PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                    DEFERRED COMPENSATION PLAN FOR DIRECTORS




                                 January 1, 1988


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                 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                   DEFERRED COMPENSATION PLAN FOR DIRECTORS
                                 January 1, 1988

      1. PURPOSE.  The Plan is designed to provide a method of deferring payment
to non-employee Directors of their fees and annual retainers, as fixed from time
to time by the Board of Directors,  until  termination  of their services on the
Board.
      2. PLAN PERIODS. The first Plan Period shall commence upon the election of
Directors  at the 1987  Annual  Stockholders'  Meeting  and  terminate  upon the
election of Directors at the 1988 Annual Stockholders' Meeting.  Subsequent Plan
Periods shall relate to successive  similar periods between Annual  Stockholders
Meetings.
      3.  ADMINISTRATION.   The  Plan  shall  be  administered  by  a  Committee
consisting of the Chief Executive  Officer of the Company and two other officers
appointed by him. The Committee  shall have the power to interpret the Plan and,
subject to its provisions, to make all determinations necessary or desirable for
the Plan's administration.
      4.    PARTICIPATION.
            (a)   An  individual  who serves as a Director and is not  otherwise
                  employed  by the Company or any of its  subsidiaries  shall be
                  eligible  to  participate  in the  Plan if he  elects  to have
                  payment  of his  annual  retainer,  his  fees  or  his  annual
                  retainer  and fees in respect  of a Plan  Period  deferred  as
                  provided herein.
            (b)   The election  shall be made by written notice on Schedule A to
                  the Plan filed with the Company's Secretary prior to the first
                  day of such  Plan  Period  or, in the case of a  Director  who
                  first becomes eligible during a Plan Period, not later than 30
                  days after he first becomes eligible. Each such election shall
                  be irrevocable.
      5.    DEFERRED COMPENSATION ACCOUNTS.
            (a)   An account shall be established for each eligible,  electing
                  Director (a "Participant")  which shall be designated as his
                  Deferred  Compensation  Account.  If a Participant elects to
                  have payment deferred of his annual retainer,  the amount of
                  the annual  retainer  payable to him with  respect to a Plan
                  Period shall be credited,  in four equal  installments on or
                  about the last day of June,  September,  December  and March
                  in the Plan Period to which such  retainer  relates,  to his
                  Deferred Compensation Account,  subject to the provisions of
                  Section  5(c).  If a  Participant  elects  to  have  payment
                  deferred of his fees,  the amount of each fee payable to him
                  for  attendance  at a meeting  during a Plan Period shall be
                  credited to his  Deferred  Compensation  Account on or about
                  the first business day following  such meeting.  The Company
                  shall not be required to segregate  any amounts  credited to
                  the   Deferred   Compensation   Accounts,   which  shall  be

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                  established  merely as an  accounting  convenience.  Amounts
                  credited to the Deferred  Compensation Accounts 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.
            (b)   The  amounts  credited  to a Deferred  Compensation  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 numbers of days,  360 days to the year),  plus 1/2 of
                  1%. Such  interest  shall be  computed on the average  daily
                  balance in a Deferred  Compensation Account during each such
                  calendar  quarter and shall be credited to such  Account and
                  compounded  on the last day of March,  June,  September  and
                  December.   Interest   shall   continue  to  accrue  and  be
                  compounded on the unpaid balance in a Deferred  Compensation
                  Account until such Account is fully distributed.
            (c)   If,  prior  to  the  end  of a Plan  Period,  a  Participant
                  becomes  an   employee   of  the   Company  or  one  of  its
                  subsidiaries  or  dies or  ceases  for  any  reason  to be a
                  Director,  or if the effective  date of  participation  by a
                  Participant  for any Plan  Period  shall  be other  than the
                  first day thereof,  he will be entitled to be credited  with
                  that  proportion  of the annual  retainer  for the full Plan
                  Period which the number of days of his  participation in the
                  Plan during such Plan  Period  bears to the total  number of
                  days in such Plan Period.
      6.    PAYMENT.
            (a)   Following termination of a Participant's service on the Board,
                  the  Company  shall   distribute  his  Deferred   Compensation
                  Account.
            (b)   By written  notice on  Schedule A to the Plan filed with the
                  Company's  Secretary,   a  Participant  may  elect  to  have
                  distribution of his Deferred  Compensation  Account commence
                  either (l) within  thirty (30) days after the date he ceases
                  to be a Director  of the  Company,  or, in the  alternative,
                  (2) in the month of January of any calendar  year  following
                  termination of the  Participant's  service on the Board, but
                  not  later   than  the  month  of  January   following   the
                  Participant's  71st  birthday,  unless  the  Participant  is
                  still a Director  at such time,  in which case  distribution
                  shall  commence  within  thirty  (30) days after the date he
                  ceases to be a Director.  Any such  election,  or any change
                  in such election (by such  subsequent  written notice to the
                  Secretary  of the  Company),  shall  apply  only  to  future
                  deferrals.  In the  event  no  election  is  made  as to the
                  commencement  of  distribution,   such  distribution   shall
                  commence  within  30 days  after  the date  the  Participant
                  ceases to be a Director  of the  Company.  The  actual  date
                  that distribution  shall commence shall be a date within the
                  appropriate  period  determined by the Committee in its sole
                  discretion.
            (c)   By written  notice on  Schedule A to the Plan filed with the
                  Company's Secretary,  a Participant may elect to receive the
                  distribution  of his  Deferred  Compensation  Account in the
                  form  of  (l)  one   lump-sum   payment,   or  (2)   monthly
                  distributions  over a period  selected by the Participant of
                  up to ten years.  Any such  election,  or any change in such
                  election  (by  such   subsequent   written   notice  to  the

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                  Secretary  of the  Company),  shall  apply  only  to  future
                  deferrals.  In the event a  lump-sum  payment  is made under
                  the Plan,  the amount  then  standing  to the  Participant's
                  credit  in  his  Deferred  Compensation  Account,  including
                  interest at the rate  provided  in Section  5(b) to the date
                  of  distribution,  shall be paid to the  Participant  on the
                  date  determined  under  Section  6(b).  In  the  case  of a
                  distribution  over a period of years,  the Company shall pay
                  to the Participant,  commencing on the date determined under
                  Section  6(b),  monthly  installments  from the amount  then
                  standing  to  his  credit  in  his   Deferred   Compensation
                  Account,  including  interest  on the unpaid  balance at the
                  rate  provided in Section 5(b) to the date of  distribution.
                  The  amount  of each  installment  shall  be  determined  by
                  dividing the then unpaid balance,  plus accrued interest, in
                  the  Participant's  Deferred  Compensation  Account  by  the
                  number  of   installments   remaining  to  be  paid.   If  a
                  Participant  does not make an  election  as to the manner of
                  distribution  of his  Deferred  Compensation  Account,  such
                  distribution   shall  be  made  in  the   form  of   monthly
                  installments paid over a five-year  period.  Notwithstanding
                  the above, a Participant  may at any time elect,  by written
                  notice to the Secretary of the Company,  to have the monthly
                  payments  scheduled to be made to him within a tax year paid
                  to him in one installment within such year.
            (d)   In the event of a  Participant's  death,  the balance of the
                  Participant's   Deferred   Compensation   Account  shall  be
                  distributed to the Participant's  Beneficiary(ies) in annual
                  installments  over a period of not more than five years,  in
                  accordance  with  his  election  on  Schedule  B to the Plan
                  filed with the  Secretary of the Company.  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  Section 6(c) of the Plan and shall
                  commence within 30 days after the Participant'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 a  Participant's  death after  distribution  of
                  this  Deferred  Compensation  Account  has  commenced,   any
                  election  under this  Section 6(d) shall not extend the time
                  of payment of his Deferred  Compensation  Account beyond the
                  time when  distribution  would have been completed if he had
                  lived. A Participant may change Beneficiary  designations by
                  filing a  subsequent  Schedule B with the  Secretary  of the
                  Company.  If a  Participant  does not make an election as to
                  the  manner of  distribution  of his  Deferred  Compensation
                  Account  in the event of his  death,  any such  distribution
                  shall be made as a lump-sum  payment to his estate within 30
                  days after the Participant's death.
            (e)   Notwithstanding  any other  provision  of the  Plan,  if the
                  Committee  shall  determine in its sole  discretion that the
                  time of payment  of a  Participant's  Deferred  Compensation
                  Account should be advanced because of protracted  illness or
                  other undue  hardship,  then the  Committee  may advance the
                  time or times  of  payment  (whether  before  or  after  the
                  Retirement  Date) only if the Committee  determines  that an
                  emergency  beyond the control of the Participant  exists and
                  which  would  cause  such   Participant   severe   financial
                  hardship if the payment of such  benefits were not approved.
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                  Any such  distribution  for hardship shall be limited to the
                  amount  needed to meet such  emergency.  A  Participant  who
                  receives a hardship  distribution  may not  reenter the Plan
                  for twelve months after the date of such  distribution.  Any
                  distribution  for  hardship  under this  Section  6(e) shall
                  commence  within thirty days after the Committee  determines
                  to make such hardship distribution.
            (f)   Notwithstanding  any  other  provision  of  the  Plan  if  the
                  Committee shall determine in its sole discretion that the time
                  of payment of a Participant's  Deferred  Compensation  Account
                  should be advanced  because it is important to terminate  such
                  Account in the interest of the Company, then the Committee may
                  advance the time or times of payment  (whether before or after
                  the Retirement Date).
      7.  ASSIGNMENT.  No  benefit  under the Plan shall in any manner or to any
extent be assigned,  alienated, or transferred by any Participant or Beneficiary
or subject to attachment, garnishment or other legal process.
      8. TERMINATION AND AMENDMENT. The Board may terminate the Plan at any time
so that no further amounts shall be credited to Deferred  Compensation  Accounts
or may, from time to time,  amend the Plan,  without the consent of Participants
or Beneficiaries; provided, however, that no such amendment or termination shall
impair any rights which have accrued under the Plan.


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                                                                      SCHEDULE A

                  DEFERRED COMPENSATION PLAN FOR DIRECTORS OF
           PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED (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
            SECTION 4 OF THE PLAN.  ANY CHANGE IN ELECTION  WILL ONLY APPLY TO
            SUBSEQUENT PLAN PERIODS.

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

      __________  (a)   My retainer.

      __________  (b)   My fees.

      __________  (c)   My retainer and my fees.

Section 2.  Election as to Commencement of Distribution From Account

      Note: THIS  SECTION  IS TO BE USED (A) WHEN  FIRST  BECOMING  A DIRECTOR
            COVERED BY THE PLAN AND (B) PRIOR TO EACH ANNUAL  MEETING 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 a
                        director of the Company.

      __________        (b)   In the  month of  January  after I cease to be a
                        director of the Company.

      __________        (c) In the month of  January,  _________,  (which is not
                        later  than the  January  following  my 71st  birthday),
                        unless I am a director of the  Company at such time,  in
                        which case within 30 days after I cease to be a director
                        of the Company.

                                              Participant'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  A DIRECTOR
            COVERED BY THE PLAN AND (B) PRIOR TO EACH ANNUAL  MEETING 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 monthly  installments  over a period of  __________
years.

Date:__________



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Witness                                   Participant's Signature


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                                                                      SCHEDULE B

                  DEFERRED COMPENSATION PLAN FOR DIRECTORS OF
           PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED (THE "PLAN")

Section 1.  Election as to Method of Distribution in Case of Death

      In case of my death, I hereby elect,  in accordance with the provisions of
the Plan, to have the distribution of my Deferred Compensation Account paid over
a period of _________  year(s) to my  Beneficiary(ies)  designated  in Section 2
hereof.

Section 2.  Designation of Beneficiary(ies)

      In the event of my death,  I hereby  designate the following  individuals,
fiduciaries  or other  entities,  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              INTEREST OF           RELATIONSHIP
      ADDRESS OF PRIMARY               PRIMARY                  TO
       BENEFICIARY(IES)           BENEFICIARY(IES)          PARTICIPANT

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                                              Participant's Initials__________
                                                                Date__________


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                                                                    SCHEDULE B-2

      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               INTEREST OF           RELATIONSHIP
    ADDRESS OF SECONDARY              SECONDARY                 TO
      BENEFICIARY(IES)            BENEFICIARY(IES)          PARTICIPANT

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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                                   Participant's Signature