November 17, 1999

Lawrence R. Codey
1000 First Avenue
Spring Lake, NJ  07762

Dear Mr. Codey:

      This is to confirm certain terms of your employment as President and Chief
Operating Officer of Public Service Electric and Gas Company ("PSE&G"). The
State of New Jersey has rewritten the rules applicable to the governance of the
electric and gas industries, rules that had not been changed by the State in any
material respect since they were enacted in 1911. On February 9, 1999, the
Electric Discount and Competition Act was enacted, and on April 21, 1999, the
New Jersey Board of Public Utilities ("BPU") issued its initial restructuring
order relating to PSE&G. In order to effectively implement these broad industry
decisions with respect to PSE&G, and its parent Public Service Enterprise Group
Incorporated ("Enterprise"), further regulatory decisions, and possibly
legislative actions, and effective business planning and execution will be
required.

      Your efforts to achieve the best results for PSE&G and Enterprise in these
proceedings have been instrumental in setting a positive platform for Enterprise
and its subsidiaries to be successful energy companies in the future. You had
previously indicated longstanding plans to retire at age 55 in August of 1999,
but your agreement to continue your relationship with PSE&G through this
critical restructuring period and your agreement to refrain from working with
competitors for a limited time after retirement will help assure the future
success of Enterprise.

      Accordingly, and in light of your related work experience prior to
becoming employed by PSE&G, your terms of employment, to the extent that they
differ from those of other senior officers of PSE&G, are as follows:

1.    If you remain employed by PSE&G through February 28, 2000, unless earlier
      released by PSE&G, you shall be granted 10 additional years of service for
      the purpose of determining the amount of any pension benefits from PSE&G.

2.    During the course of your relationship with Enterprise and PSE&G, you have
      access to and shall become familiar with "Confidential Information" as
      defined below. You agree that you shall not, directly or indirectly,
      disclose or use any Confidential Information, except as required in the
      course of your relationship with Enterprise or its affiliates and
      subsidiaries and consistent with their interests. All files, records,
      documents, or recordings, electronic or otherwise, containing or relating
      to Confidential Information, whether prepared by you or otherwise coming
      into your possession, shall remain the exclusive property of Enterprise or
      its affiliates and subsidiaries. You shall return all Confidential
      Information to Enterprise upon termination of employment.

      As used herein, the term "Confidential Information" means all trade
      secrets, proprietary and confidential business information belonging to,
      used by, or in the possession of Enterprise or its affiliates and
      subsidiaries, with respect to their respective business strategies,
      mergers and acquisitions, plans and financial information, purchase or
      sale of property, leasing, pricing, sales programs or tactics, actual or
      past sellers, purchasers, lessees, lessors or customers, those with whom
      Enterprise or its affiliates and subsidiaries have begun negotiations for
      new business, costs, employee compensation, marketing and development
      plans, inventions and technology, whether such Confidential Information is
      oral, written or electronically recorded or stored, except information in
      the public domain, information known to you prior to your employment with
      PSE&G, and information received by you from sources other than Enterprise
      or its affiliates and subsidiaries, without obligation of confidentiality.
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      You further agree that for the period of 24 months following your
termination of employment with PSE&G, if Enterprise or PSE&G so requests, you
shall make yourself available for consultation on any business matter and
service as an agent of Enterprise or PSE&G in presenting information to
individuals, customer groups, employees, government officials, public interest
groups and other constituencies at a rate to be agreed. This consultation shall
not constitute employment by Enterprise or its subsidiaries or affiliates.

      You agree that the knowledge and information, including, but not limited
to, "Confidential Information" as defined above, gained in the performance of
your duties hereunder may be valuable to those who are now, or might become,
competitors of Enterprise or its affiliates and subsidiaries. Accordingly, you
agree that you will not, for the period of two years after termination of
employment, directly or indirectly, own, manage, operate, join, control, become
employed (whether as an employee or a consultant) by or participate in the
ownership, management, or control of, or become connected with, any business
which is in direct competition with Enterprise and/or its affiliates and
subsidiaries in New Jersey, New York, Pennsylvania, Maryland, Delaware,
Connecticut, Massachusetts or Virginia. It is agreed that the foregoing
restriction does not apply to your continued service as a director of Sealed Air
Corporation, The Trust Company of New Jersey, United Water Resources, Inc., or
Blue Cross and Blue Shield of New Jersey, provided that you recuse yourself from
any decisions or transactions by those entities that are in competition with
Enterprise or its affiliates and subsidiaries. In addition, you agree that for
two years following termination of employment, you will not, directly or
indirectly, solicit or hire, or encourage the solicitation or hiring of any
person who was a managerial or higher level employee of Enterprise or its
affiliates and subsidiaries at any time during the term of your employment with
PSE&G by any employer other than PSE&G for any position as an employee,
independent contractor, consultant or otherwise. Further, you shall not be
entitled to pension or benefit payments related to the additional service credit
provided for herein from and after the date of commencement of any such
prohibited subsequent activity in violation of this Agreement.

      You further acknowledge and agree that in the event of a breach by you of
any of the agreements set forth above, PSE&G shall suffer irreparable harm for
which money damages are not an adequate remedy, and that, in the event of such
breach, PSE&G shall be entitled to obtain an order of a court of competent
jurisdiction for equitable relief from such breach, including, but not limited
to, temporary restraining orders and preliminary and/or permanent injunctions
against the breach of such agreements by you.

      If the foregoing is in accordance with your understanding, please sign the
enclosed copy of this letter and return it to me.

                                           Sincerely,

Agreed to this _____ day
of ___________________, 1999


____________________________
Lawrence R. Codey