DEFERRED COMPENSATION PLAN FOR CERTAIN EMPLOYEES OF
                    PUBLIC SERVICE ELECTRIC AND GAS COMPANY






























                                                  AS AMENDED DECEMBER 17, 1996



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              DEFERRED COMPENSATION PLAN FOR CERTAIN EMPLOYEES OF
              PUBLIC SERVICE ELECTRIC AND GAS COMPANY, AS AMENDED
                                DECEMBER 17, 1996

      1.  PURPOSE.  The  purpose  of this Plan is to provide a method to certain
select and key  employees  of the  Company  to defer  compensation  as  provided
herein.
      2.  DEFINITIONS  OF TERMS  USED IN THIS PLAN.  As used in this  Plan,  the
following words and phrases shall have the meanings indicated:
            (a)   "Account" - The  Deferred  Compensation  Account  described in
                  Paragraph 4 of this Plan.
            (b)   "Assets"  - All  Compensation  and  interest  that  have  been
                  credited to an Employee's Account in accordance with Paragraph
                  4 of this Plan.
            (c)   "Beneficiary"   -   The   individual(s)   and/or   entity(ies)
                  designated and defined by Schedule B of the Plan.
            (d)   "Committee"  -  The  Employee  Benefits   Committee  of  the
                  Company.
            (e)   "Company" - Public Service Electric and Gas Company.
            (f)   "Compensation" - The total  remuneration paid to an Employee
                  for services rendered to the Company,  excluding the Company's
                  cost  for  any  public  or  private   employee  benefit  plan.
                  Compensation  deferrable  under this Plan  shall  specifically
                  include  any and all  amounts  transferred  from the  deferred
                  compensation accounts of the Management Incentive Compensation
                  Plan of Public Service Electric and Gas Company.
            (g)   "Deferred  Compensation" - The amount of Compensation deferred
                  pursuant to Paragraph 3 of this Plan.
            (h)   "Disability"  - Disability so as to be incapable of performing
                  further work for the Company that  results in  termination  of
                  employment.
            (i)   "Employee" - Each individual member of the Operating Committee
                  of the Company and such other  employees of the Company as may
                  be designated by the Committee.
            (j)   "Pension Plan" - The Pension Plan of Public  Service  Electric
                  and Gas Company.
            (k)   "Plan" - The Deferred  Compensation Plan for Certain Employees
                  of Public Service Electric and Gas Company.


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      3. ELECTION AS TO THE AMOUNT OF  COMPENSATION  THAT IS TO BE DEFERRED.  An
Employee may elect to defer any portion of his Compensation  otherwise payable 
for services rendered for the Company after the date of adoption of this Plan.
      Any such  election  must be made by filing with the Committee an "Election
in Connection with Deferral of  Compensation",  the form of which is attached to
this Plan as  Schedule A and is  hereinafter  referred  to as  "Schedule  A". An
Employee  may  change  (using  Schedule  A for such  purposes),  not later  than
December 31 of any year, the amount of  Compensation  to be deferred by him with
respect to the next succeeding calendar year or years. In the calendar year that
an Employee first becomes  eligible to  participate in this Plan,  such Employee
may elect to defer Compensation for  part of that calendar year but only if such
election  is made  within  thirty  (30) days after the  Employee  first  becomes
eligible to participate in this Plan. Compensation may be deferred prospectively
only,  and the amount of  Compensation  to be deferred  may be changed only with
respect to future calendar years.
      4. HOW THE ACCOUNT IS TO BE MAINTAINED.
            (a)  Establishment  of  Account - The  Company  shall  establish  an
Account for each Employee who elects to participate in the Plan. Each Employee's
Account  shall be credited at the end of each month with an amount  equal to the
Deferred  Compensation  which  would  have  otherwise  been  payable to him that
month.
            (b) Interest on Assets in the Account - The Assets  credited to each
Employee's Account shall accrue interest each calendar quarter at an annual rate
equal to the rate  charged  by The  Chase  Manhattan  Bank,  N.A.  on the  first
business  day of such  calendar  quarter  for prime  commercial  loans of 90 day
maturity (based on actual number of days, 360 days to the year), plus 1/2 of 1%.
Such interest  shall be computed on the average daily balance in the  Employee's
Account  during each  calendar  quarter,  excluding  any Assets  which have been
distributed  from the  Employee's  Account  during  such  quarter,  and shall be
credited  to the  Employee's  Account and  compounded  on the last day of March,
June,  September  and  December,  and  interest  on Assets  distributed  from an
Employee's  Account  shall accrue in the same manner to the date of, be credited
to the Employee's Account on the date of, and be paid with, such distribution.

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            (c) Title to and Beneficial  Ownership of Assets - The Plan shall be
unfunded. The Company shall not be required to segregate any amounts credited to
any  Employee's  Account,  which shall be  established  merely as an  accounting
convenience.  Title to and beneficial ownership of any Assets,  whether Deferred
Compensation  or  interest  credited  to  an  Employee's   Account  pursuant  to
Paragraphs 4(a) and (b)  hereinabove,  shall at all times remain in the Company,
and no  Employee  nor  Beneficiary  shall have any  interest  whatsoever  in any
specific assets of the Company.  All Assets shall at all times remain solely the
property  of the  Company  subject to the claims of its  general  creditors  and
available for the Company's use for whatever purpose desired.
      5.    DISTRIBUTION FROM THE ACCOUNT
            (a)  Election  as to  the  Commencement  of  the  Distribution  - By
election on Schedule A filed with the  Committee,  an Employee may elect to have
distribution  from his Account commence either (l) within thirty (30) days after
the date he ceases to be employed by the Company or, in the alternative,  (2) in
the month of January of any calendar year  following  termination  of employment
elected  by the  Employee,  but in any event no later  than the later of (a) the
January of the year  following the year of the  Employee's  70th birthday or (b)
the January  following  termination of  employment.  An Employee may change such
election by filing a subsequent Schedule A, but any such change shall apply only
to future deferrals. The actual date that distribution shall commence shall be a
date within the elected  period to be  determined  by the  Committee in its sole
discretion.
            (b) Election as to the Timing of the  Distribution(s)  - By election
on Schedule A filed with the  Committee,  an  Employee  may elect to receive the
distribution of his Account in the form of (l) one lump-sum payment,  (2) annual
distributions over a five-year period or (3) annual distributions over a 10-year
period. An Employee may change such election by filing a subsequent  Schedule A,
but any such  change  shall  apply  only to  future  deferrals.  In the  event a
lump-sum  payment is made under this Plan, the Assets  credited to an Employee's
Account,  including interest at the rate provided in Paragraph 4(b) of this Plan
to the  date  of  distribution,  shall  be  paid  to the  Employee  on the  date
determined under Paragraph 5(a) of this Plan. In the case of a distribution over
a period of years,  the Company shall pay to the Employee on the date determined
under Paragraph S(a) of this Plan and on the yearly  anniversaries of such date,
annual  installments  of the  unpaid  balance  of the  Assets in the  Employee's
Account,  including  interest  on the  unpaid  balance at the rate  provided  in
Paragraph  4(b) of this  Plan to the date of  distribution.  The  amount of each
installment  shall be determined by multiplying  the then unpaid  balance,  plus
accrued  interest,  in the  Employee's  Account by a fraction,  the numerator of
which is one and the  denominator of which is the number of annual  installments
remaining to be paid.

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            (c) Distribution in Case of Certain  Disability - In the event of an
Employee's  Disability  prior to a calendar  year elected by the Employee  under
Paragraph 5(a) (2) of this Plan for  distribution  to commence,  distribution of
the Employee's  Account shall commence in the month following the month in which
the Employee  terminates  employment  for  disability,  in  accordance  with the
Employee's  election  under  Paragraph  S(b)  of  this  Plan  as to the  form of
distribution.  The actual date that distribution  shall commence shall be a date
within such month determined by the Committee in its sole discretion.
            (d)  Distribution  in Case of Death - In the event of an  Employee's
death,  the balance of the  Employee's  Account  shall be  distributed  to the__
Employee's  Beneficiary(ies)  over a period of not more than five (S) years,  in
accordance with his election on Schedules A and B (filed with the Committee) for
distribution in case of death. Any change in the period over which such payments
are made shall only apply to future deferrals.  Such distribution  shall be made
in a manner  consistent  with  Paragraph 5(b) of this Plan and shall commence in
the month of January of the year after the year of the  Employee's  death,  on a
date within said month to be determined by the Committee in its sole discretion.
Additional annual payments for distributions made over a period of more than one
year shall be made on the yearly  anniversaries of such date. In the event of an
Employee's death after  distribution of his Account has commenced,  any election
under this  Paragraph  S(d) shall not extend the time of payment of his  Account
beyond the time when distribution  would have been completed if he had lived. An
Employee may change Beneficiary  designations by filing a subsequent  Schedule B
with the Committee.
            (e) Request for Change in Distribution - An Employee, Beneficiary or
a legal  representative may request a change in the timing,  frequency or amount
of payments made from an Employee's Account by filing a written request therefor
with the  Committee.  The  Committee  may,  in its sole  discretion,  grant such
request only if the Committee determines that an emergency beyond the control of
the Employee,  Beneficiary or legal representative  exists and which would cause
such Employee,  beneficiary or legal representative severe financial hardship if
the  payment of such  benefits  were not  approved.  Any such  distribution  for
hardship  shall be  limited  to the  amount  needed to meet such  emergency.  An
Employee who makes a hardship withdrawal may not reenter this Plan for 12 months
after the date of withdrawal.  Any distribution  under this Paragraph 5(e) shall
commence  within 30 days after the  Committee  grants such  request for hardship
withdrawal.
            (f)  Employment  not  Terminated  if  Transferred  to  Company-Owned
Corporation  - For the purposes of this  Paragraph  5, an Employee  shall not be
deemed to have terminated his employment if he is transferred to the employ of a
corporation in which the Company owns a majority equity interest.

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            (g) Company may Distribute in Lump-Sum if Distributable  Amount Less
Than $5,000 - The Company  reserves  the right to make a lump-sum  distribution,
notwithstanding  any other  provision  of this Plan,  if the total  Assets in an
Employee's  Account are $5,000 or less at any time after the Employee  ceases to
be employed by the Company.
      6. UNFUNDED ADJUSTMENTS To MAKE UP FOR REDUCED BENEFIT UNDER PENSION PLAN.
If an Employee, on termination of employment or thereafter,  or a Beneficiary of
the  Employee  under the Pension  Plan,  is  entitled  to any benefit  under the
Pension Plan,  the Company  shall pay out of its general  funds a  supplementary
benefit (at such time after the Employee's  retirement and in such manner as the
Committee in its sole discretion  shall  determine)  equivalent to the excess of
the amount computed in (a) below over the amount computed in (b) below:
            (a)   The benefit to which the  Employee or such  Beneficiary  would
                  have  been  entitled  if the  Employee's  Final  Earnings,  as
                  defined in the Pension  Plan,  had included  all  Compensation
                  earned which would have been included in his Final Earnings if
                  this Plan were not in effect.
            (b)   The actual  benefit to which the Employee or such  Beneficiary
                  is entitled under the Pension Plan.
      7.  ASSIGNMENT.  No  benefit  under the Plan shall in any manner or to any
extent be assigned,  alienated,  or  transferred  by any Employee or Beneficiary
under the Plan or subject to attachment, garnishment or other legal process.
      8 PLAN DOES NOT  CONSTITUTE AN EMPLOYMENT  AGREEMENT.  This Plan shall not
constitute  a contract for the  continued  employment  of any  Employee  by the
Company. The Company reserves the right to modify an Employee's  compensation at
any time and from time to time as it considers  appropriate and to terminate his
employment for any reason at any time notwithstanding this Plan.
      9.  AMENDMENT  OR  TERMINATION  OF THE PLAN BY THE  COMPANY.  The Board of
Directors of the Company may, in its sole discretion, amend, modify or terminate
this Plan at any time, provided,  however, that no such amendment,  modification
or termination  shall  materially  adversely  affect the right of an Employee in
respect of  Deferred  Compensation  previously  earned by him which has not been
paid,  unless such  Employee or his legal  representative  shall consent to such
change.
      10. WHAT  CONSTITUTES  NOTICE.  Any notice to an Employee,  Beneficiary or
legal  representative  hereunder  shall be given either by  delivering  it or by
depositing it in the United States mail, postage prepaid,  addressed to his last
known address.  Any notice to the Company or the Committee hereunder  (including
the filing of  Schedules  A and B) shall be given  either by  delivering  it, or
depositing it in the United States mail,  postage  prepaid,  to the Secretary of
the Employee  Benefits  Committee,  Public Service Electric and Gas Company,  80
Park Plaza T2B, P. 0. Box 570, Newark, New Jersey 07101.

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      11. ADVANCE  DISCLAIMER OF ANY WAIVER ON THE PART OF THE COMPANY.  Failure
by the Company to insist upon strict compliance with any of the terms, covenants
or conditions hereof shall not be deemed a waiver of any such term,  covenant or
condition,  nor  shall  any  waiver  or  relinquishment  of any  right  or power
hereunder at any one or more times be deemed a waiver or  relinquishment  of any
such right or power at any other time or times.
      12.  EFFECT ON  INVALIDITY  OF ANY PART OF THE  PLAN.  The  invalidity  or
unenforceability  of any provision hereof shall in no way affect the validity or
enforceability of any other provision.
      13. PLAN BINDING ON ANY  SUCCESSOR  OWNER.  Except as  otherwise  provided
herein, this Plan shall inure to the benefit of and be binding upon the Company,
its successors and assigns,  including but not limited to any corporation  which
may acquire all or  substantially  all of the  Company's  assets and business or
with or into which the Company may be consolidated or merged.
      14. LAWS  GOVERNING  THIS PLAN.  Except to the extent federal law applies,
this Plan shall be governed by the laws of the State of New Jersey.
      15. MISCELLANEOUS.  The masculine pronoun shall mean the feminine wherever
appropriate.

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                                                                      SCHEDULE A

              DEFERRED COMPENSATION PLAN FOR CERTAIN EMPLOYEES OF
             PUBLIC SERVICE ELECTRIC AND GAS COMPANY (THE "PLAN")

             Elections in Connection With Deferral of Compensation

Section 1.  Election as to Compensation to be Deferred.

      Note: THIS SECTION IS TO BE USED TO MAKE OR TO CHANGE AN ELECTION  UNDER
            PARAGRAPH 3 OF THE PLAN.  ANY CHANGE IN  ELECTION  MUST BE MADE NO
            LATER THAN  DECEMBER  31 OF THE YEAR  PRECEDING  THE YEAR IN WHICH
            YOU WISH THE CHANGE TO APPLY.

      I hereby elect to defer, in accordance with the provisions of the Plan:

      __________        (a)   a month of my Compensation; or

      __________        (b)   All of my  Compensation  in excess of $_________
                        per year.

Section 2.  Election as to Commencement of Distribution From Account

      Note: THIS  SECTION  IS TO BE USED (A) WHEN  FIRST  BECOMING  AN  EMPLOYEE
            COVERED BY THE PLAN AND (B) PRIOR TO DECEMBER 31ST OF ANY GIVEN YEAR
            IF THERE IS TO BE ANY  CHANGE  IN THE  ORIGINAL  ELECTION.  ANY SUCH
            CHANGE WILL ONLY APPLY TO FUTURE DEFERRALS.

      I hereby  elect,  in accordance  with the  provisions of the Plan, to have
distribution from my Account commence:

      __________        (a)   Within  thirty  (30)  days  after I cease  to be
                        employed by the Company.

      __________        (b) In the  month of  January,  __________,  unless I am
                        employed  by the  Company  at such  time,  in which case
                        within  30  days  after I cease  to be  employed  by the
                        Company.

                                                Employee's Initials __________
                                                                Date__________


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                                                                    SCHEDULE A-2

Section 3.  Election as to the Timing of the Distribution

      Note: THIS  SECTION  IS TO BE USED (A) WHEN  FIRST  BECOMING  AN  EMPLOYEE
            COVERED BY THE PLAN AND (B) PRIOR TO DECEMBER 31ST OF ANY GIVEN YEAR
            IF THERE IS TO BE ANY  CHANGE  IN THE  ORIGINAL  ELECTION.  ANY SUCH
            CHANGE WILL ONLY APPLY TO FUTURE DEFERRALS.

      I hereby elect, in accordance with the provisions of the Plan, to have the
distribution of my Account paid:

      __________  (a)   In one lump sum.

      __________  (b)   In  annual  installments  over a  period  of five  (5)
years.

      __________        (c)   In  annual  installments  over a  period  of ten
                        (10) years.

Section 4.  Election As To Method Of Distribution In Case of Death

      Note: THIS  SECTION TO BE USED TO SELECT THE METHOD OF  DISTRIBUTION  IN
            THE CASE OF DEATH.  PERIOD  SELECTED MAY NOT BE MORE THAN FIVE (5)
            YEARS.

      In case of my death, I hereby elect,  in accordance with the provisions of
the Plan,  to have the  distribution  of my Account  paid over a period of _____
year(s) to my Beneficiary(ies) designated on Schedule B.

______________________, 19___


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Witness                                   Employee Signature


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                                                                      SCHEDULE B

              DEFERRED COMPENSATION PLAN FOR CERTAIN EMPLOYEES OF
             PUBLIC SERVICE ELECTRIC AND GAS COMPANY (THE "PLAN")

                         DESIGNATION OF BENEFICIARY(IES)

      In the event of my death,  I hereby  designate the following  individuals,
fiduciaries  or  other  entities,   either  in  their  own  right  or  in  their
representative  capacity,  in the  proportions  and in the  priority of interest
designated, to be the beneficiaries of any benefits owing to me, under the Plan.
      PRIMARY BENEFICIARIES - The following  beneficiary(ies)  shall receive all
benefits  payable  under  the Plan in the  event of my death in the  proportions
designated hereunder. If any one or more of the primary beneficiaries designated
hereunder  shall  predecease  me, such  beneficiary's  share(s) shall be divided
equally among the remaining primary beneficiaries.

                                        PROPORTIONATE
    NAME AND PRESENT ADDRESS         INTEREST OF PRIMARY       RELATIONSHIP
   OF PRIMARY BENEFICIARY(IES)        BENEFICIARY(IES)          TO EMPLOYEE

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                                                                      SCHEDULE B

      SECONDARY BENEFICIARIES - The following beneficiary(ies) shall receive all
benefits  payable  under  the Plan in the  event of my death in the  proportions
designated  hereunder only if all of my Primary  Beneficiaries  have predeceased
me. If all Primary  Beneficiaries  have predeceased me and if any one or more of
the Secondary  Beneficiaries  designated  hereunder  shall  predecease  me, such
Secondary  Beneficiary's  share(s) shall be divided  equally among the Secondary
Beneficiaries.

                                        PROPORTIONATE
    NAME AND PRESENT ADDRESS         INTEREST OF PRIMARY       RELATIONSHIP
   OF PRIMARY BENEFICIARY(IES)        BENEFICIARY(IES)          TO EMPLOYEE

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      ESTATE - In the event I have declined to designate a Beneficiary hereunder
or if all of the  Beneficiaries  that I have designated  predecease me, then all
benefits payable under the Plan shall be payable to my Estate.

Date:__________



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Witness                                   Employee's Signature