DEFERRED COMPENSATION PLAN FOR CERTAIN EMPLOYEES

                   OF PUBLIC SERVICE ELECTRIC AND GAS COMPANY










                                                    AS AMENDED DECEMBER 15, 1998
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               DEFERRED COMPENSATION PLAN FOR CERTAIN EMPLOYEES OF
                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
                          AS AMENDED DECEMBER 15, 1998

     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)  "Change in Control" - The occurrence of any of the following events:

          (i)  any "person" (within the meaning of Section 13(d) of the
               Securities Exchange Act of 1934, as amended from time to time
               (the "Act")) is or becomes the beneficial owner within the
               meaning of Rule 13d-3 under the Act (a "Beneficial Owner"),
               directly or indirectly, of securities of Public Service
               Enterprise Group Incorporated ("Parent") (not including in the
               securities beneficially owned by such person any securities
               acquired directly from Parent or its affiliates) representing 25%
               or more of the combined voting power of Parent's then outstanding
               securities, excluding any person who becomes such a Beneficial
               Owner in connection with a transaction described in clause (A) of
               paragraph (iii) below; or

          (ii) the following individuals cease for any reason to constitute a
               majority of the number of directors then serving: individuals
               who, on December 15, 1998, constitute the board of directors of
               Parent ("Board") and any new director (other than a director
               whose initial assumption of office is in connection with an
               actual or threatened election contest, including but not limited
               to a consent solicitation, relating to the election of directors
               of Parent) whose appointment or election by the Board or
               nomination for election by Parent's stockholders was approved or
               recommended by a vote of at least two-thirds (2/3) of the
               directors then still in office who either were directors on
               December 15, 1998 or whose appointment, election or


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                                       3


               nomination for election was previously so approved or
               recommended; or

         (iii) there is consummated a merger or consolidation of Parent or any
               direct or indirect wholly owned subsidiary of Parent with any
               other corporation, other than (1) a merger or consolidation which
               would result in the voting securities of Parent outstanding
               immediately prior to such merger or consolidation continuing to
               represent (either by remaining outstanding or by being converted
               into voting securities of the surviving entity or any parent
               thereof), in combination with the ownership of any trustee or
               other fiduciary holding securities under an employee benefit plan
               of Parent or any subsidiary of Parent, at least 75% of the
               combined voting power of the securities of Parent or such
               surviving entity or any parent thereof outstanding immediately
               after such merger or consolidation, or (2) a merger or
               consolidation effected to implement a recapitalization of Parent
               (or similar transaction) in which no person is or becomes the
               Beneficial Owner, directly or indirectly, of securities of Parent
               representing 25% or more of the combined voting power of Parent's
               then outstanding securities; or

          (iv) the stockholders of Parent approve a plan of complete liquidation
               or dissolution of Parent or there is consummated an agreement for
               the sale or disposition by Parent of all or substantially all of
               Parent's assets, other than a sale or disposition by Parent of
               all or substantially all of Parent's assets to an entity, at
               least 75% of the combined voting power of the voting securities
               of which are owned by stockholders of Parent in substantially the
               same proportions as their ownership of Parent immediately prior
               to such sale.

     Notwithstanding the foregoing subparagraphs (i), (ii), (iii) and (iv), a
     "Change in Control" shall not be deemed to have occurred by virtue of the
     consummation of any transaction or series of integrated transactions
     immediately following which the record holders of the common stock of
     Parent immediately prior to such transaction or series of transactions
     continue to have substantially the same proportionate ownership in an
     entity which owns all or substantially all of the assets of Parent
     immediately following such transaction or series of transactions.

     (e)  "Committee" - The Employee Benefits Committee of the Company.

     (f)  "Company" - Public Service Electric and Gas Company.


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     (g)  "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.

     (h)  "Deferred Compensation" - The amount of Compensation deferred pursuant
          to Paragraph 3 of this Plan.

     (i)  "Disability" - Disability so as to be incapable of performing further
          work for the Company that results in termination of employment.

     (j)  "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.

     (k)  "Pension Plan" - The Pension Plan of Public Service Electric and Gas
          Company.

     (l)  "Plan" - The Deferred Compensation Plan for Certain Employees of
          Public Service Electric and Gas Company.

     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 f or 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.


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     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.

          (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 f or 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 

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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.

          (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.


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          (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. 

          (g) Company may Distribute in Lump-Sum if Distributable Amount Less


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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 f or 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.


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     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 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;
provided, further, that notwithstanding any other provision of this Plan, upon
the occurrence of a Change in Control, the income credit calculated pursuant to
Paragraph 4 may not be reduced below the prime commercial lending rate described
therein.

     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.

     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 


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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