PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                        STOCK PLAN FOR OUTSIDE DIRECTORS
                            EFFECTIVE JANUARY 1, 1996
                            AMENDED DECEMBER 15, 1998

I. PURPOSE.

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

II. DEFINITIONS.

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

     (a)  Adjustment Shares: New or additional or different shares of Common
          Stock or other securities (other than rights or warrants to purchase
          securities) received or entitled to be received by an owner of
          Restricted Stock as a result of a change in capitalization of the
          Company as set forth in Article VIII hereof.

     (b)  Annual Meeting: The Annual Meeting of Stockholders of the Company.

     (c)  Board: The Board of Directors of the Company.

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

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

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

     (g)  Disability: Any physical or mental condition of a permanent nature
          which, in sole reasonable judgement of the Committee, renders an
          Outside Director incapable of performing the duties of a member of the
          Board.

     (h)  Effective Date: January 1, 1996.


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     (i)  Eligible Director: An Outside Director who meets the eligibility
          requirements for stock awards as set forth in Article IV hereof.

     (j)  Exchange Act: The Securities and Exchange Act of 1934, as amended, or
          as it may be amended from time to time.

     (k)  NYSE: The New York Stock Exchange, Inc.

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

     (m)  Outside Directors' Pension Plan: The Public Service Enterprise Group
          Incorporated Pension Plan for Outside Directors Effective January 1,
          1989.

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

     (o)  Restricted Stock: Shares of Common Stock subject to restrictions
          awarded pursuant to Article IV hereof.

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

     (q)  Service: A Director's service as a member of the Board.

     (r)  Year of Service: The annual period commencing the day of each Annual
          Meeting and ending on the day before the next Annual Meeting. For any
          person first elected a member of the Board after the date of an Annual
          Meeting, his first Year of Service shall commence upon his election as
          a Director and shall end on the day before the next Annual Meeting.


III. SHARES SUBJECT TO THE PLAN.

     Shares of Restricted Stock which may be awarded under the Plan shall be
purchased on the open market by the Company or its agent. In the event that any
shares of Restricted Stock shall be forfeited, the shares so forfeited shall
again be available for the awarding of Restricted Stock under the Plan.

IV. RESTRICTED STOCK AWARDS.

     A.   After the Effective Date of this Plan, each Outside Director shall be
          granted an award of 600 shares of Restricted Stock upon the
          commencement of each Year of 


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          Service as a member of the Board. The date of grant shall be the first
          business day of the month following the Annual Meeting or the Outside
          Director's first election as a member of the Board.

     B.   Upon the Effective Date of this Plan, (i) each Outside Director who
          shall have completed five Years of Service as of December 31, 1995
          shall be granted an award of shares of Restricted Stock equal to the
          present value (assuming commencement of payment at age 70) of what his
          vested accrued benefit under the Outside Directors' Pension Plan would
          have been had he terminated Service as of December 31, 1995. The
          actual number of shares will be determined by dividing said Outside
          Directors' Pension Plan assumed vested accrued benefit by the closing
          price of the Common Stock on the NYSE on December 29, 1995 and
          rounding up to the next whole share; (ii) each Outside Director who
          shall not have completed five Years of Service as of December 31, 1995
          shall be granted an award of shares of Restricted Stock equal in
          number to 300 times the number of the years he has been a member of
          the Board; all as reflected in Schedule A to the Plan.

     C.   The award of shares of Restricted Stock, including the restrictions
          thereon, shall be evidenced by a written instrument in such form and
          upon such terms and conditions as the Committee shall determine and as
          are consistent with the following provisions of the Plan:

          (i)  Upon the retirement of an Outside Director as a member of the
               Board at the Annual Meeting next following the Outside Director's
               70th birthday, the restrictions on the Restricted Stock shall
               lapse and the Company shall issue to the Outside Director a
               certificate for the shares which have been awarded to him without
               any legend or restriction of any kind and the Company shall
               return to the Outside Director or destroy any and all blank stock
               powers previously provided to it by such Outside Director.

          (ii) If the service as a member of the Board of an Outside Director
               who is the recipient of the shares of Restricted Stock terminates
               for any reason, other than on account of Disability, before the
               Annual Meeting next following said Outside Director's 70th
               birthday, such Outside Director shall forfeit any and all rights
               in and to the shares of Restricted Stock; provided, however,
               that, the Committee may, for good and valid business reasons,
               waive such restriction as the Committee deems appropriate.
               Notwithstanding any other provision of this Plan, upon the
               occurrence of a termination of Service following a Change in
               Control (as defined below), all restrictions on the Restricted
               Stock shall immediately lapse and be of no effect.


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               For the purposes of this Plan, "Change in Control" shall mean the
               occurrence of any of the following events:

               (a) 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 the Corporation (not
               including in the securities beneficially owned by such person any
               securities acquired directly from the Corporation or its
               affiliates) representing 25% or more of the combined voting power
               of the Corporation's then outstanding securities, excluding any
               person who becomes such a Beneficial Owner in connection with a
               transaction described in clause (1) of paragraph (c) below; or

               (b) 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 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 the Corporation) whose
               appointment or election by the Board of Directors or nomination
               for election by the Corporation'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 nomination
               for election was previously so approved or recommended; or

               (c) there is consummated a merger or consolidation of the
               Corporation or any direct or indirect wholly owned subsidiary of
               the Corporation with any other corporation, other than (1) a
               merger or consolidation which would result in the voting
               securities of the Corporation 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 the
               Corporation or any subsidiary of the Corporation, at least 75% of
               the combined voting power of the securities of the Corporation 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 the
               Corporation (or similar transaction) in which no person is or
               becomes the Beneficial Owner, directly or indirectly, of
               securities of the Corporation representing 


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               25% or more of the combined voting power of the Corporation's
               then outstanding securities; or

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

          Notwithstanding the foregoing subparagraphs (a), (b), (c) and (d), 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 the Corporation 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 the Corporation immediately following such
          transaction or series of transactions.

          (iii) Shares of Restricted Stock may not be sold, assigned,
                transferred, pledged, hypothecated or otherwise disposed of,
                except by will or the laws of descent and distribution, for the
                period specified in or in accordance with Section IV(c)(i) and
                except in accordance with applicable laws and regulations. Any
                attempted sale, assignment, transfer, pledge, hypothecation or
                other disposition in contravention of the foregoing shall be 
                null and void and without effect.

          (iv)  Shares of Restricted Stock will be issued in the name of the
                Outside Director receiving the award, but will be held by the
                Company for the account of such Outside Director (together with 
                a blank stock power which such Outside Director shall execute
                and deliver to the Company), subject to all of the terms and
                conditions of the Plan, for the period specified in or in
                accordance with Section IV(c)(i).

          (v)   Except as otherwise provided herein and in the instrument
                evidencing the award of shares of Restricted Stock, the
                Outside Director receiving same shall have all rights of a
                stockholder with respect to shares of Restricted Stock issued
                in his name, including the right to vote and to receive
                dividends and other distributions.


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            (vi)  If an Outside Director dies while serving as a member of the
                  Board, and more than six months after the date on which the
                  shares of Restricted Stock were awarded to him have elapsed,
                  the restriction provided for in Section IV(c)(i) shall be
                  deemed to have lapsed immediately prior to death.

            (vii) If an Outside Director, as owner of shares of Restricted
                  Stock, receives or shall be entitled to receive Adjustment
                  Shares, the certificates representing the Adjustment Shares
                  (together with a blank stock power executed by such Outside
                  Director) shall be delivered to and held by the Company,
                  subject to all of the terms and conditions of the Plan, for
                  the period specified in or in accordance with Section
                  IV(c)(i). Any Adjustment Shares shall be Restricted Stock for
                  all purposes of the Plan, subject to the same restrictions as
                  the shares of Restricted Stock to which they relate. If such
                  Participant shall receive rights or warrants with respect to
                  any shares of Restricted Stock or any Adjustment Shares, such
                  rights or warrants may be held, exercised, sold or otherwise
                  disposed of by such Outside Director, and any shares or other
                  securities acquired by such Outside Director as a result of
                  the exercise of such rights or warrants likewise may be held,
                  sold, or otherwise disposed of by such Outside Director, free
                  and clear of any restrictions.

V. FURTHER CONDITIONS.

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

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

     C    The Committee may make such provisions and take such steps as it may
          deem 


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

VI. FORFEITURE OF BENEFITS.

     As long as an Outside Director is receiving or is a recipient of a
Restricted Stock Award under the Plan, such Outside Director will not directly
or indirectly enter into or in any manner take part in any business or other
endeavor, as an employee, agent, independent contractor, owner or otherwise,
which in any manner competes or conflicts with the business of the Company or is
detrimental to the best interests of the Company, unless the Company consents
thereto in writing. The failure of an Outside Director to comply with the
provisions of this Article shall result in the forfeiture all Restricted Stock
grants under the Plan. Before any such forfeiture, the Company shall mail notice
to the Outside Director that consideration is being given to forfeiture pursuant
to this Article. On written request of the Outside Director within sixty days
following the mailing by the Company of the notice, the Committee shall afford
the Outside Director an opportunity to demonstrate to the Committee that
forfeiture would not be justified.

VII. ADMINISTRATION.

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

VIII. ADJUSTMENT UPON CHANGES IN CAPITALIZATION

     In the event that the outstanding shares of Common Stock are hereafter
changed by reason of recapitalization, reclassification, stock split,
combination or exchange of shares of Common Stock or the like, or by the
issuance of dividends payable in shares of Common Stock, an appropriate
adjustment shall be made by the Committee in the number of shares of Restricted
Stock outstanding.


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IX. TERMINATION, MODIFICATION AND AMENDMENT

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

     B.   No termination, modification or amendment of the Plan may adversely
          affect the rights under any outstanding shares of Restricted Stock
          without the consent of the Outside Director to whom such shares of
          Restricted Stock shall have been previously awarded.

X. NOT A CONTRACT FOR CONTINUED SERVICE

     Nothing contained in the Plan or in any restricted stock agreement executed
pursuant hereto shall be deemed to confer upon any Outside Director to whom
shares of Restricted Stock are or may be awarded hereunder any right to remain a
member of the Board or in any way limit the right of the Board or the
Stockholders to terminate or fail to renominate or reelect any such Outside
Director as a member of the Board.

XI. MISCELLANEOUS

     A.   The costs and expenses of administering the Plan shall be borne by the
          Company and shall not be charged against any award nor to any Outside
          Director receiving an award.

     B.   Any restricted stock agreement may contain, among other things,
          provisions prohibiting the Outside Director from competing with the
          Company or any affiliate in a form or forms acceptable to the
          Committee, in its sole discretion.

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

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

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