Exhibit 10.3



IN THE  MATTER  OF THE  PETITION  OF  PUBLIC      STATE OF NEW JERSEY
SERVICE  ELECTRIC  AND  GAS  COMPANY  FOR  A
BONDABLE   STRANDED   COST  RATE   ORDER  IN      BOARD OF PUBLIC UTILITIES
ACCORDANCE WITH N.J.S.A.  48:3-49 ET SEQ. TO
RECOVER   ITS   BASIC   GENERATION   SERVICE
TRANSITION COSTS (INCLUDING  FEDERAL,  STATE
AND LOCAL TAX  LIABILITIES  ASSOCIATED  WITH      DOCKET NO.:  E_______________
SUCH   RECOVERY)   PROVIDING   FOR  (1)  THE
IMPOSITION  OF A  NON-BYPASSABLE  TRANSITION
BOND  CHARGE;  (2) THE SALE OF THE  RIGHT TO
RECEIVE  SUCH  CHARGE TO A  SPECIAL  PURPOSE      PETITION
FINANCING ENTITY;  (3) THE ISSUANCE AND SALE
IN A PUBLIC  OFFERING  OR PRIVATE  PLACEMENT
OF NOT  MORE  THAN  $150  MILLION  AGGREGATE
PRINCIPAL  AMOUNT OF TRANSITION BONDS IN ONE
OR   MORE    SERIES    WITH   A    SCHEDULED
AMORTIZATION  UPON ISSUANCE OF UP TO FIFTEEN
(15) YEARS;  (4) THE USE OF TRANSITION  BOND
PROCEEDS TO REFINANCE OR RETIRE  OUTSTANDING
DEBT  AND/OR  EQUITY AND (5) THE FORMULA FOR
THE   CALCULATION   AND  ADJUSTMENT  OF  THE
TRANSITION    BOND    CHARGE    AND   MARKET
TRANSITION BOND CHARGE -TAX RELATED THERETO.




            Public Service Electric and Gas Company (the "Petitioner"), a New
      Jersey corporation organized under the provisions of Chapter 185 of the
      Laws of 1896, as amended and supplemented, with its principal office at
      80 Park Plaza, Newark, New Jersey, respectfully shows that:

1.    Petitioner is a public utility engaged in the electric and gas
      distribution business, subject to the jurisdiction of your Honorable
      Board.

2.    This Petition for the issuance of a Bondable Stranded Costs Rate Order
      ("BSCRO" or "Financing Order") is filed pursuant to the Electric
      Discount and Energy Competition Act, Chapter 23 of the Laws of 1999,
      N.J.S.A. 48:3-49 et seq. (the "EDECA"), as amended by P.L. 2002, Ch. 84
      (the "2002 Amendments", and together with the EDECA,


<PAGE>


      the "Act"). Capitalized terms used herein and not specifically defined
      shall have the meanings as defined in the Act.

3.    RECOVERY OF BASIC GENERATION SERVICE TRANSITION COSTS.

            Basic Generation Service ("BGS"), as defined in N.J.S.A. 48:3-51,
      is a regulated electric generation service provided, pursuant to
      N.J.S.A. 48:3-57, to any electric utility customer of an electric
      utility that has not chosen an alternative power supplier. BGS
      transition costs ("BGS Transition Costs", as defined in N.J.S.A.
      48:3-51) is the amount by which payments by an electric public utility
      for the procurement of power for BGS and related ancillary and
      administrative costs exceed the net revenues from the BGS charge
      established by the Board ("Deferred Balance") pursuant to N.J.S.A
      48:3-57, during the Transition Period, together with interest on the
      Deferred Balance at the Board-approved rate, that is reflected in a
      Deferred Balance account approved by the Board in an Order addressing
      the electric public utility's rates, stranded costs, and restructuring
      filings pursuant to the Act. BGS Transition Costs include, but are not
      limited to payments by an electric public utility pursuant to a
      competitive procurement process for BGS supply during the Transition
      Period, and the costs of any such payments used to procure the BGS
      supply. The Transition Period commenced August 1, 1999 and will end July
      31, 2003. The BGS Transition Costs that are the subject matter of this
      Petition is the Deferred Balance (the "Year Four Deferred Balance")
      incurred by Petitioner for the period August 1, 2002 through July 31,
      2003 ("Year Four") pursuant to the rate unbundling stranded cost and
      restructuring Orders issued by the Board in Docket Nos. E097070461,
      E097070462 and E097070463 dated April 21, 1999 (Summary Order) and
      August 24, 1999 (Final Order) (collectively, the "Restructuring Order").

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            By Order dated December 11, 2001 in Docket Nos. EO01100654,
      EO01100655, EO01100656 and EO001100657, the Board approved an auction
      process for BGS supply, including supply for Year Four, and directed
      electric public utilities, including Petitioner, to make an auction
      process compliance filing ("Compliance Filing") in response thereto. On
      December 12, 2001, Petitioner made the Compliance Filing which included,
      among other things, a request for approval of Petitioner's accounting
      and cost recovery proposal for BGS Transition Costs, including, but not
      limited to, a determination (i) that the BGS Deferred Balance will be
      determined as the difference between Petitioner's recorded BGS revenue
      and total BGS Cost, (ii) interest on the Deferred Balance at a monthly
      rate based on the seven (7) year constant maturity treasuries as shown
      in the Federal Reserve Statistical Release on or closest to August 1,
      2003 plus 60 basis points and (iii) a presumption of prudence with
      respect to Petitioner's BGS Transition Costs. At its special public
      agenda meeting held on December 14, 2001, the Board approved
      Petitioner's Compliance Filing after finding it to be consistent with
      its December 11, 2001 Order.

            On August 28, 2002, Petitioner filed its electric deferral case
      ("BGS Deferral Case"), Docket No. ER02080604, with respect to recovery
      of its Year Four Deferred Balance pursuant to the Restructuring Orders
      and the Board's July 22, 2002 Order Directing Supplemental Testimony
      ("Testimony Order"). The BGS Deferral Case was transmitted by the Board
      to the New Jersey Office of Administrative Law ("OAL"), which case was
      later consolidated with Docket No. ER02050303 for separate hearings. The
      Board also, pursuant to the Testimony Order, retained an independent
      auditor ("Independent Auditor") to perform an audit of Petitioner's Year
      Four Deferred Balance. Public hearings in the BGS Deferral Case were
      conducted by an OAL, Administrative

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<PAGE>

      Law Judge ("ALJ"), on December 10, 11 and 16 of 2002, respectively.
      Evidentuary Hearings on the BGS Deferral Case were conducted on March 3,
      5 and 6, 2003.

            On June 6. 2003, the ALJ rendered his written decision ("ALJ
      Decision") to the Board, adopting the terms of a settlement among
      Petitioner and certain Parties to the BGS Deferral Case, which ALJ
      Decision, if adopted, will resolve all matters in the consolidated
      dockets, including the BGS Deferral Case. Petitioner is awaiting a final
      decision by the Board ("BGS Cost Order" or "Recovery Order"), including
      a finding that Petitioner's Year Four BGS Transition Costs, were
      reasonably and prudently incurred and that the Year Four Deferred
      Balance upon verification by the Independent Auditor is properly
      recoverable by Petitioner, with interest, under the Act . As set forth
      in the ALJ Decision, Petitioner's Year Four Deferred Balance is
      estimated to be approximately $241.5 million pre-tax at July 31, 2003.
      Petitioner accordingly seeks authority to securitize its verified Year
      Four Deferral Balance.

4.    REQUEST FOR BSCRO

            The 2002 Amendments, and specifically, N.J.S.A. 48:3-62(c)(3)
      authorizes an electric public utility to securitize the full amount of
      its reasonably and prudently incurred BGS Transition Costs pursuant to
      the provisions of the Act if the recovery of the BGS Transition Costs
      through the securitization would provide benefits to ratepayers based
      upon the "criteria" consisting of the lowest transition bond charge
      consistent with market conditions and the terms of the BSCRO when
      certified by the Board's designee.

            On September 17, 1999, your Honorable Board issued a BSCRO to
      Petitioner in Docket No. EF99060390 (the "Original Financing Order")
      authorizing, among other things, the issuance and sale of up to $2.525
      billion aggregate principal amount of

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<PAGE>


      Transition Bonds by a special purpose financing subsidiary of
      Petitioner, the sale of Bondable Transition Property and the imposition
      of a non-bypassable Transition Bond Charge ("TBC"), the imposition of a
      Market Transition Charge-Tax ("MTC-Tax"), a formula for the calculation
      and adjustment of the TBC and the MTC-Tax. On January 31, 2001, PSE&G
      Transition Funding LLC, a subsidiary of Petitioner, issued and sold
      $2.525 billion of its Transition Bonds, Series 2001-1 (the "Original
      Transition Bond Transaction"). The terms and conditions approved by your
      Honorable Board in the Original Financing Order are substantially the
      same to those proposed herein.

            For purposes of recovering its BGS Transition Costs incurred in
      Year Four ("Year Four BGS Transition Costs") by Petitioner pursuant to
      the Restructuring Order and the BGS Cost Order to be issued in the BGS
      Deferral Case, and pursuant to N.J.S.A. 48:3-62(a), N.J.S.A. 48:3-62(c)
      and N.J.S.A. 48:3-62(g), Petitioner hereby requests the Board to issue a
      BSCRO authorizing Petitioner to securitize (the "BGS Transition Bond
      Transaction") its Year Four BGS Transition Costs, including its net of
      tax Year Four Deferred Balance incurred with respect to Year Four as
      verified by the Independent Auditor ); to impose a transition bond
      charge ("BGS Transition Bond Charge" or "BGS TBC") related thereto; and
      to sell Petitioner's right to receive the BGS TBC, together with related
      rights, to a bankruptcy-remote, special purpose financing entity ("SPE")
      to be formed as a subsidiary of Petitioner for such purpose
      substantially identical to the SPE authorized in the Original Financing
      Order. Petitioner also requests approval of a formula ("Formula") for
      the calculation and adjustment of the BGS TBC and the MTC-Tax related
      thereto substantially identical to the Formula authorized in the
      Original Financing Order which Formula is incorporated herein by
      reference thereto. A

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<PAGE>


      proposed form of Financing Order, substantially in the form of the
      Original Financing Order will be separately provided to Board Staff by
      Petitioner.

            The Financing Order will provide, among other things, (i) for the
      imposition of a non-bypassable TBC as provided in N.J.S.A. 48:3-64(a);
      (ii) the transfer of the BGS Bondable Transition Property (as defined
      herein) related to such TBC to an SPE; (iii) the issuance of transition
      bonds ("BGS Transition Bonds") by the SPE up to $150 million aggregate
      principal amount to recover such BGS Transition Costs, all as further
      described below, and (iv) a determination that the structure and pricing
      of the BGS Transition Bonds be conclusively deemed, as provided in
      N.J.S.A 48:3-62(g), as assuring the lowest TBC consistent with market
      conditions and the terms of such BSCRO. In the same manner as authorized
      in the Original Financing Order, Petitioner requests authority to impose
      an MTC-Tax to recover its Federal Income and State Corporate Business
      Tax associated with the collection of the BGS TBC until the related BGS
      Transition Bonds and other BGS Transition Costs have been paid in full,
      and to adjust the MTC-Tax in the same manner and at the same time as the
      BGS TBC is adjusted as described in this Petition.

            The entire amount of the net proceeds of the BGS Transition Bonds
      received by Petitioner shall be utilized by Petitioner to refinance or
      retire its outstanding debt or equity or both.

5.    BGS TRANSITION BOND TRANSACTION

      a.    Proposed Structure

            A general description of the BGS Transition Bond Transaction
      structure follows. The proposed structure is subject to modification
      depending upon the requirements of tax

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<PAGE>


      authorities, input from underwriters in connection with the marketing of
      the BGS Transition Bonds, and negotiations with nationally recognized
      statistical rating organizations (the "Rating Agencies") selected by
      Petitioner to assign credit ratings to the BGS Transition Bonds. The
      proposed structure is intended to minimize debt service costs and
      maximize ratepayer savings by obtaining the best possible rating for the
      BGS Transition Bonds as asset-backed securities. In the same manner as
      the Original Financing Transaction, the final structure of the
      transaction, pricing and terms of the BGS Transition Bonds will be
      determined by Petitioner at the time BGS Transition Bonds are priced and
      approved by a designee (the "Designee") of the Board as provided in the
      Act and as described herein.

            The Petitioner requests in this current Petition the authority to
      recover related BGS Transition Costs, including (1) the net amount of
      its tax Year Four Deferred Balance, as verified by the Independent
      Auditor; (2) the costs (currently estimated at $2.7 million) incurred to
      issue Transition Bonds (the "Upfront Transaction Costs"); (3) principal
      and interest on the Transition Bonds, together with the costs of paying,
      refinancing, administering and servicing, credit enhancing,
      overcollateralizing, the Transition Bonds ("Ongoing Transition Bond
      Costs"); and (4) taxes related to securitization, which reflect the
      grossed up revenue requirement associated with the net of tax stranded
      costs being securitized (the "Tax Component"), as more fully described
      herein. Pursuant to the proposed Financing Order, and as authorized in
      the Original Financing Order, Petitioner requests authority to recover
      from the proceeds of the BGS Transition Bonds, up to $150 million of its
      BGS Transition Costs, including its Upfront Transaction Costs. The
      remaining BGS Transition Costs, being the Ongoing Transition


                                      7

<PAGE>

      Bond Costs, will be recovered through the assessment and collection of
      the BGS Transition Bond Charge. In the same manner as authorized in the
      Original Financing Order the BGS Transition Bond Charge will be a
      separate, non-bypassable charge assessed and collected from all
      customers of Petitioner and/or any successor distribution company within
      Petitioner's existing service territory as of the date of this Petition,
      except as provided in N.J.S.A 48:3-77.

            The principal asset to be used to support Transition Bonds is the
      BGS Bondable Transition Property , a property right created under the
      Act, which includes the irrevocable right to charge and collect
      Transition Bond Charges and to obtain periodic adjustments of such
      Transition Bond Charges, and all revenues, collections, payments, money
      and proceeds thereof. Pursuant to N.J.S.A. 48:3-65 the Financing Order
      and the Transition Bond Charges are irrevocable upon the Financing Order
      becoming effective under the Act, and the Financing Order cannot be
      rescinded, altered, repealed, modified or amended by the Board or any
      other governmental entity, nor can it be impaired by the State of New
      Jersey, as provided in N.J.S.A. 48:3-66.

            In the same manner as provided in the Original Financing Order to
      implement the BGS Transition Bond Transaction, Petitioner will form a
      new non-utility, special-purpose bankruptcy-remote entity ("SPE") to be
      wholly-owned by Petitioner, and will provide the capitalization for such
      SPE. Petitioner will sell the Bondable Transition Property to the SPE in
      the BGS Transition Bond Transaction which, in accordance with the Act,
      will be a legal true sale and absolute transfer to the SPE. The SPE will
      constitute a financing entity for purposes of the Act. Board approval of
      the SPE and the BGS Transition Bond


                                      8

<PAGE>


      Transaction will constitute a finding that the SPE's activities will not
      violate any affiliate relation standards currently in effect or that the
      Board may adopt in the future.

            In the same manner as provided in the Original Financing Order to
      raise the funds to pay to Petitioner the purchase price of the BGS
      Bondable Transition Property, the SPE will issue and sell BGS Transition
      Bonds. The SPE will issue the BGS Transition Bonds in the form of
      asset-backed securities ("ABS") and sell the securities in a negotiated,
      fully underwritten public or private offering. All prior securitizations
      of utility stranded costs or BGS Transition Costs in New Jersey,
      including the Original Transition Bond Transaction approved by your
      Honorable Board in the Original Financing Order, have been or are
      proposed to be structured as ABS and sold on a negotiated basis. To the
      extent that it may be more cost-effective to structure the BGS
      Transition Bond Transaction as a private offering under Rule 144A of the
      Securities and Exchange Commission, Petitioner will do so. The expertise
      of an underwriter is critical to the structuring, pricing and marketing
      of securities in the ABS market. For such purpose, Petitioner has
      engaged Citigroup Global Markets, Inc. As in the Original Transition
      Bond Transaction, Petitioner continues to believe that a negotiated sale
      will assure that the Transition Bonds will receive the highest possible
      rating and will obtain the lowest possible interest and transaction
      costs, ensuring compliance with the requirements of the Act that
      Petitioner's customers pay the lowest transition bond charges consistent
      with market conditions at time of pricing.

            In the same manner as provided in the Original Financing Order,
      all of the assets of the SPE, including, without limitation, the BGS
      Bondable Transition Property and the other collateral of the SPE (the
      "Other SPE Collateral"), will be pledged as collateral to


                                      9

<PAGE>


      secure the BGS Transition Bonds. The Other SPE Collateral will include,
      without limitation: (1) the rights of the SPE under the BGS Transition
      Bond Transaction documents, including the purchase agreement by which
      each SPE acquires the Bondable Transition Property; (2) a servicing
      agreement by which Petitioner or any successor Servicer acts as servicer
      of the Bondable Transition Property; (3) an administration agreement by
      which the SPE will be administered; (4) various trust accounts of the
      SPE into which the proceeds of BGS TBC, together with the pledged funds
      of the SPE, will be deposited; (5) any investment earnings on amounts
      held by the Bond Trustee; and (6) the equity capital of the SPE.

            While the Board is requested to approve BGS Transition Bonds with
      scheduled amortization upon issuance not exceeding 15 years in
      accordance with N.J.S.A.48: 3-62(d)(3), and with a final legal maturity
      of up to 17 years in order to minimize overcollateralization
      requirements and to enhance the prospects of securing the highest
      possible credit rating for the BGS Transition Bonds, Petitioner expects
      that the actual amortization schedule upon issuance and final legal
      maturity of the BGS Transition Bonds will not exceed that of the
      Transition Bonds issued pursuant to the Original Financing Order in the
      Original Transition Bond Transaction. These objectives should result in
      lower interest costs and thus benefit to ratepayers.

            In the same manner as provided in the Original Financing Order,
      Petitioner requests that the duration of the MTC-Tax be identical to the
      duration of the Transition Bond Charge. The following schematic
      illustrates the proposed transaction:



                                      10

<PAGE>

<TABLE>
<CAPTION>


<S>                                            <C>                                                       <C>

PARTIES TO TRANSACTION                                                          Sale of BGS Transition
                                                                             Bonds for cash, pursuant to
-----------------                              -----------------------------    Underwriting Agreement
|               |                              |            SPE            |                             -----------------
|     PSE&G     |<---------------------------->|   PSE&G Securitization    |<--------------------------->|               |
|               |    Sale of rights to BGS     | Limited Liability Company |                             | UNDERWRITERS  |
|               | Bondable Transition Property |   Sole Member, PSE&G      |-----------|      |----------|               |
-----------------     for net proceeds of      |                           |           |      |          -----------------
                       Transition Bonds        -----------------------------           |      |            ^
                                                     |  |                              |      |            |
                                                     |  |   Parties to Indenture       |      |            |
-----------------    Servicing BGS Bondable          |  |   governing issuance of      |      |            |       Sale of BGS
|               | Transition Property for servicing  |  |   BGS Transition Bonds;      |      |            |   Transition Bonds for
|   SERVICER    |    fee, pursuant to Servicing      |  |    BGS Transition Bonds      |      |            |          cash
|    PSE&G      |            Agreement               |  |      secured by BGS          |      |            v
|               |-------------------------------------  |    Bondable Transition       |      |          -----------------
-----------------                                       |   Property and Other SPE     |      |          |               |
                                                        |          Collateral          |      |          |   INVESTORS   |
                       Administration of SPE for        |                              |      |          |               |
                     Administration Fee, pursuant to    |                              |      |          -----------------
-----------------       Administration Agreement        |                         -----------------
|               |                                       |                         |               |
| ADMINISTRATOR |----------------------------------------                         |     BOND      |
|     PSE&G     |                                                                 |    TRUSTEE    |
|               |                                                                 |               |
-----------------                                                                 -----------------

</TABLE>

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<PAGE>



      b.    Recovery of Upfront BGS  Transaction Costs

            In the same manner as the Original Financing Transaction, in order
      to issue BGS Transition Bonds and to produce benefit for its customers,
      Petitioner will incur Upfront Transaction Costs related to the issuance
      of BGS Transition Bonds. Based on the current estimated initial offering
      of $150 million of Transition Bonds, Petitioner currently estimates that
      such amount will include Upfront Transaction Costs of approximately $2.5
      million which may vary, in part, based on the factors described below.
      Upfront Transaction Costs of issuing BGS Transition Bonds will include,
      among other items, the underwriting spread, rating agency fees,
      accounting fees, any Securities and Exchange Commission registration
      fees printing and marketing expenses, trustees' fees, legal fees, the
      servicing set-up fee and the administrative cost of forming the SPE.

            In the same manner as provided in the Original Financing
      Transaction, the Petitioner requests authority to recover the Upfront
      Transaction Costs from the proceeds of the sale of the BGS Transition
      Bonds and to include such costs as BGS Transition Costs, the right to
      recover such amounts to constitute a portion of the Bondable Transition
      Property. To the extent prior payment is required, such costs will be
      paid by Petitioner and reimbursed from the proceeds of the BGS
      Transition Bonds.

      c.    Ongoing BGS Transition Bond Costs

            Petitioner requests recovery of the Ongoing Transition Bond Costs
      through the BGS TBC. The primary Ongoing Transition Bond Costs are the
      principal and interest on the BGS Transition Bonds. Other Ongoing
      Transition


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<PAGE>

      Bond Costs include principally the servicing fee (the "Servicing Fee")
      paid to Petitioner, as the Servicer (as defined below) and the ongoing
      cost of credit enhancement and overcollateralization.

            In the same manner as provided in the Original Financing Order, it
      is anticipated that there will be a small amount of additional Ongoing
      Transition Bond Costs associated with the BGS Transition Bond
      Transaction, such as an administration fee, legal and accounting fees,
      directors or managers' fees, rating agency fees, trustee fees and other
      costs of operating the SPE. These Costs are BGS Transition Costs and
      will be recovered through the BGS TBC in accordance with the Act, and
      the right to recover these costs as BGS Transition Costs will be
      included as a portion of the BGS Bondable Transition Property.

      d.    Approval of Final Terms and Conditions: BGS Transition Bond
            Transaction

            In the same manner as provided in the Original Financing Order,
      upon the pricing of the BGS Transition Bonds, the Board's Designee under
      the Act will file with the Board a certificate to the effect that the
      structure and pricing of the BGS Transition Bonds assures that
      Petitioner's customers pay the lowest BGS TBC consistent with market
      conditions and the terms of the Financing Order, and approving the terms
      and conditions of the BGS Transition Bonds, including scheduled
      amortization up to 15 years and final legal maturities of up to 17
      years, as required to obtain the highest possible credit ratings.
      Payments on the BGS Transition Bonds will be semi-annual or quarterly,
      depending upon input from rating agencies, tax considerations and market
      conditions at the time of the


                                      13
<PAGE>


      pricing of BGS Transition Bonds. Debt service on the BGS Transition
      Bonds will be scheduled upon issuance so that the sum, for each annual
      period, of the Period Payment Requirement (as defined below) and the
      associated MTC-Tax collections will be substantially equal. So long as
      the structure, pricing, terms and conditions meet such parameters,
      Petitioner will be authorized under the Financing Order to undertake the
      BGS Transition Bond Transaction.

            In the same manner as provided in the Original Financing Order, if
      the structure, pricing, terms and conditions meet the requirements
      discussed above, the Company will be authorized under the Financing
      Order to undertake the BGS Transition Bond Transaction. Prior to the
      pricing of the BGS Transition Bonds, the Designee may obtain from the
      Board's financial advisors recent secondary market trading levels of
      existing utility stranded cost securitization bonds, to the extent such
      is available through public sources. To the extent such information is
      available, it is anticipated that such information may, in part, be
      considered in connection with the pricing of the Transition Bonds. The
      Designee may also conduct conference calls and meetings with the Board's
      financial advisors to discuss the background of the ABS market, current
      market conditions, investor perception of recent utility stranded cost
      securitization bond issues, pricing levels of ABS and recent secondary
      market trading levels, to the extent available. Finally, the Designee
      may elect to be present at pricing, either in person or by telephone.

            In the same manner as provided in the Original Financing Order,
      not later than five business days after the issuance and sale of the BGS
      Transition Bonds,

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<PAGE>


      Petitioner will be required to confirm to the Board, in an ("Issuance
      Advice Letter"), the actual interest rates on the BGS Transition Bonds,
      the expected principal amortization schedule (the "Expected Amortization
      Schedule") and the initial BGS Transition Bond Charge and MTC-Tax, which
      will be calculated in accordance with the Formula. The Issuance Advice
      Letter will also include a calculation of the benefit to Petitioner's
      Customers from the issuance of the BGS Transition Bonds as provided in
      N.J.S.A. 48:3-62 (c) (3) using the methodology employed in Exhibit A
      attached hereto applied to the actual structure and terms of the
      Transition Bonds. The initial BGS Transition Bond Charge and MTC-Tax
      shall become effective immediately when the Issuance Advice Letter is
      filed, without further action by the Board.

      e.    BGS Transition Bond Charge

            In the same manner as provided in the Original Financing Order,
      when the BGS Transition Bond Transaction is completed upon the issuance
      of the BGS Transition Bonds, Petitioner will impose the BGS TBC upon its
      ratepayers. While the new BGS TBC will be separate Bondable Transition
      Property and for purposes of Petitioner's tariff, separate and distinct
      from the Transition Bond Charge ("Original TBC")that the Board
      authorized in the Original Financing Order and that has been imposed
      upon ratepayers as a result of the Original Transition Bond Transaction,
      the Original TBC and the BGS TBC will be combined for customer billing
      and administration, provided that such amounts are separately recorded
      on the books of Petitioner pending payment to the Trustee.


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<PAGE>

            In the same manner as provided in the Original Financing Order,
      BGS TBC will be set by the Formula, from time to time, at a level
      intended to recover the sum of the Ongoing Transition Bond Costs,
      including, without limitation: (i) the principal of (in accordance with
      the Expected Amortization Schedule approved by the Designee at the time
      of pricing of the BGS Transition Bonds), and interest on, BGS Transition
      Bonds authorized by the Board in the Financing Order; (ii) the costs of
      operating and administering the SPE; (iii) the costs of servicing the
      BGS Transition Bonds, including servicing and trustee fees, expenses and
      indemnities; (iv) amounts required to fund or replenish the
      overcollateralization account in accordance with overcollateralization
      schedule approved at pricing of the BGS Transition Bonds, including the
      reimbursement of any amounts drawn from the capital account, and (v) the
      ongoing expenses of any other credit enhancement agreement (the required
      periodic payment of all such amounts, including deficiencies on past due
      amounts for any reason, is herein called the "Periodic Payment
      Requirement" and the total of such requirements until paid in full, the
      "Total Payment Requirements").

              The BGS TBC and the MTC-Tax will be set and adjusted in
      accordance with the Formula, based on the same assumptions as applicable
      to, and approved in the Original Financing Transaction, as those
      assumptions are adjusted from time to time, including but not limited to
      energy sales forecasts, customer payment and charge-off patterns,
      defaults by third party suppliers (as described herein), the Periodic
      Payment Requirement and, with respect to the MTC-Tax, the applicable
      state and Federal income tax rates in effect from time to time. BGS


                                      16
<PAGE>


      Transition Bond Charges shall remain in effect until the SPE owner of
      the BGS Bondable Transition Property has received Transition Bond
      Charges sufficient to discharge the Total Payment Requirements.

            Each customer's monthly bill will contain a single, line item
      containing the then current combined Original Transition Bond Charge,
      the BGS Transition Bond Charge and their related MTC-Tax Charges for all
      issued and outstanding Transition Bonds, and will, in addition, contain
      a note in text or a footnote that a portion of such combined charge
      represents Bondable Transition Property being collected on behalf of the
      SPEs as owners of their respective Bondable Transition Property.

      f.    Periodic Adjustments to the BGS Transition Bond Charge and MTC-Tax

            The Board is required by the Act to make mandatory periodic
      adjustments (the "True-Up Mechanism") to the BGS TBC upon petition of
      Petitioner, its assignee or financing entity, to ensure receipt of
      revenues sufficient to satisfy, on a timely basis, the Periodic Payment
      Requirement. Mandatory periodic adjustments must be made at least
      annually, and, as described earlier, using the Formula. As Servicer, the
      Petitioner will be responsible for filing documentation with the Board
      for any necessary periodic adjustments in the same manner as the
      Original Transition Bond Transaction. (Petitioner, as servicer under the
      Service Agreement and any successor to Petitioner as servicer are herein
      referred to as the "Servicer".) Although the Servicer expects to file
      for periodic adjustments annually, it is also requesting, in the same
      manner as provided in the Original Financing Order, authorization to
      file for adjustments as often as quarterly as

                                      17
<PAGE>

      determined necessary for credit rating purposes. Each periodic
      adjustment shall become effective 30 days after filing thereof with the
      Board absent a determination by the Board of manifest error. Under the
      Act, Petitioner, as initial Servicer, shall propose such adjustments in
      a filing with the Board at least 30 days in advance of the date upon
      which it is requested to be effective. In the same manner as provided in
      the Original Financing Order, the proposed adjustment shall become
      effective on an interim basis on such date and, in the absence of a
      Board order to the contrary finding a manifest error, shall become final
      60 days thereafter.

            In the same manner as provided in the Original Financing Order,
      Petitioner shall be entitled to request and the Board shall approve
      mandatory periodic adjustments of the MTC-Tax. The adjustment is to be
      made at least annually to reconcile the income tax recovered to the
      income taxes required to be paid on the taxable net revenue from the
      Transition Bond Charges. The reconciliation is to be made in the same
      manner as the True-Up Mechanism for BGS Transition Bond Charges in order
      to ensure receipt of revenues sufficient to assure recovery of the
      MTC-Tax. Upon petition of Petitioner, the MTC-Tax will be adjusted based
      upon assumptions described in the Formula , as those assumptions are
      adjusted from time to time in accordance with the Formula. No delay in
      the mandatory adjustment of the MTC-Tax will in any way adversely affect
      the mandatory periodic adjustment of the Transition Bond Charge
      described in the preceding paragraph.


                                      18
<PAGE>



            In the same manner as provided in the Original Financing Order,
      the Petitioner also requests that the Board grant the Petitioner
      authority to make "non-routine" adjustments. Non-routine filings for
      adjustments would be made to accommodate changes to the Formula
      described therein if deemed appropriate by Petitioner to remedy a
      significant and recurring variance between actual and expected
      Transition Bond Charge collections. Any such filing would be required to
      be made at least 90 days prior to the proposed effective date, and would
      be subject to Board approval.

            Petitioner intends to make routine annual true-up filings for the
      TBC and MTC Charge at the same time, and in the same manner that it
      makes such filings with respect to the Original Securitization
      Transaction, except during the last year before the scheduled maturity
      of the Original Transition Bonds or the Transition Bonds as proposed
      herein, where more frequent true-ups may be required as authorized in
      the Original Financing Order and as proposed herein.

      g.    Remittance of Transition Bond Charges

            The Servicer will remit, in the same manner as provided in the
      Original Financing Order, at least monthly, to the Transition Bond
      trustee ("Bond Trustee") the Transition Bond Charges, based on the
      collection methodology approved in the Original Financing Order, which
      methodology is incorporated herein by reference thereto.

            The Servicer will receive the BGS Transition Bond Charge
      collections daily and may, as authorized by the Act, commingle BGS
      Transition Bond Charge collections with Original Transition Bond Charge
      collections and with other


                                      19
<PAGE>


      customer payments until the remittance date to the Bond Trustee.
      Collections from each customer will be applied first to sales taxes
      (which Petitioner will collect as trustee for the State and not for its
      own account or that of the SPE, and which are not "charges" for purposes
      of the following allocations), then to charges in arrears, if any, and
      then to current charges. With respect to each billing period, partial
      payments of charges will be allocated to the Transition Bond Charges for
      all series of Transition Bonds, to the MTC-Tax and to the Petitioner's
      other charges, pro rata, based on the proportions that the aggregate
      Transition Bond Charges, the related MTCs-Tax and the Petitioner's other
      charges bear to the total charges collected. Partial payments of
      Transition Bond Charges will be allocated to the owners of Bondable
      Transition Property, pro rata, based on the proportions that the
      Transition Bond Charge representing the Bondable Transition Property
      created under the Original Financing Order, the BGS Transition Bond
      Charges as proposed for creation herein and any Transition Bond Charges
      created pursuant to other subsequent financing orders bear to the total
      Transition Bond Charges collected.

            The Bond Trustee will retain BGS Transition Bond Charge
      collections received from the Servicer until it makes scheduled
      principal and interest payments and all servicing fees and ongoing
      expense payments to the appropriate parties. These distributions are
      expected to be made on a quarterly or semiannual basis. The Bond Trustee
      will hold all BGS Transition Bond Charge collections received from the
      Petitioner between the remittance date and distribution date in a
      collection account. The Bond Trustee will invest the funds in the
      collection


                                      20
<PAGE>

      account in investment grade short-term securities that mature on or
      before the next distribution date.

            Investment income earned in the trust accounts held by the Bond
      Trustee may be used to satisfy currently scheduled interest and
      principal payments on the BGS Transition Bonds and related expenses and
      to reimburse the SPE's equity and to satisfy scheduled
      overcollateralization amount. Investment income on the capital account
      not used currently for this purpose will be released to the SPE. Any
      earnings in excess of required amounts in such trust accounts (other
      than the capital account) will reduce the BGS TBC through the True-Up
      Mechanism.

            Upon retirement of all outstanding Transition Bonds and any
      related Ongoing Transition Bond Costs, any remaining amounts held by the
      Bond Trustee will be released to the SPE. Petitioner's equity in the SPE
      (and any investment earnings thereon) may be distributed to Petitioner,
      and Petitioner will credit an amount equal to any overcollected BGS TBC,
      less any amount of any unpaid MTC-Tax, to its customers against its
      distribution charges.

      h.    Credit Enhancement

            The BGS Transition Bond documents will incorporate the True-Up
      Mechanism authorized by the Act as described above and
      overcollateralization amounts or other means of credit enhancement as
      required by the rating agencies or taxing authorities.

            In the same manner as provided in the Original Financing Order,
      the BGS TBC will be set to collect an overcollateralization amount over
      time in addition to the principal (in accordance with the expected
      amortization schedule) and interest


                                      21
<PAGE>


      payable on the Transition Bonds and the other Ongoing Transition Bond
      Costs. The overcollateralization amount needed to satisfy the rating
      agencies will be determined by Petitioner, with input from the rating
      agencies and tax authorities prior to the time Transition Bonds are
      priced, and approved by the Designee at the time of pricing of the
      Transition Bonds in the same manner as authorized in the Original
      Financing Order. As with other components of the BGS TBC, the
      overcollateralization component will be incorporated into each periodic
      adjustment to the extent necessary using the True-Up Mechanism.

            Customers will receive credit from Petitioner against rates then
      in effect equal to the amount of any collateral remaining after
      satisfaction of the Total Payment Requirements less any amount of any
      unpaid MTC-Tax charges (and after return of Petitioner's equity,
      together with interest earnings thereon). As a result,
      overcollateralization will not reduce customer benefits from the BGS
      Transition Bond Transaction.

      i.    Formation of SPE

            A new SPE will be formed by the Petitioner prior to the issuance
      of the Transition Bonds as a wholly-owned, non-utility special purpose
      subsidiary of the Petitioner and is expected to be a limited liability
      company.

            The fundamental organizational documents of the SPE will be
      substantially the same in all material respects as PSE&G Transition
      Funding LLC created in connection with the Original Securitization
      Transaction, imposing significant limitations upon the activities of the
      SPE and the ability of Petitioner to take actions as the holder of the
      equity interest therein. For example, the SPE


                                      22
<PAGE>


      will be formed for the limited purpose of acquiring the BGS Bondable
      Transition Property and Other SPE Collateral and issuing and selling the
      BGS Transition Bonds. It will not be permitted to engage in any other
      activities, and will have no assets other than the BGS Bondable
      Transition Property (as defined below) and Other SPE Collateral.

      j.    Bondable Transition Property

            Petitioner's bondable BGS transition property (the "BGS Bondable
      Transition Property") will consist of (a) the irrevocable right to
      charge, collect and receive, and be paid from collections of BGS
      Transition Bond Charges the amount necessary to provide for the full
      recovery of Total Payment Requirements, (b) all rights of Petitioner
      under the Financing Order, including without limitation all rights to
      obtain periodic adjustments of the BGS TBC pursuant to the True-Up
      Mechanism and (c) all revenues, collections, payments, money and
      proceeds arising under, or with respect to, all of the BGS Transition
      Bond Charges. Pursuant to the Act, upon receipt of payment for the BGS
      Bondable Transition Property by the Petitioner from the SPE, the BGS
      Bondable Transition Property will constitute a vested presently existing
      property right which will continuously exist as property for all
      purposes as provided in the Act and the Financing Order, whether or not
      the revenues and proceeds arising with respect thereto have accrued and
      notwithstanding the fact that the value of the property right may depend
      upon consumers using electricity or Servicer performing services; and
      the validity of any sale, assignment or other transfer of the BGS
      Bondable Transition Property will not be defeated or adversely affected
      by the commingling by


                                      23
<PAGE>

      Petitioner of revenues recovered from amounts charged, collected and
      received on account of the BGS Bondable Transition Property with other
      funds of Petitioner.

      k.    Sale of BGS Bondable Transition Property to SPE

            The Board is requested to approve the sale by Petitioner of the
      BGS Bondable Transition Property to the SPE in a transaction which,
      under the Act, will be a legal true sale and absolute transfer to each
      SPE, notwithstanding any other characterization for tax, accounting or
      other purposes. The SPE will have all of the rights, among others, to
      exercise, through Petitioner or its successor electric public utility,
      any and all rights and remedies to collect any amounts payable by any
      customer in respect of the BGS Bondable Transition Property. The SPE
      will thus have the right to direct Petitioner or any successor utility
      to shut-off electric power to the extent permitted in accordance with
      law and any applicable regulations. The SPE and other third parties,
      however, will not have any right to exercise any direct control over the
      distribution and transmission system of Petitioner.

            The agreement in connection with the sale and transfer of the BGS
      Bondable Transition Property to an SPE may include representations and
      warranties with respect to, among other things, the validity of the
      Financing Order, the BGS Bondable Transition Property and the title
      thereto, and provide specific covenants, indemnities and repurchase
      obligations in connection with such transfer for the benefit of the
      holders of BGS Transition Bonds.


                                      24
<PAGE>



      l.    Issuance of BGS Transition Bonds

            The Board is requested to approve the issuance of BGS Transition
      Bonds by the SPE. The BGS Transition Bonds will, by their terms, be
      recourse only to the SPE's credit and assets, and will be secured by a
      pledge of all of the right, title and interest of the SPE in its BGS
      Bondable Transition Property and Other SPE Collateral. BGS Transition
      Bonds may be issued in series and classes with different terms.

      m.    Non-bypassable BGS Transition Bond Charge

            Under the Act and as authorized in the Original Financing Order,
      the BGS Transition Bond Charge will be non-bypassable and will be
      assessed against and collected from all customers of the Petitioner or
      any successor electric public utility, except as provided in the Act,
      within the Petitioner's service area at the date of this Petition until
      the Total Payment Requirements are discharged in full. The BGS
      Transition Bond Charge shall apply equally to each customer, regardless
      of class, based on the amount of electricity delivered to the customer
      through the transmission and distribution system of Petitioner or any
      successor electric public utility that may take over all or a portion of
      the Petitioner's service area at the date of this Petition, including
      electricity sold to customers by any third party supplier, as described
      below.

      n.    Third Party Suppliers

            Billing, collection and remittance of BGS Transition Bond Charges
      by a third party supplier ("TPS") may increase the risk of shortfalls in
      the BGS Transition Bond Charge or MTC-Tax collections by exposing the
      cash flow to


                                      25
<PAGE>

      potential interruption due to the default, bankruptcy or insolvency of
      the TPS. This risk of interruption will increase risks to investors,
      potentially increasing the required credit enhancement or reducing the
      credit rating and increasing the rate of interest on Transition Bonds
      that would be required by investors. Such TPS billing may increase the
      BGS Transition Bond Charge or MTC-Tax component resulting from
      interruption or delay in payment.

            In order to mitigate against these risks, satisfy rating agency
      concerns and reduce the cost to ratepayers, Petitioner requests that any
      TPS should be required, in the same manner as provided in the Original
      Financing Order, to comply with the billing, collection and remittance
      procedures and information access requirements set forth below.
      Petitioner requests that the Board will, consistent with the Original
      Financing Order, only authorize a TPS to bill and collect the BGS
      Transition Bond Charge and associated MTC-Tax with respect to power sold
      by it for remittance to the Servicer if (i) such TPS agrees to remit the
      full amount of all charges it bills to customers for services provided
      by Petitioner, together with BGS Transition Bond Charges and MTC-Tax,
      regardless of whether payments are received from such customers, within
      15 days of Petitioner's (or any successor Servicer's) bill for such
      charges; (ii) such TPS provides the Servicer with total monthly kWh
      usage information for each customer in a timely manner for the Servicer
      to fulfill its obligations, as such information is the basis of such
      remittance; and (iii) the Servicer is entitled, within seven days after
      a default by the TPS in remitting any charges payable to Petitioner,
      including BGS Transition Bond Charges and MTC-Tax billed, to assume
      responsibility for billing all


                                      26
<PAGE>



      charges for services provided by Petitioner or any Servicer, including
      the Transition Bond Charges and MTC-Tax, or to transfer responsibility
      to a qualifying third party. In addition, if and so long as such TPS
      does not maintain at least a "Baa2" and "BBB" (or the equivalent) long
      term unsecured credit rating from Moody's Investors Service or Standard
      & Poor's Rating Services, such TPS should be required to maintain, with
      the Servicer or as directed by the Servicer, a cash deposit or
      comparable security equal to two months' maximum estimated collections
      of all charges payable to the Petitioner, including the BGS Transition
      Bond Charges and MTC-Tax, as agreed upon by Petitioner (or any successor
      Servicer) and the TPS. In the event of a default in the remittance of
      any such charges by a TPS, any shortfall in the BGS Transition Bond
      Charge or MTC-Tax collections by a TPS would be included in the periodic
      adjustment of the BGS Transition Bond Charge and MTC-Tax.

      o.    Servicing

            Pursuant to the Act and in the same manner as authorized in the
      Original Financing Order, Petitioner will enter into a servicing
      agreement with the SPE to perform servicing functions on behalf of the
      SPE. Pursuant to the servicing agreement with the SPE (to be
      substantially the same in all material respects as the Service Agreement
      authorized in the Original Financing Order), Petitioner will act as
      Servicer of the Bondable Transition Property. Petitioner will be
      responsible for customer kWh billing and usage information, and for
      billing, collecting and remitting the Transition Bond Charges.
      Petitioner's proposed


                                      27
<PAGE>


      procedures for remittance of Transition Bond Charges will be
      substantially the same as authorized in the Original Financing Order.

            Petitioner, as Servicer, will contract with the SPE to collect
      amounts in respect of the BGS Transition Bond Charges for the benefit
      and account of such SPE, and to account for and remit these amounts to
      or for the account of such SPE. The servicing agreement will provide
      that Petitioner, as initial Servicer, may not voluntarily resign its
      duties as Servicer without obtaining the prior approval of the Board or
      if such resignation will result in the reduction or withdrawal of the
      credit ratings of Transition Bonds. In the event that the Petitioner
      defaulted in its servicing functions, as set forth in the servicing
      agreement, or were required to discontinue its billing and collecting
      functions, a successor Servicer acceptable to the Bond Trustee and the
      rating agencies, and meeting such criteria as the Board may establish,
      would replace the Petitioner, as Servicer, and assume such billing and
      collecting functions. Criteria for appointing a successor Servicer
      include, among other things, credit and data-processing quality and
      expertise in performing servicing functions relating to the BGS
      Transition Bond Transaction.

            If the Petitioner no longer performs servicing functions, the
      Servicing Fee will be paid directly to the successor Servicer and
      Petitioner's future rates will not be adjusted to reflect the amount of
      the Servicing Fee.

            The servicing agreement will include Petitioner's representations,
      warranties, agreements, covenants and indemnities for the benefit of the
      holders


                                      28
<PAGE>


      of BGS Transition Bonds and will be substantially the same as
      Petitioner's servicing agreement in the Original Financing Transaction.

            In the same manner as provided in the Original Financing Order, an
      annual Servicing Fee equaling 0.005% (five (5) basis points) of the
      initial principal balance of the BGS Transition Bonds, which may be
      payable in semiannual or more frequent installments, will be a part of
      the servicing agreement and will be recovered through BGS Transition
      Bond Charges. The Servicing Fee represents a reasonable good faith
      estimate of Petitioner's incremental cost to service the BGS Transition
      Bonds, including billing, monitoring, collecting, receiving, accounting
      for and remitting BGS Transition Bond Charges, systems modifications to
      bill, monitor, collect and remit BGS Transition Bond Charges, reporting
      requirements imposed by the servicing agreement, procedures required to
      coordinate with each TPS, required audits related to Petitioner's role
      as Servicer and legal and accounting fees related to the servicing
      obligation, together with a reasonable return. In the same manner as
      authorized in the Original Financing Order, the size of the Servicing
      Fee has been calculated in a manner to protect the "bankruptcy remote"
      nature of the transaction. The Servicing Fee paid to Petitioner, as
      Servicer, will be lower than the Servicing Fee paid to a successor
      Servicer which does not bill the BGS Transition Bond Charge concurrently
      with charges for other services to reflect the higher costs incurred by
      such successor. The rating agencies would expect an annual Servicing Fee
      as high as 1.25% of the original Transition Bond principal amount to be
      authorized in the Financing Order for a successor Servicer which


                                      29
<PAGE>


      does not bill and collect charges other than the Transition Bond Charge.
      This higher Servicing Fee would assure that a successor Servicer could
      be found.

      p.    Tax Component Recoveries - Accounting and Related Issues

            Petitioner will recover the Tax Component of the recoverable
      stranded costs through the ongoing collection of the MTC-Tax, until full
      payment of principal and interest of the Transition Bonds. As authorized
      in the Original Financing Order, the MTC-Tax will be subject to
      mandatory periodic adjustment (at the same time and in the same manner
      as the BGS Transition Bond Charges) to reconcile the MTC-Tax collections
      with the income tax required to be paid on the taxable revenue from the
      BGS Transition Bond Charge and the MTC-Tax. The Petitioner will maintain
      separate accounting for the MTC-Tax collections and the BGS Bondable
      Transition Property. As provided in the Act, Petitioner's retention of
      the MTC-Tax will in no way affect or impair the legal true sale and
      absolute transfer of the BGS Bondable Transition Property to the SPE, or
      otherwise affect the legal rights and attributes of the BGS Bondable
      Transition Property under the Act,

6.    RATEPAYER BENEFITS

            As illustrated by Exhibit A, the BGS Transition Bond Transaction
      will produce ratepayer benefits in the form of lower interest rates than
      would have been achieved without the issuance of the Transition Bonds.

            The actual amount of ratepayer benefit resulting from the
      Transition Bond Transaction will depend upon the actual amount of
      Transition Bonds issued, prevailing interest rates, market conditions at
      the time of Transition Bond pricing,


                                      30
<PAGE>


      and the actual amount of BGS Transition Costs. Pricing, structure, terms
      and conditions of the Transition Bonds are to be approved by the
      Designee pursuant to the Financing Order in the same manner as provided
      in the Original Financing Order.

7.    USE OF PROCEEDS

            The proceeds, net of underwriting discount, from the sale of BGS
      Transition Bonds will be remitted to Petitioner in consideration of
      Petitioner's sale of its BGS Bondable Transition Property. In accordance
      with N.J.S.A. 48:3-62(a), Petitioner will use such proceeds, after
      paying of Upfront Transaction Costs, to reduce the amount of its BGS
      Transition Costs through the refinancing or retirement of its debt or
      equity, or both including transactions completed prior to the date and
      in anticipation issuance of the Financing Order.

8.    RELATED ISSUES

            There are several related issues that have a potentially
      significant impact on the Transition Bond Transaction as described
      below.

      a.    Tax Considerations

            The benefits of the BGS Transition Bond Transaction depend in
      large part on recognizing taxable income in respect of BGS Transition
      Costs as BGS Transition Bond Charges are paid by customers, rather than
      such income being accelerated into current income upon issuance of the
      BGS Transition Bonds.

            As a result, in connection with the Original Financing Order,
      Petitioner applied for and received a private letter ruling ("Original
      Ruling") from the Internal Revenue Service ("IRS") confirming that (a)
      the issuance of the Original


                                      31
<PAGE>


      Financing Order by the Board would not result in gross income to
      Petitioner; (b) the issuance of the Original Transition Bonds would not
      result in gross income to Petitioner; and (c) the Original Transition
      Bonds would be treated as obligations of Petitioner for Federal income
      tax purposes. For the BGS Transition Bond Transaction, Petitioner
      expects to rely upon IRS Revenue Procedure 202-49 (the "Revenue
      Procedure"). While Petitioner believes that the Revenue Procedure is
      applicable to the BGS Transition Bond Transaction, Petitioner reserves
      the right to seek a private letter ruling if, in Petitioner's judgment,
      such a ruling would be advantageous and to request the Board to
      authorize changes in the terms of the BGS Transition Bond Transaction,
      if necessary, to comply with the Revenue Procedure or to obtain such a
      ruling.

      b.    Accounting and Financial Reporting

            The amount financed is expected to be recorded in accordance with
      generally accepted accounting principles ("GAAP") as long term debt on
      the balance sheet of the SPE for financial reporting purposes. Because
      such SPE will be a wholly-owned subsidiary of Petitioner, it is required
      that such SPE be consolidated with Petitioner for financial reporting
      purposes under GAAP. Therefore, the SPE's debt will appear on the
      consolidated balance sheet of Petitioner in its financial statements
      filed with the Securities and Exchange Commission in the same manner as
      debt of Petitioner's wholly-owned sudsidiary, PSE&G Transition Funding
      LLC incurred in the Original Transition Bond Transaction.


                                      32
<PAGE>

            For purposes of financial reporting to the Board, Petitioner will
      exclude the SPE's debt from its capital structure and exclude interest
      on the BGS Transition Bonds and other Ongoing Transition Bond Costs from
      its regulated cost of service.

            The BGS Transition Bond Transaction is not expected to adversely
      impact Petitioner's credit ratings, as it is expected that the rating
      agencies will again determine that BGS Transition Bonds, which are not
      supported by Petitioner's general revenue stream and not collateralized
      by its assets, do not adversely affect Petitioner's creditworthiness.
      Therefore, as in the Original Transition Bond Transaction, it is
      anticipated that the rating agencies will exclude the BGS Transition
      Bonds as debt for purposes of calculating financial ratios.

      c.    Rating Agency Considerations

            (i)   Bankruptcy-Related Opinions

            As in the Original Transiton Bond Transaction, the rating agencies
      continue to expect acceptable opinions of bankruptcy counsel at the time
      BGS Transition Bonds are issued for assurance that the BGS Bondable
      Transition Property will be bankruptcy-remote from Petitioner. To obtain
      such opinions, the transfer of the BGS Bondable Transition Property from
      Petitioner to the SPE must constitute a legal "true sale" such that if
      Petitioner were to become the subject of a bankruptcy or insolvency
      case, the BGS Bondable Transition Property would not be part of its
      bankruptcy estate and therefore would not be subject to the claims of
      its creditors.


                                      33
<PAGE>

            As in the Original Transition Bond Transaction, another element of
      the bankruptcy analysis focuses on the separate legal status of
      Petitioner and the SPE. Although Petitioner will wholly own the SPE, the
      Transition Bond Transaction will be structured so that, in the event of
      a bankruptcy of Petitioner, the SPE's separate legal existence would be
      respected and the assets and liabilities of the SPE would remain
      separate from the estate of Petitioner. The structural elements
      supporting such separate existence include requirements that the SPE be
      adequately capitalized, that Petitioner be adequately compensated on an
      arms-length basis for the servicing functions it performs in billing,
      collecting and remitting the BGS Transition Bond Charges and that
      Petitioner and the SPE take steps to ensure that creditors are not
      misled as to their separate existence. These structural protections are
      very important because, without such protections, a bankruptcy court
      might invoke the doctrine of "substantive consolidation" and disregard
      the SPE's separate existence.

            (ii)  Credit Enhancement

            Credit enhancements are mechanisms that provide investors with
      added assurance that they will timely recover their principal and
      interest as scheduled. In the same manner as authorized in the Original
      Financing Order, Petitioner proposes to provide credit enhancement in
      the form of capitalization of the SPE, true-up mechanisms,
      overcollateralization amounts and liquidity reserves. The BGS Transition
      Bond Transaction will incorporate the True-Up Mechanism authorized by
      N.J.S.A. 48:3-64(b) and authorized in the Original Financing Order


                                      34
<PAGE>


      as described above and overcollateralization amounts or other means of
      credit enhancement as required by the rating agencies or taxing
      authorities.

            As in the Original Transition Bond Transaction, the purpose of the
      overcollateralization amount is to provide security to investors and to
      enhance the credit rating of BGS Transition Bonds by providing an
      additional amount to cover shortfalls in BGS TBC. As a result, the BGS
      Transition Bond Charge will be set to collect an overcollateralization
      amount over time in addition to the principal (in accordance with the
      expected amortization schedule) and interest payable on the BGS
      Transition Bonds, together with the other Periodic Payment Requirements.
      In the same manner as authorized in the Original Financing Order, the
      overcollateralization amount needed to satisfy the rating agencies will
      be determined by Petitioner with input from the rating agencies and tax
      authorities prior to the time BGS Transition Bonds are priced and will
      be submitted to the Designee for approval at the time of pricing of the
      BGS Transition Bonds. As with other components of the BGS TBC , in the
      same manner as authorized in the Original Financing Order, the
      overcollateralization component, any deficiencies on past due payments
      and any excess in BGS TBC collections accumulated under the Indenture
      will be incorporated into each periodic adjustment to the extent
      necessary using the True-Up Mechanism.

            Customers will receive credit equal to the amount of any BGS
      Bondable Transition Property overcollateralization remaining upon
      discharge of the Total Payment Requirements (excluding Petitioner's
      equity and investment earnings


                                      35
<PAGE>


      thereon). As a result, overcollateralization will not reduce customer
      benefits from the Transition Bond Transaction.

      d.    Allocation of Collection Shortfalls

            As in the Original Transition Bond Transaction, in order to
      preserve the bankruptcy-remote status of the BGS Bondable Transition
      Property and Other SPE Collateral once it is transferred to the SPE,
      Petitioner cannot have any claim on the Bondable Transition Property. In
      its capacity as Servicer, Petitioner will bill BGS Transition Bond
      Charges, along with Original Transition Bond Charges, and other charges
      for services rendered to customers obligated to pay such charges, in a
      single bill. If Petitioner collects less than the full amount that is
      billed to such customers, it is not permitted to favor itself over the
      SPE, as owner of Bondable Transition Property. As described earlier and
      as provided in the Original Transition Bond Transaction, upon the
      issuance of BGS Transition Bonds, amounts collected from a customer will
      be applied first to sales taxes (which Petitioner will collect as
      trustee for the State and not for its own account or that of the SPE,
      and which are not "charges" for purposes of the following allocations),
      then to charges in arrears, if any, and then to current charges. With
      respect to each billing period, partial payments of customer billings
      will be allocated to the aggregate Transition Bond Charges (including
      both the Original Transition Bond Charge and BGS TBC), the aggregate
      related MTC-Tax charges and to the Petitioner's other charges, pro rata,
      based on the proportions that such aggregate Transition Bond Charges and
      BGS Transition Bond Charges, the aggregate MTC-Tax and the Petitioner's
      other charges bear as the total charges


                                      36
<PAGE>


      collected. Partial payments of the aggregate Transition Bond Charge will
      be allocated to the owners of Bondable Transition Property, pro rata,
      based on the proportion that the original Transition Bond Charge
      established pursuant to the Original Financing Order and the BGS
      Transition Bond Charges proposed to be established pursuant to the
      Financing Order requested hereby, together with any Transition Bond
      Charges established pursuant to other subsequent financing orders bear
      to the total Transition Bond Charges collected.

      e.    SPE Administration and Other Transactions With the SPE

            In the same manner as in the Original Transition Bond Transaction,
      the SPE will enter into an administration agreement with Petitioner
      pursuant to which Petitioner will perform ministerial services and
      provide facilities for the SPE to ensure that it is able to perform such
      day-to-day operations as are necessary to maintain its existence and
      perform its obligations under the BGS Transition Bond Transaction
      documents. The Petitioner will be paid an administration fee in an
      amount commensurate with its costs, which will be included in the
      Periodic Payment Requirements.

9.    CORRESPONDENCE OR COMMUNICATIONS WITH RESPECT TO THIS PETITION MAY BE
      ADDRESSED TO:

      James T. Foran, Esq., General Corporate Counsel
      Public Service Electric and Gas Company
      80 Park Plaza, T5B
      P.O. Box 570
      Newark, New Jersey 07101

            Petitioner therefore prays that your Honorable Board approve the
      Petitioner's proposal by issuing an irrevocable Bondable Stranded Costs
      Rate Order to authorize (1) the imposition of a non-bypassable
      transition bond charge


                                      37
<PAGE>


      and the collection of such charge, (2) the sale of the right to receive
      such charge to an approved financing entity, (3) the issuance of
      transition bonds by the financing entity to recover Petitioner's
      deferred BGS Costs as BGS Transition Costs and to apply the proceeds of
      such bonds to refinance or retire Petitioner's outstanding debt and/or
      equity and (4) a formula for the calculation and adjustment of the
      transition bond charge and the market transition charge-tax related
      thereto, all as described more fully in this Petition.

                              Public Service Electric and Gas Company

                              By /s/ James T. Foran
                                 ---------------------------------------------
                                 (James T. Foran)
                                  General Corporate Counsel
                                  80 Park Plaza
                                  Newark, New Jersey 07101

Dated:  July 9, 2003
        Newark, New Jersey



                                      38
<PAGE>

STATE OF NEW JERSEY        )
                           )
COUNTY OF ESSEX            )


      MORTON A. PLAWNER,  of full age, being duly sworn, upon his oath deposes
and says:

      I am a Vice President and Treasurer of Public Service Electric and Gas
Company, the Petitioner named in the foregoing Petition.

      The facts stated in said Petition and the Exhibit attached thereto are
true to the best of my knowledge and belief.


                                    By /s/ Morton A. Plawner
                                       ---------------------------------------
                                       Morton A. Plawner



Subscribed and sworn to before me this 9th day of July, 2003.


By /s/ Karina Boto
   ------------------------------
   Karina Boto
   A Notary Public of New Jersey
   My Commission Expires March 24, 2008


                                      39
<PAGE>


                                                                     EXHIBIT A
                                                                   Page 1 of 4

<TABLE>
<CAPTION>

    METHODOLOGY TO CALCULATE RATEPAYER BENEFITS FROM SECURITIZATION SUMMARY
                               ($ in thousands)

                                                                                  Present
                                                                                  Value @
Period            RB-ROR             Securitization         Benefit/(Cost)         6.52%
------         ------------          --------------        ---------------       -----------
<S>            <C>                   <C>                   <C>                   <C>
  1            $     31,843          $     18,358          $    13,485           $    12,660
  2                  30,794                18,595               12,199                10,752
  3                  29,744                18,839               10,905                 9,023
  4                  28,695                19,091                9,604                 7,461
  5                  27,645                19,350                8,296                 6,050
  6                  26,596                19,604                6,992                 4,787
  7                  25,546                19,711                5,835                 3,751
  8                  24,497                19,783                4,714                 2,845
  9                  23,448                19,857                3,591                 2,034
 10                  22,398                19,933                2,465                 1,311
 11                  21,349                20,011                1,338                   668
 12                  20,299                20,092                  208                    97
 13                  19,250                20,175                 (925)                 (407)
 14                  18,200                20,260               (2,060)                 (851)
 15                  17,151                20,348               (3,197)               (1,240)
               ------------          --------------        ---------------       -----------
               $    367,454          $    294,005          $    73,450           $    58,940
</TABLE>


<PAGE>


                                                                     EXHIBIT A
                                                                   Page 2 of 4


        METHODOLOGY TO CALCULATE RATEPAYER BENEFITS FROM SECURITIZATION
                                Rate of Return

<TABLE>
<CAPTION>

                                                           Weighted      After-tax WAC
                                    %          Cost          Cost        Discount Rate
                                -------       ------       --------      -------------
<S>                             <C>            <C>            <C>             <C>
Long term debt                  53.6402        7.11%          3.81            2.26
Tax deductible preferred         2.8425        8.36%          0'.24           0.14
Customers' deposits              0.6052        1.82%          0.01            0.01
Preferred stock                  1.4671        5.03%          0.07            0.07
Common equity                   41.4451        9.75%          4.04            4.04
                                -------                    --------      -------------
                                 100.00                       8.18            6.52
</TABLE>


<PAGE>


                                                                     EXHIBIT A
                                                                   Page 3 of 4


        METHODOLOGY TO CALCULATE RATEPAYER BENEFITS FROM SECURITIZATION
                          Rate Base - Rate of Return
                               ($ in Thousands)

<TABLE>
<CAPTION>

BGS
Deferral
Estimate    $   241,522

  A            B               C                   D              E                F                 G            H
                                                                                Accum.
Period       Amount       Amortization       Accum Amort.        Net          Deferred IT         Rate Base       ROR
------     ---------      ------------       ------------     ---------       -----------       -----------    ---------
<S>        <C>              <C>                <C>            <C>              <C>               <C>           <C>
   0       $ 241,522               -                 -        $ 241,522        $ 98,662          $ 142,860
   1               -        $ 16,101           $ 16,101         225,421          92,084            133,336     $  11,682
   2               -          16,101             32,203         209,319          85,507            123,812        10,903
   3               -          16,101             48,304         193,218          78,929            114,288        10,124
   4               -          15,101             64,406         177,116          72,352            104,764         9,346
   5               -          16,101             80,507         161,015          65,774             95,240         8,567
   6               -          16,101             96,609         144,913          59,197             85,716         7,788
   7               -          16,101            112,710         128,812          52,620             76,192         7,009
   8               -          16,101            128,812         112,710          46,042             66,668         6,230
   9               -          16,101            144,913          96,609          39,465             57,144         5,452
  10               -          16,101            161,015          80,507          32,867             47,620         4,673
  11               -          16,101            177,116          64,406          26,310             38,096         3,894
  12               -          16,101            193,21B          48,304          19,732             28,572         3,115
  13               -          16,101            209,319          32,203          13,155             19,048         2,336
  14               -          16,101            225,421          16,101           6,577              9,524         1,558
  15               -          16,101            241,522               -               -                  -           779

<CAPTION>

  A            I                  J                K                    L

Period      Interest          Deferred IT      Current IT      Revenue Requirement
------     ---------         ------------      ----------      -------------------
<S>        <C>               <C>               <C>                <C>
   0                         $  98,662
   1       $   5,804            (6,577)        $   10,637         $   31,843
   2           5,417            (6,577)            10,366             30,794
   3           5,030            (6,577)            10,096             29,744
   4           4,643            (6,577)             9,825             28,695
   5           4,256            (6,577)             9,555             27,645
   6           3,869            (6,577)             9,284             26,596
   7           3,482            (6,577)             9,013             25,546
   8           3,095            (6,577)             8,743             24,497
   9           2,708            (6,577)             8,472             23,446
  10           2,321            (6,577)             8,201             22,398
  11           1,935            (6,577)             7,931             21,349
  12           1,548            (6,577)             7,660             20,299
  13           1,161            (6,577)             7,389             19,250
  14             774            (6,577)             7,119             18,200
  15             387            (6,577)             6,848             17,151
                                                               -------------------
                                                                  $  367,454
</TABLE>



Column
------
H =      Col. G *8.18%
I =      (Col. G *3.81%) + (Col. G * 0.24%) + (Col. G * 0.01%)
J =      (Col. B - Col. C) * 40.85%
K =      (Col. H - Col. I + Col. C + Col. J) * (40.85% / 59.15%)
L =      Col. C + Col. H + Col. J + Col. K


<PAGE>



                                                                     EXHIBIT A
                                                                   Page 4 of 4



<PAGE>


       METHODOLOGY TO CALCULATE RATE PAYER BENEFITS FROM SECURITIZATION
                             Securitization Costs
                               ($ in thousands)


================================================================================
Securitization Costs
--------------------

Underwriting (0.5% of Principal)                          $           735
Advisor's fee                                                         500
Registration Statement                                                 14
Printing and Engraving                                                100
Trustees                                                               50
Legal                                                                 850
Accountants                                                            75
Rating Agency                                                         300
SPV Set-up fee                                                         25
Miscellaneous                                                          51
Total                                                     $         2,700
================================================================================


Principal:
BGS Deferral After-tax-Estimate             $    142,860
Discount, fees & expenses                          2,700
                                            ------------
                                            $    145,560



                                                   Income,
Period        Principal          Interest           Taxes              Total
------       -----------        ----------        ----------        -----------
  0
  1          $    7,819         $   5,140         $   5,400         $    18,358
  2               8,054             4,978             5,562              18,595
  3               8,297             4,812             5,730              18,839
  4               8,547             4,641             5,903              19,091
  5               8,804             4,465             6,080              19,350
  6               9,070             4,270             6,264              19,604
  7               9,343             3,916             6,452              19,711
  8               9,625             3,511             6,647              19,783
  9               9,915             3,095             6,847              19,857
 10              10,213             2,666             7,054              19,933
 11              10,521             2,224             7,266              20,011
 12              10,838             1,768             7,485              20,092
 13              11,165             1,299             7,711              20,175