PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                     COMPENSATION PLAN FOR OUTSIDE DIRECTORS
                            EFFECTIVE JANUARY 1, 2003

I.    PURPOSE

      The purpose of this Public Service Enterprise Group Incorporated
Compensation Plan for Outside Directors is to advance the interests of the
Company and its stockholders by assisting the Company in attracting and
retaining individuals of superior talent, ability and achievement to serve on
its Board of Directors.

II.   DEFINITIONS

      The following words and phrases shall have the meanings set forth below
unless a different meaning is required by the context:

      A)    Annual Retainer: The amount of annual compensation paid to Outside
            Directors for service as a member of the Board.

      B)    Board: The Board of Directors of the Company.

      C)    Committee: Those persons who are members of the Board but who are
            not Outside Directors.

      D)    Common Stock: The Common Stock without nominal or par value of the
            Company.

      E)    Company: Public Service Enterprise Group Incorporated, a corporation
            organized and existing under the laws of the State of New Jersey, or
            its successor or successors.

      F)    Date of Grant: The date provided for in Article IV hereof.

      G)    Effective Date: January 1, 2003.

      H)    NYSE: The New York Stock Exchange, Inc.

      I)    Outside Director: A member of the Board on or after the Effective
            Date who never has been employed by the Company or any of its
            affiliates.

      J)    Plan: This Public Service Enterprise Group Incorporated Compensation
            Plan for Outside Directors, as it may be amended from time to time.

      K)    Securities Act: The Securities Act of 1933, as amended, or as it may
            be amended from time to time.

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III.  SHARES SUBJECT TO THE PLAN

      100,000 shares of Common Stock may be awarded pursuant to the terms of
this Plan. Such shares may be acquired directly from the Company or, at the
discretion of the Company, purchased on the open market by the Company or its
agent.

IV.   STOCK AWARDS

      A.    The compensation of each Outside Director shall be determined by the
            Board from time to time in its discretion. Such compensation shall
            include the Annual Retainer, meeting attendance fees and such other
            amounts, as the Board shall deem to be appropriate.

      B.    As determined from time to time by the Board, a portion of the
            amount of each Outside Director's Annual Retainer is to be paid in
            cash and the remainder is to be paid in shares of Common Stock
            awarded under this Plan.

      C.    The shares of Common Stock awarded pursuant to this Plan shall, at
            the Company's discretion, be acquired directly from it or shall be
            purchased on the open market by the Company or its agent. The date
            of grant of such awards shall be May 1 of each year. If May 1 in any
            year shall not be a day on which trading is being conducted on the
            NYSE, the Date of Grant for that year shall be the next succeeding
            day on which trading is being conducted on the NYSE.

      D.    The number of shares of Common Stock to be awarded on any particular
            Date of Grant shall be determined as follows:

            i)    if the shares are acquired directly from the Company, the
                  number of shares to be awarded shall be equal to the amount of
                  the portion of the Annual Retainer to be paid in stock divided
                  by the closing price of the Common Stock on the NYSE on the
                  business day immediately preceding the Date of Grant, rounded
                  up to the next whole share; and

            ii)   if the shares are purchased on the open market by the Company
                  or its agent, the number of shares to be awarded shall be
                  equal to the amount of the portion of the Annual Retainer to
                  be paid in stock divided by the actual purchase price of the
                  Common Stock, rounded up to the next whole share.

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V.    FURTHER CONDITIONS

      A.    Unless the shares of Common Stock to be awarded under the Plan have
            been registered with the Securities and Exchange Commission under
            the Securities Act prior the issuance of the shares of Common Stock,
            the Outside Director receiving such shares must represent in writing
            to the Company that such shares of Common Stock are being acquired
            for investment purposes only and not with a view towards the further
            resale or distribution thereof and must supply to the Company such
            other documentation as may be required by the Company, unless in the
            opinion of counsel to the Company such representation, agreement or
            documentation is not necessary to comply with the Securities Act.

      B.    The Company shall not be obligated to deliver any shares of Common
            Stock until they have been listed on each securities exchange on
            which the shares of Common Stock may then be listed or until there
            has been qualification under or compliance with such state or
            federal laws, rules or regulations as the Company may deem
            applicable. The Company shall use reasonable efforts to obtain such
            listing, qualification and compliance.

      C.    The Committee may make such provisions and take such steps as it may
            deem necessary or appropriate for the withholding of any taxes that
            the Company is required by any law or regulation of any governmental
            authority, whether federal, state or local, domestic or foreign, to
            withhold in connection with the award of any shares of Common Stock,
            including, but not limited to (i) the withholding of delivery of
            certificates for shares of Common Stock until the Outside Director
            reimburses the Company for the amount the Company is required to
            withhold with respect to such taxes, (ii) the canceling of any
            number of shares of Common Stock issuable in an amount sufficient to
            reimburse the Company for the amount it is required to so withhold
            or (iii) withholding the amount due from any such Outside Director's
            other compensation.

VI.   ADMINISTRATION

      This Plan shall be administered by the Committee, which shall have full
and final authority to interpret the provisions of the Plan and to establish
rules and regulations and otherwise make determinations regarding the
administration and operation of the Plan. All decisions and determinations by
the Committee with respect to the Plan or awards payable thereunder shall be
final and binding upon all parties.

VII.  TERMINATION, MODIFICATION AND AMENDMENT

      A.    The Board may, at any time, terminate the Plan or, from time to
            time, make such modifications or amendments of the Plan, as it may
            deem advisable.

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      B.    No termination, modification or amendment of the Plan may adversely
            affect the rights under any award hereunder without the consent of
            the Outside Director to whom such award shall have been previously
            been made.

VIII. NOT A CONTRACT FOR CONTINUED SERVICE

      Nothing contained in the Plan or in any agreement executed pursuant hereto
shall be deemed to confer upon any Outside Director to whom an award has or may
be made hereunder any right to remain a member of the Board or in any way limit
the right of the Board or the Stockholders to terminate or fail to renominate or
reelect any such Outside Director as a member of the Board.

IX.   MISCELLANEOUS

      A.    The costs and expenses of administering the Plan and acquiring the
            shares of Common Stock shall be borne by the Company and shall not
            be charged against any award or to any Outside Director receiving an
            award.

      B.    This Plan and actions taken in connection herewith shall be governed
            and construed in accordance with the laws of the State of New
            Jersey.

      C.    The captions and section numbers appearing in this Plan are inserted
            only as a matter of convenience. They do not define, limit or
            describe the scope or intent of the provisions of this Plan. In this
            Plan, words in the singular number include the plural and in the
            plural include the singular; and words of the masculine gender
            include the feminine and the neuter, and when the sense so
            indicates, words of the neuter gender may refer to any gender.

      D.    Whenever the time for payment or performance hereunder shall fall on
            a weekend or public holiday, such payment or performance shall be
            deemed to be timely if made on the next succeeding business day.