respect to Energy
delivered) only to the extent that, and for the period during which, performance
is prevented by Force Majeure.

      "Prudent Utility Practice" means any of the practices,  methods,  and acts
required  or approved  by PJM acting  pursuant to the PJM OATT or PJM  Operating
Agreement,  or engaged in or approved by a  significant  portion of the electric
utility  industry  during the  relevant  time period,  or any of the  practices,
methods,  and acts which, in the exercise of reasonable judgment in light of the
facts  known at the time the  decision  was made,  could have been  expected  to
accomplish the desired result at the lowest reasonable cost consistent with good
business  practices,   reliability,  safety,  and  expedition.  Prudent  Utility
Practice is not intended to be limited to the optimum practice,  method, or act,
but rather to be a spectrum of acceptable practices, methods, or acts.

      "Relevant  Control Area" means an electric  power system or combination of
electric power systems to which a common automatic  generation control scheme is
applied in order to:

            (i) match, at all times,  the power output of the generators  within
      the electric  power  system(s) and Capacity  and/or Energy  purchased from
      entities  outside the electric power  system(s),  with the load within the
      electric power system(s);

            (ii) maintain,  within the limits in accordance with Prudent Utility
      Practice, scheduled interchange with other relevant control areas;


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            (iii) maintain the frequency of the electric power system(s)  within
      reasonable limits in accordance with Prudent Utility Practice; and

            (iv) provide  sufficient  generating  capacity to maintain operating
      reserves in accordance with Prudent Utility Practice.

      "Scheduling Coordination Services " means those services other than Power,
losses,   and  Ancillary  Services  that  ERT  provides  under  this  Agreement.
Scheduling Coordination Services include forecasting Aggregate Retail Load, load
following,  load  scheduling,  load balancing,  tracking the installed  capacity
obligations  for Aggregate  Retail Load within the Relevant  Control  Area,  and
acting as PSE&G's  agent for the  purposes of  scheduling  transmission  service
using PSE&G's PJM network Transmission Service or other Transmission Service and
managing  PSE&G's  fixed  transmission   rights  and  providing  other  notices,
elections and reports as may be necessary to comply with other Relevant  Control
Area  requirements.  Scheduling  Coordination  Services  shall not  include  any
obligation  to provide or arrange  for retail  distribution  services  after the
Point of Delivery.

      "Transmission  Service" means the delivery of Power and Ancillary Services
pursuant to the PJM OATT or pursuant to another open access  transmission tariff
or transmission agreement on file with the Commission.

2.0 COMMITMENTS AND AVAILABILITY

      (a)   ERT agrees to provide and PSE&G agrees to receive  Power,  Ancillary
            Services  and  losses  to  meet  the  full  requirements  of  PSE&Gs
            Aggregate Retail Load during the Delivery Term.

      (b)   ERT  agrees  to  provide  Scheduling   Coordination   Services,   in
            accordance with the terms and conditions of this Agreement, to PSE&G
            for PSE&G's Aggregate Retail Load during the Delivery Term.

      (c)   Energy will be delivered  and  provided in the form of  three-phase,
            sixty (60) Hertz,  alternating current, with reasonable % variations
            of frequency and voltage  allowed  consistent  with Prudent  Utility
            Practices.

      (d)   ERT shall have the sole discretion to select Power supply  resources
            to provide  sufficient  quantities of Capacity,  Energy,  losses and
            Ancillary Services to PSE&G to meet Aggregate Retail Load; provided,
            however,  that ERT shall  comply with all federal and state laws and
            regulations   that  require   PSE&G  or  ERT  to  have  a  specified
            environmental  mix of power or to disclose the sources of Power used
            to supply Capacity and Energy during the Delivery Term.

3.0 POINT OF DELIVERY

      3.1  Title  to  Capacity,  Energy,  losses  and  Ancillary  Services  made
available in accordance with this Agreement shall pass to PSE&G at the Points of
Delivery.


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<PAGE>

      3.2 ERT shall be responsible  for arranging,  supplying and paying for any
and all transformer, transmission,  subtransmission,  and/or distribution losses
with respect to  transformation  and delivery of Capacity,  Energy and Ancillary
Services.

      3.3 Power  shall be  delivered  to the Points of  Delivery  using  PSE&G's
network  Transmission  Service acquired under the PJM OATT or other Transmission
Service  acquired to serve the Aggregate Retail Load. It is anticipated that PJM
will issue one bill for network  Transmission  Service during the Delivery Term.
To the extent that one PJM transmission  bill is issued,  the Parties agree that
ERT will be  responsible  for  payment  and receipt of credits set forth on that
portion of the PJM transmission  bill associated with the PJM accounts listed in
Attachment 2. PSE&G shall be responsible for payment of the remaining portion of
the PJM bill  associated  with network  Transmission  Service for the  Aggregate
Retail Load.

      3.4 Except as provided in 3.2,  PSE&G is  responsible  for  arranging  and
paying for all distribution services at and from the Point of Delivery.

4.0 SCHEDULING

      4.1 ERT  shall  schedule  with  PJM all  Capacity,  Energy  and  Ancillary
Services sold under this Agreement.

5.0 SCHEDULING COORDINATION SERVICES

      5.1 General.

      ERT shall be PSE&G's  exclusive  provider of Power,  losses and  Ancillary
Services for PSE&G's  Aggregate  Retail Load during the Delivery Term, and PSE&G
agrees that it will not generate,  purchase or otherwise obtain Power, losses or
Ancillary Services for use by its Aggregate Retail Load during the Delivery Term
unless otherwise agreed to in writing by ERT.

      5.2 Responsibilities of PSE&G.

      PSE&G will be responsible during the Delivery Term for:

      (a)   providing ERT with timely and accurate information regarding the BGS
            and Off-Tariff  Rate  Agreement  retail load being served under this
            Agreement  in order to permit ERT to properly  forecast and schedule
            for PSE&G's  Aggregate  Retail Load and bill PSE&G.  The information
            provided  to ERT by  PSE&G  will be of a  comparable  type  and in a
            comparable  format to the  information  PSE&G  would  provide to any
            licensed  retail  supplier  serving  load  in  PSE&G's  distribution
            territory.  PSE&G shall  provide to ERT the details of its Aggregate
            Retail Load to the degree  necessary  for ERT to properly and timely
            forecast,  schedule and bill PSE&G for such load. In addition, PSE&G
            shall provide timely notice to ERT of any changes,  either additions
            or deletions  (including  loss of or addition of  customers  and any
            anticipated  change in  customer  usage or usage  patterns),  to the
            retail load being served by PSE&G;


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<PAGE>

      (b)   making  and  maintaining  all  arrangements,   including   necessary
            contractual  arrangements,  with PJM to ensure that adequate network
            Transmission  Service has been obtained to serve  PSE&G's  Aggregate
            Retail Load during the Delivery Term;

      (c)   all  retail  sales  of  Power to its  customers,  including  but not
            limited to distribution of Power to retail customers and all billing
            and collection  services associated with providing service to retail
            customers;

      (d)   coordinating all forecasting, scheduling and billing with ERT; and

      (e)   providing  ERT  all   authorizations  or  other   demonstrations  of
            authority required for ERT to gain access to PSE&G's PJM account for
            the provision of  Scheduling  Coordination  Services,  to the extent
            permitted by PJM rules.

      (f)   Paying any load imbalance charges,  penalties, costs associated with
            acquiring  or  selling  supplies  due to a  shortage  or  excess  of
            Capacity or Energy, or any other costs  attributable to a failure by
            PSE&G to fulfill its obligations hereunder.

      5.3   Responsibilities of ERT.

      ERT   shall be responsible during the Delivery Term for:

      (a)   preparation  of load  forecasts for the Aggregate  Retail Load based
            upon the information supplied by PSE&G;

      (b)   making  available  sufficient  quantities  of  Power  and  Ancillary
            Services to meet the needs of the forecasted Aggregate Retail Load;

      (c)   arranging  for  transmission  using  PSE&G's  network   Transmission
            Service  or  other  transmission   Service  and  Ancillary  Services
            necessary to deliver sufficient  quantities of Power to the Point of
            Delivery;

      (d)  scheduling  and  coordinating  with PJM the delivery of Energy to the
Points  of  Delivery;  and  (e)  complying  with  all  environmental  disclosure
requirements as described in Section 2(d).

      5.4 No Retail Service

      By the provision of Scheduling  Coordination  Services,  ERT in no respect
agrees to sell energy or capacity  directly to any retail customers or engage in
any other retail functions;

6.0 AUTHORITY TO ACT AS AGENT

      6.1 In accordance with the NJBPU Order, PSE&G hereby transfers to ERT and


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<PAGE>

authorizes  ERT to act as its  agent for the  purpose  of  scheduling,  electing
and/or using all rights,  including fixed transmission rights and their credits,
associated with the provision of service for PSE&G's Aggregate Retail Load under
this  Agreement.  ERT shall be responsible  for costs related to such scheduling
activities to the same degree that it would be  responsible  for those costs for
other load serving entities.

      6.2 During the Delivery  Term,  ERT shall have the authority to direct the
administration  of PSE&Gs Active Load Management  ("ALM")  services that are not
otherwise  ordered by PJM. ERT will cooperate and coordinate all such activities
with  PSE&G.  ERT  will be  responsible  to  provide  adequate  notice  to PSE&G
regarding the  commencement  and cessation of ALM activities,  and PSE&G will be
responsible to provide subsequent notice to ALM customers.

7.0 BILLING AND PAYMENT

      7.1 Billing Period

      As soon as  practicable  after the end of each  billing  period,  ERT will
render to PSE&G an invoice for Capacity,  Energy and Ancillary Services provided
during the preceding billing period.

      7.2 Timeliness of Payment

      All bills for service shall be due and payable,  unless  otherwise  agreed
upon, in accordance with ERT's invoice instructions five (5) calendar days after
receipt of the billing  statement.  The invoice  will be sent via  facsimile  or
other means agreed to by the Parties. PSE&G will make payments by wire transfer,
or by other mutually agreeable method(s), to the account of ERT as designated by
ERT. Any amounts,  both principal and interest,  remaining  unpaid after the due
date  will be deemed  delinquent  and will  accrue  interest  at the  Adjustment
Interest Rate,  such interest to be calculated from the due date to the date the
unpaid amount is paid in full.

      7.3 Disputed Bills

      PSE&G may, in good faith,  challenge the  correctness of any bill rendered
under the Agreement no later than twelve (12) months after the date the bill was
rendered.  In the  event  a bill or  portion  thereof,  or any  other  claim  or
adjustment  arising hereunder,  is challenged,  PSE&G shall nevertheless pay the
entire amount of the statement  when due, with notice of the objection  given to
ERT at that time. Any billing  challenge shall be in writing and shall state the
specific basis for the  challenge.  If it is  subsequently  determined or agreed
that an adjustment to the bill is appropriate,  a revised bill shall be prepared
by ERT. A bill  rendered  under the  Agreement  shall be binding on PSE&G twelve
(12) months  after the bill is  rendered,  except to the extent of any  specific
challenge to the bill made by the PSE&G prior to such time.

      7.4 Billing Adjustments

      ERT shall have the right to adjust any bill  rendered  under the Agreement
for any  errors in  arithmetic,  computation,  meter  readings,  estimating,  or
otherwise no later than twelve (12) months after the date the bill was rendered.
Any billing adjustment shall be in writing and shall state the


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<PAGE>

specific basis for the adjustment.  A billing  adjustment shall constitute a new
bill for the purposes of this Section.  An adjusted bill shall be binding on ERT
twelve (12) months after the bill is rendered.

      Over-payments  or  underpayments  resulting  from a billing  adjustment or
billing  challenge  shall bear interest  calculated at the  Adjustment  Interest
Rate. In the case of an underpayment, interest shall accrue from the due date of
the bill to which the adjustment or challenge relates to the date the additional
charge is paid. In the case of an  overpayment,  interest  shall accrue from the
date the amount  being  refunded  was  received by ERT to the date the refund is
made.

      7.5 New Taxes

      ERT shall pay for all excise, severance, production, sales, occupation and
other taxes of like nature  levied in respect to the  Capacity or Energy,  their
sale, and the handling  thereof prior to the Point of Delivery.  PSE&G shall pay
for all such taxes  levied on such  Capacity  or Energy at and from the Point of
Delivery.  At ERT's request,  PSE&G shall provide  evidence of its wholesale tax
exempt status in a form  satisfactory to ERT. Absent such  documentation,  PSE&G
shall be responsible for such applicable tax.

      7.6 Creditworthiness

      ERT may request reasonable  assurances,  in a form satisfactory to ERT, of
PSE&G's continuing ability to pay for Power delivered pursuant to this Agreement
at any time during the Term if all of PSE&G's  ratings by nationally  recognized
rating agencies fall below investment grade.

8.0 PRICE

      8.1 Price for Energy,  Capacity  and  Ancillary  Services  for PSE&G's BGS
Customers.  The price that PSE&G will pay ERT for Energy, Capacity and Ancillary
Services  provided  to PSE&G for its  retail BGS  customers  shall be the amount
computed  for each billing  period  equal to the full amount  charged for BGS to
PSE&G's retail  customers  pursuant to PSE&G's retail tariffs,  on file with the
BPU, less any sales and use tax during the Delivery  Term.  Such amount shall be
taken  directly from portions of PSE&G's  retail tariff for electric  service on
file with the BPU.

      8.2  Price  for  Energy,  Capacity  and  Ancillary  Services  for  PSE&G's
Off-Tariff  Rate  Agreement  Customers.  The price  that  PSE&G will pay ERT for
Energy,  Capacity and Ancillary  Services  provided to PSE&G for its  Off-Tariff
Rate Agreement  customers  shall be the amount  computed for each billing period
equal to  PSE&G's  retail  delivery  to  Off-Tariff  Rate  Agreement  customers,
multiplied by the  comparable  BGS rate for such  customers  pursuant to PSE&G's
retail tariffs, on file with the BPU, less sales and use tax during the Delivery
Term. Such amount shall be taken directly from portions of PSE&G's retail tariff
for electric service on file with the BPU.

      8.3 Price  Stability  Charge.  The price for services  provided under this
Agreement shall also include a price stability  charge. In exchange for ensuring
the  reliability  of PSE&G's  BGS  service  and for  removing  the risk of price
volatility from PSE&G, and to further ensure that PSE&G


                                  Page 8 of 16
<PAGE>

is  capable  of meeting  its  contractual  obligations  in its  Off-Tariff  Rate
Agreements,  the BPU ordered that PSE&G pay ERT an additional  charge associated
with the price stability of ERT's affiliate's  combustion turbine assets,  which
shall be based on the installed  capacity of those assets. The additional charge
will be an amount  computed  for each  billing  period  equal to the full actual
amount  collected by PSE&G for its  unsecuritized  generation  stranded costs in
accordance  with the BPU Order  through its Market  Transition  Charge (MTC) and
other means during the Term of this Agreement.

9.0 EVENTS OF DEFAULT

      "Events of Default"  with respect to a Party  ("Defaulting  Party") to the
Agreement shall mean:

      (a)   the failure by the Defaulting  Party to make,  when due, any payment
            under the Agreement if such failure is not remedied on or before the
            third  (3rd)  business  day after  notice of such  failure to pay is
            received by the Party;

      (b)   the  failure by the  Defaulting  Party to observe  and  perform  its
            material obligations in accordance with this Agreement;

      (c)   the Defaulting  Party or any entity  guaranteeing the obligations of
            that Party (i) is generally not paying its debts as they become due;
            (ii) files or consents by answer or otherwise to the filing  against
            it of any petition or case seeking  relief under any Federal,  State
            or foreign  bankruptcy.  insolvency  or similar  law  (collectively,
            "Bankruptcy Laws"); (iii) makes a general assignment for the benefit
            of its creditors; (iv) applies for or consents to the appointment of
            a custodian,  receiver,  trustee,  conservator or other officer with
            similar powers over it or over any substantial  part of its property
            ("Custodian");  or (v) takes corporate action for the purpose of any
            of the foregoing;  (vi) is dissolved;  (vii) becomes insolvent or is
            unable or admits in writing its inability  generally to pay debts as
            they become due; (viii) or is unable to provide adequate  assurances
            to the other Party of its  continued  ability to perform;  provided,
            however,  that any such assurances required to be given with respect
            to creditworthiness, shall be governed by Section 7.6 above.

      (d)   a  court  or  governmental  authority.  agency,  instrumentality  or
            official  of  competent  jurisdiction  enters  or issues an order or
            decree  with  respect  to the  Defaulting  Party  (i)  appointing  a
            Custodian; (ii) constituting an order for relief under, or approving
            a  petition  or case  for  relief  or  reorganization  or any  other
            petition or case to take advantage of, any Bankruptcy Laws; or (iii)
            ordering its dissolution, winding-up or liquidation.

      In the Event of Default under  paragraph  (b), the  Defaulting  Party will
have one (1) day to cure the default  following receipt of a "Notice of Default"
from the  Non-Defaulting  Party. If the default is not cured within said one (1)
day, the Non-Defaulting  Party will have the right to obtain adequate assurances
as described in Section 7.6 effective  immediately  from default date or to seek
appropriate legal or equitable remedies.


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10.0 INTERRUPTIONS AND CURTAILMENTS

      10.1  The  Power  sold to  PSE&G  pursuant  to  this  Agreement  shall  be
Physically Firm,  provided,  however,  that ERT shall not be responsible for any
deficiencies  in power  quality of the  supply,  if such  deficiency  is without
negligence on ERT's part. In the event of an  interruption  or  curtailment by a
Party,  the Party  interrupting  the service  shall,  as promptly as  reasonably
practicable, give notice of such interruption or curtailment to the other Party.

      In the event that ERT is  prevented  from  delivering  Power or  Ancillary
Services to the Point of Delivery,  ERT shall use Prudent  Utility  Practices to
restore such delivery as soon as possible.

      10.2 Duty to Mitigate

      Each Party  agrees  that it has a duty to mitigate  damages and  covenants
that it will use commercially  reasonable efforts to minimize any damages it may
incur as a result of the other Party's  performance or  non-performance  of this
Agreement.

11.0 INDEMNIFICATION

      PSE&G shall  indemnify,  defend and hold ERT harmless from and against all
loss, cost and expense,  including court costs and reasonable attorney fees, for
any claims,  suits,  judgments,  demands,  actions or liabilities  (collectively
"injuries") growing out of the operations conducted or performance  hereunder by
PSE&G except for any such  injuries  caused by the gross  negligence  or willful
misconduct of ERT. ERT shall indemnify,  defend and hold PSE&G harmless from and
against  all loss,  cost and  expense,  including  court  costs  and  reasonable
attorney fees, for any claims, suits, judgments, demands, actions or liabilities
(collectively "injuries") growing out of the operations conducted or performance
hereunder by ERT, except for any such injuries caused by the gross negligence or
willful misconduct of PSE&G.

12.0 LIMITATION OF LIABILITY

      For  breach of any  provision  for which an  express  remedy or measure of
damages is provided in this  Agreement,  the liability of the  defaulting  Party
shall be  limited  as set  forth in such  provision,  and all other  damages  or
remedies  are hereby  waived.  If no remedy or  measure of damages is  expressly
provided,  the  liability  of the  defaulting  Party  shall be limited to direct
damages only and all other damages and remedies are hereby  waived.  In no event
shall either Party be liable to the other Party for  consequential,  incidental,
punitive, exemplary or indirect damages in tort, for contract or otherwise.

13.0 FORCE MAJEURE

      As used in this  Agreement,  "Force  Majeure"  means any cause  beyond the
reasonable  control  of,  and  without  the fault or  negligence  of,  the Party
claiming Force Majeure. It shall include, without limitation,  sabotage, strikes
or other labor  difficulties,  riots or civil  disturbance,  acts of God, act of
public enemy, drought, earthquake, flood, explosion, fire, lightning, landslide,
or similarly cataclysmic


                                 Page 10 of 16
<PAGE>

occurrence,  or appropriation,  diversion or interruption of Power by PJM or any
court or governmental authority having jurisdiction thereof, or any other cause,
whether of the kind herein enumerated,  or otherwise,  not within the control of
the Party  claiming  suspension  and which by the exercise of Due Diligence such
Party is unable to prevent or overcome.  Economic hardship of either Party shall
not constitute a Force Majeure under this  Agreement,  including (i) the loss of
the PSE&G's  markets or inability  economically to use or resell Capacity and/or
Energy,  and (ii) the loss or failure of ERT's ability to sell  Capacity  and/or
Energy to a market at a more advantageous price.

If either Party to this Agreement is rendered wholly or partly unable to perform
its obligations thereunder because of Force Majeure as defined above, that Party
shall be excused from whatever  performance  is affected by the Force Majeure to
the extent so affected, provided that:

            (i) the  non-performing  Party promptly,  but in no case longer than
      three (3) business days after the occurrence of the Force  Majeure,  gives
      the  other  Party  written  notice   describing  the  particulars  of  the
      occurrence;

            (ii) the suspension of performance  shall be of no greater scope and
      of no longer  duration than is reasonably  required by the Force  Majeure,
      and

            (iii) the  non-performing  Party  used Due  Diligence  to remedy its
      inability to perform.

Neither  Party to this  Agreement  will be required by the foregoing to settle a
strike  affecting  it  except  when,  according  to its  best  judgment,  such a
settlement  seems  advisable.  Nothing in this  Section  will excuse  PSE&G from
making payment for services provided under this Agreement.

14.0 TERM

      The  Term of this  Agreement  shall  be the  period  commencing  with  the
beginning of the Delivery Term and ending on July 31. 2003.

15.0 MISCELLANEOUS

15.1 Withdrawal.

      If the Commission,  or any court or agency having  jurisdiction  over this
Agreement,  finds any term or  condition to be unjust,  unreasonable,  otherwise
unlawful,  or incompatible  with regulatory  policy,  the Parties shall mutually
withdraw all or any portion of this  Agreement  and enter into  negotiations  of
such changes as are reasonably  required to conform to the  requirements of law;
provided  that the  Parties  may  choose  to  terminate  this  Agreement  if the
Commission,  or any  court or agency  having  jurisdiction  over this  Agreement
requires a material change hereto that either Party deems to be unacceptable.


                                 Page 11 of 16
<PAGE>

      15.2 Assignment.

      Neither Party shall assign this Agreement or any part thereof  without the
prior  written  consent of the other  Party  (which  such  consent  shall not be
unreasonably  withheld),  except  that either  Party may assign  this  Agreement
without the consent of the other Party to an affiliate  or to any company  which
shall succeed by purchase,  merger or consolidation  to the electric  properties
substantially  as an entirety of a Party.  Any Party's transfer or assignment in
violation of this section shall be void.

      15.3 Applicable Laws, Regulations, Orders, Approvals, and Permits.

      This  Agreement  is made  subject  to all  existing  or future  applicable
federal,  state,  and local laws and to all existing or future duly  promulgated
orders or other duly  authorized  actions  of  governmental  authorities  having
jurisdiction over the matters contained in Agreement.

      15.4 Choice of Law and Jurisdiction.

      The   interpretation  and  performance  of  this  Agreement  shall  be  in
accordance with the laws of the State of New Jersey,  excluding conflicts of law
principles  that  would  require  the  application  of the  laws of a  different
jurisdiction.  Any dispute  arising out of or related to this Agreement shall be
litigated in a court of the State of New Jersey. Each Party expressly submits to
the  jurisdiction  of the  Courts of the State of New  Jersey,  and the  federal
courts situated in Newark and to service of process by certified mail.

      15.5 Counterparts to this Agreement.

      This Agreement may be executed in any number of counterparts each of which
shall be an original,  but all of which  together  shall  constitute one and the
same instrument.

      15.6 Notices.

      Unless otherwise provided in this Agreement,  any notice, consent or other
communication  required to be made under this Agreement  shall be in writing and
shall be delivered in person, by certified mail (postage prepaid, return receipt
requested) or by nationally  recognized overnight courier (charges prepaid),  in
each case properly  addressed to such Party as shown below, or sent by facsimile
transmission to the facsimile number indicated below:

      ERT:

      Manager - Electric Trading Operations
      PSEG Energy Resources & Trade LLC
      80 Park Plaza
      Newark, NJ 07101


                                 Page 12 of 16
<PAGE>

      PSE&G:

      Manager - BGS Service
      PSE&G
      80 Park Plaza
      Newark, NJ 07101

Either Party may from time to time change its address for the purpose of notices
or other  communications  to that  Party by a similar  notice  specifying  a new
address,  but no such change shall be effective until it is actually received by
the  Party  sought  to be  charged  with its  contents  All  notices  and  other
communications  required or permitted under this Agreement that are addressed as
provided in this Section shall be deemed to have been given (i) upon delivery if
given by overnight courier or regular mail or (ii) upon automatically  generated
confirmation if given by facsimile.

      15.7 Confidentiality.

      Each  Party  agrees  that  it  will  treat  in  strictest  confidence  all
documents,   materials  and  other   information   marked   "Confidential"   or"
Proprietary"  by the disclosing  Party  ("Confidential  Information"),  which it
shall  have  obtained  regarding  the  other  Party  during  the  course  of the
negotiations  leading  to,  and its  performance  of,  this  Agreement  (whether
obtained before or after the date of this Agreement).  Confidential  Information
shall not be  communicated  to any third person  (other than to its  affiliates,
counsel, accountants,  financial or tax advisors, or insurance consultants or in
connection with its  financing);  provided that in the event the receiving Party
is required by law,  regulation  or court  order to  disclose  any  Confidential
Information,  the receiving Party will promptly  notify the disclosing  Party in
writing  prior  to  making  any such  disclosure  in  order  to  facilitate  the
disclosing  Party's seeking a protective order or other appropriate  remedy from
the proper  authority  and further  provided  that the  receiving  Party further
agrees that if the  disclosing  Party  ultimately  discloses  such  Confidential
Information to the  requesting  legal body, it will furnish only that portion of
the  Confidential  Information  which is legally  required and will exercise all
reasonable  efforts to obtain reliable  assurances that  confidential  treatment
will be accorded the Confidential Information.  The obligations of nondisclosure
and restricted use of Confidential Information shall survive the Closing and the
expiration or other termination of this Agreement until such obligations  expire
in accordance with their respective terms.

      15.8 Partial Invalidity.

      Wherever  possible,  each  provision  hereof shall be  interpreted in such
manner as to be effective and valid under applicable law, but in case any one or
more of the provisions  contained  herein shall,  for any reason,  be held to be
invalid,  illegal or  unenforceable  in any  respect,  such  provision  shall be
ineffective  to  the  extent,  but  only  to the  extent,  of  such  invalidity,
illegality  or  unenforceability  without  invalidating  the  remainder  of such
invalid,   illegal  or  unenforceable  provision  or  provisions  or  any  other
provisions  hereof,  unless such a construction  would be  unreasonable.  In the
event that such a construction would be unreasonable or would deprive a Party of
a material  benefit under this  Agreement,  the Parties shall seek to amend this
Agreement  to remove the invalid  provision  and  otherwise  provide the benefit
unless prohibited by law.


                                 Page 13 of 16
<PAGE>

      15.9 Waivers.

      The failure of either Party hereto to enforce at any time any provision of
this Agreement shall not be construed to be a waiver of such  provision,  nor in
any way to affect the validity of this Agreement or any part hereof or the right
of a Party  thereafter to enforce each and every such provision.  A waiver under
this  Agreement  must be in writing and state that it is a waiver.  No waiver of
any breach of this  Agreement  shall be held to constitute a waiver of any other
or subsequent breach.

      15.10 Entire Agreement and Amendments.

      This Agreement  supersedes all previous  representations,  understandings,
negotiations and agreements either written or oral between the Parties hereto or
their  representatives with respect to the subject matter hereof and constitutes
the entire  agreement of the Parties with respect to the subject  matter hereof.
No  amendments  or changes to this  Agreement  shall be binding  unless  made in
writing  and duly  executed  by both  Parties  and  accepted  or approved by the
Commission.

      15.11 No Third-Party Beneficiaries.

      Nothing in this  Agreement,  whether  express or  implied,  is intended to
confer  any  rights or  remedies  under or by reason  of this  Agreement  on any
persons other than the Parties and their  respective  permitted  successors  and
assigns,  nor is anything in this Agreement intended to relieve or discharge the
obligation or liability of any third  persons to either  Party,  nor to give any
third persons any right of subrogation or action against either Party.

      15.12 Further Assurances.

      If either Party  determines in its reasonable  discretion that any further
instruments,  assurances or other things are necessary or desirable to carry out
the terms of this  Agreement,  the other Party will execute and deliver all such
instruments and assurances and do all things  reasonably  necessary or desirable
to carry out the terms of this Agreement.

      15.13 Headings.

      The headings contained in this Agreement arc solely for the convenience of
the  Parties  and  should  not be  used or  relied  upon  in any  manner  in the
construction or interpretation of this Agreement.

      15.14 Sections.

      Unless  otherwise  specified  references  in this  Agreement  to  numbered
Sections and Subsections shall be to Sections and Subsections of this Agreement.


                                 Page 14 of 16
<PAGE>

      15.15 Commission Review.

      In connection  with any Commission  review of the Agreement,  in the event
the Commission modifies any term or condition,  alters any charge(s),  or in any
way conditions its acceptance of the Agreement, and either Party determines that
it is adversely  affected in a material  way by such  Commission  action  and/or
decision,  the Parties hereby agree to promptly negotiate,  in good faith, in an
effort to reach  agreement  on terms and  conditions  mutually  agreeable to the
Parties  relative to the subject  matter of the  Agreement.  If no  agreement is
reached  within sixty (60) days after such  Commission  action  and/or  decision
either party shall have the right to terminate or cancel the Agreement by filing
written notice of termination or cancellation  with the Commission and serving a
copy thereof on the other Party.  Any such notice must be filed and served after
such sixty (60) day period but no later than  seventy-five  (75) days after such
Commission  decision is final and not subject to any further  administrative  or
judicial review; provided, however, that neither Party is obligated to seek such
further review.

      15.16 Changes.

      This Agreement  shall be changed solely by written  amendment  executed by
both Parties.  It is the intent of the Parties that this Agreement  shall not be
subject to change  pursuant to Section 206 of the Federal Power Act except where
the Commission  determines  pursuant to Section 206 that such change is required
by the public interest.

      15.17 Amendments Included.

      Reference  to,  and  the  definition  of,  any  document  (including  this
Agreement)  shall be deemed a reference  to such  document as it may be amended,
amended and restated, supplemented or modified from time to time.

      15.18 Successors Included.

      Reference to any individual, corporation or other entity shall be deemed a
reference to such  individual,  corporation  or other entity,  together with its
successors and permitted assigns from time to time.

      15.19 Number, Gender and Inclusion.

      Defined terms in the singular shall include the plural and vice versa, and
the masculine, feminine or neuter gender shall include all genders. Whenever the
words "include," "includes," or "including" are used in this Agreement, they are
not  limiting  and  have  the  meaning  as if  followed  by the  words  "without
limitation."


                                 Page 15 of 16
<PAGE>

IN WITNESS  WHEREOF,  the Parties  hereto have executed this Agreement as of the
date set forth at the beginning of this Agreement.

PSEG Energy Resources & Trade LLC


By:__________________________________



Public Service Electric and Gas Company


By:__________________________________


                                 Page 16 of 16
<PAGE>

                                  ATTACHMENT I

                           OFF-TARIFF RATE AGREEMENTS

                     APPROVED OR PENDING AS OF MARCH 3,1999

APPROVED

PSE&G OTRA 96-1                             Circuit Foil

PSE&G OTRA 96-2                             Ford

PSE&G OTRA 96-3                             Merck

PSE&G OTRA 97-1                             Ball Plastic

PSE&G OTRA 97-2                             Aluminum Shapes

PSE&G OTRA 97-3                             BASF

PSE&G OTRA 97-4                             Camden Iron

PSE&G OTRA 97-5                             Amerada Hess

PSE&G OTRA 97-6                             Passaic Valley Sewerage Commission

PSE&G OTRA 97-7                             Johnson & Johnson

PSE&G OTRA 97-8                             Union Carbide

PSE&G OTRA 97-9                             Port Authority Transit Corporation

PSE&G OTRA 98-1                             Nabisco

PSE&G OTRA 98-2                             Passaic Valley Sewerage Commission
                                              One year extension of OTRA 97-6
PENDING
PSE&G OTRA 98-3                             Marcal

PSE&G OTRA 99-1                             Garwood Paper

PSE&G OTRA 99-2                             Daily News

PSE&G OTRA 99-3                             Huntsman


                                    (Page 1)

<PAGE>

                                  ATTACHMENT 2

                             PJM CHARGES AND CREDITS

                           TO BE PAID/RECEIVED BY ERT

Schedule 1, 3.2.1                  Spot Market Energy charges

Schedule 1, 3.2.2                  Regulation charges

Schedule 1, 3.2.3                  Operating Reserves charges

Schedule 1, 3.2.4, 3.4.1           Transmission Congestion charges

Schedule 1, 3.4.2                  Transmission Losses charges

Schedule 1, 3.2.6, 3.2.4           Emergency Energy charges

Schedule 1.3.6                     Meter Error Correction charges

Schedule 11                        Capacity Credit Market charges

Schedule 1, 3.3.1                  Spot Market Energy credits

Schedule 1, 3.3.2                  Regulation credits

Schedule 1 , 3.3.3                 Operating Reserves credits

Schedule 1, 3.2.4, 3.4.1           Transmission Congestion credits with respect
                                   to fixed transmission rights

Schedule 1, 3.2.5                  Transmission Losses credits

Schedule 1, 3.2.6, 3.2.4           Emergency Energy credits

Schedule 11                        Capacity Credit Market credits

Schedule IA                        RTO Scheduling, System Control and Dispatch
                                   Service Charges

Schedule 2                         Reactive Supply and Voltage Control from
                                   Generation Sources Service charge

Schedule 3                         Regulation and Frequency, Response Service
                                   charges

Schedule 4                         Energy Imbalance Service charges

Schedule 5                         Operating Reserves - Spinning Reserve and
                                   Supplemental Reserve Service charges

Schedule 7                         Long-Term - Yearly Delivery

Schedule 7                         Short-Term - Monthly Delivery


                                   (Page 2-a)

<PAGE>

                                  ATTACHMENT 2

                             PJM CHARGES AND CREDITS

                           TO BE PAID/RECEIVED BY ERT

Schedule 7                         Short-Term - Weekly Deliver

Schedule 7                         Short-Term - Daily Delivery

Schedule 7                         Congestion and Losses

Schedule 7                         Long-Term - Other Supporting Facilitates and
                                   Taxes

Schedule 7                         Short-Term - Other Supporting Facilities and
                                   Taxes

Schedule 8                         Monthly Delivery

Schedule 8                         Weekly Delivery

Schedule 8                         Daily Delivery

Schedule 8                         Hourly Delivery

Schedule 8                         Congestion and Losses

Schedule 8                         Other Supporting Facilities and Taxes

Schedule 2                         Reactive Supply and Voltage Control from
                                   Generation Sources
                                   Service credits

Schedule 4                         Energy Imbalance Service credits

Section 27a                        Non-Finn Point-to-Point Transmission Service
                                   credits


                                   (Page 2-b)