MANAGEMENT INCENTIVE COMPENSATION PLAN

                 ENTERPRISE DIVERSIFIED HOLDINGS INCORPORATED
























                                                     Amended December 16, 1997


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                 ENTERPRISE DIVERSIFIED HOLDINGS INCORPORATED

                     MANAGEMENT INCENTIVE COMPENSATION PLAN


1.    Purposes
            The purposes of this Plan are to foster attainment of the
financial and operating objectives of this Corporation which are important to
customers and stockholders by providing incentive to members of management
who contribute to attainment of these objectives; to supplement this
Corporation's salary and benefit programs so as to provide overall
compensation for such executives which is competitive with corporations with
which this Corporation must compete for executive talent; and to assist this
Corporation in attracting and retaining executives who are important to its
continued success.
2.    Definitions
            As used in this Plan, the following words and phrases shall have the
meanings indicated:
            (a) "Account" - an Account established pursuant to Paragraph 8(a) of
      this Plan.
            (b) "Award" - the amount of final  Incentive Award for a Participant
      approved by the Committee pursuant to Paragraphs 5 and 7 of the Plan.
            (c) "Award Year" - a Plan Year in which Incentive  Awards are earned
      by Participants in the Plan.
            (d) "Committee" - the Compensation  Committee appointed by the Board
      of Directors of this Corporation.
            (e)   "Corporation" - Enterprise Diversified Holdings
      Incorporated.
            (f)  "Disability" - any physical or mental condition which renders a
      Participant  incapable of performing further work for this Corporation and
      that results in termination of employment.
            (g)  "Distribution  Date" - for each Award Year,  the first business
      day of January.
            (h)   "Enterprise" - Public Service Enterprise Group Incorporated.
            (i)   "Incentive Award" - the amount earned by a Participant in
      accordance with Paragraph 7.
            (j)   "Participant"  -  each  officer  or  other  employee  of  this
      Corporation  and its  subsidiaries  as may be  designated by the Committee
      pursuant to Paragraph 3 of the Plan.
            (k)  "Plan"  -  the  Enterprise  Diversified  Holdings  Incorporated
      Management Incentive Compensation Plan.
            (l) "Plan Year" - the calendar year.
            (m) "Primary Award" - the amount determined under Paragraph 7(a)(1).
            (n)   "PSE&G" - Public Service Electric and Gas Company.
            (o)   "Retirement"  -  termination of service with this
      Corporation  with the right to an immediately  payable  periodic normal or
      early retirement benefit under the Pension Plan of Public Service Electric
      and Gas  Company  or the  Cash  Balance  Pension  Plan of  Public  Service
      Electric  and Gas Company.  Retirement  shall not include  termination  of
      service with the right to a deferred retirement benefits under either said
      plan.
            (p) "Target Incentive Award" - the amount determined under paragraph
      6.
3.    Eligibility
            (a) The Committee may select such employees of this  Corporation and
      its subsidiaries  (individually  or by position) for  participation in the
      Plan  upon  such  terms as it  deems  appropriate,  due to the  employee's
      responsibilities  and his opportunity to contribute  substantially  to the
      attainment of financial and operating  objectives of this  Corporation.  A
      determination of participation for a Plan Year shall be made no later than
      the beginning of that Plan Year. Provided,  however,  that employees whose
      duties and responsibilities change significantly during a Plan Year may be
      added or deleted as a Participant by the Committee.  Provided further, the
      Committee  may  prorate  the  Incentive   Award  of  any   Participant  if
      appropriate to reflect any such change in employee responsibilities during
      a Plan Year.
            (b)  Participation  in the Plan in one Plan Year shall not guarantee
      participation in another Plan Year.
            (c) The  Committee  shall  have sole  discretion  as to  whether  to
      suspend operation of the Plan for any period of time.
4.    Administration
            (a) The Plan shall be administered by the Committee.  Subject to the
      provisions of the Plan, the Committee  shall have full and final authority
      to select  Participants,  to designate the Target Incentive Award for each
      Participant, and to determine the performance objectives and the amount of
      all  Incentive  Awards.  The  Committee  shall also  have,  subject to the
      provisions of the Plan, full and final authority to interpret the Plan, to
      establish and revise rules,  regulations  and guides relating to the Plan,
      and to make  any  other  determinations  that  it  believes  necessary  or
      advisable for the  administration  of the Plan. The Committee may delegate
      such  responsibilities,  other than final approval of Awards or appeals of
      alleged  adverse  determinations  under the Plan,  to the Chief  Executive
      Officer of this Corporation or to any other officer of this Corporation.
            (b) All decisions and determinations by the Committee shall be final
      and binding upon all parties, including stockholders,  Participants, legal
      representatives and other employees.
5.    Determination of Award Year
            Not later than 120 days after the close of each Plan Year, the
Committee shall, in its sole discretion, determine whether any Participants
shall be eligible to earn Incentive Awards with respect to such Plan Year.
The discretion of the Committee with respect to this final approval of Awards
shall be total.
6.    Determination of Target Incentive Awards
            For  each  Award  Year,  the  Committee  shall  establish  a  Target
Incentive Award for each Participant based upon the  Participant's  position and
potential for contribution to the attainment of this Corporation's financial and
operating  objectives.  The  Target  Incentive  Award  shall be  expressed  as a
percentage of the Participant's rate of base salary in effect as of the last day
of the Plan Year to which such Target Incentive Award relates.

7. Determination of Incentive Award
                  (a) To  determine  each  Participant's  Incentive  Award,  the
      Participant's  Target  Incentive  Award shall be  adjusted  based upon the
      following  factors,  provided that the Incentive Award for any Participant
      shall in no event exceed 1.5 times the Target Incentive Award and provided
      further that the  Committee  may  determine,  based upon the financial and
      operating  results of this  Corporation or any other business factors that
      it determines  appropriate,  that no Incentive  Award shall be awarded for
      any Plan Year:
            (1)   The Target  Incentive Award shall be multiplied by a factor of
                  between  0 and  1.5 to  proportionately  reflect  Enterprise's
                  return on capital  for the Plan Year as  reported to the Board
                  of Directors in accordance  with such rules and  procedures as
                  are approved by the Committee; provided, however, that if such
                  return  is  below  a  minimum  threshold  established  by  the
                  Committee  prior  to  the  beginning  of  the  Plan  Year,  no
                  Incentive  Award  shall be  earned  for such Plan  Year.  This
                  adjusted amount is the Participant's Primary Award.
            (2)   The Participant's  Primary Award shall be adjusted by a factor
                  of  between  -0.5  and  +0.5 to  proportionately  reflect  the
                  relative annual increase or decrease in this PSE&G's  weighted
                  average  of cost per unit of  electricity  and gas sold in the
                  Plan Year as compared  with similar  increases or decreases of
                  other designated comparison utilities, in accordance with such
                  rules and procedures as are approved by the Committee.
            (3)   The sum of items (1) and (2) above  shall be  multiplied  by a
                  factor of between 0 and 1.5 to reflect the Participant's level
                  of individual  performance,  in accordance with such rules and
                  procedures as are approved by the Committee.
            (b) The Chief Executive  Officer shall recommend to the Committee an
      Award for each  Participant,  except  that the  Committee  shall have full
      responsibility  for  assessing  the  performance  of the  Chief  Executive
      Officer and that the Committee shall make the final  determination  of all
      Awards.
8.    Award Payment
            (a)   For Incentive Awards Relating to Plan Years Ending Prior to
                  1/1/96:
            (i) There shall be established an account for each  Participant  for
      each Plan Year which shall, to the extent not paid to the Participant,  be
      initially  credited with the amount of the Participant's  Incentive Award.
      The Plan shall be  unfunded.  This  Corporation  shall not be  required to
      segregate any amounts credited to any Participant's  Account,  which shall
      be  established  merely  as  an  accounting  convenience.   Title  to  and
      beneficial  ownership of any amounts  credited to a Participant's  Account
      shall at all times remain in this Corporation, and no Participant or shall
      have any interest  whatsoever in any specific assets of this  Corporation.
      All amounts credited to  Participants'  Accounts shall at all times remain
      solely  the  property  of this  Corporation  subject  to the claims of its
      general  creditors and available for this  Corporation's  use for whatever
      purpose desired.
            (ii) The amount credited to a Participant's Account shall be treated
      for  valuation  purposes as if it had been used to purchase  shares of the
      Common Stock of this  Corporation or Enterprise,  whichever is then listed
      on the  New  York  Stock  Exchange,  on the  date  it is  credited  to the
      Participant's  Account at a price equal to the average of the high and low
      sale  prices  of such  Common  Stock on such  date on the New  York  Stock
      Exchange.  For  the  purpose  of  valuing  a  Participant's  Account,  the
      equivalent shares so credited to a Participant's  Account shall be treated
      as if they were to accrue  dividends  the same as actual  shares of Common
      Stock,  and such  equivalent  dividends  were used to purchase  additional
      shares of such Common  Stock at a price equal to 95% of the average of the
      high and low  sale  prices  of such  Common  Stock  on the New York  Stock
      Exchange on the dividend payment date.
            (iii) When a  distribution  or partial  distribution  is to be made,
      cash in the amount of the  equivalent  number of shares of Common Stock to
      be  distributed  times the average of the high and low sale prices of such
      Common Stock on the New York Stock  Exchange as of the  Distribution  Date
      shall be distributed.
            (iv) Distribution of a Participant's  Account attributable to a Plan
      Year  shall  be made in  yearly  payments  over a period  of three  years,
      commencing  with the  second  year  following  the Plan  Year to which the
      Incentive Award relates,  each yearly payment to be determined by dividing
      the value of such Account by the number of payments remaining.
            (b) For  Incentive  Awards  Related  to Plan Years  Beginning  After
      12/31/95:  Participants'  Incentive  Awards  shall be made in one lump sum
      cash payment as soon as practicable after the Determination Date.
9.    Deferral of Awards
            (a)  Effective  January  1, 1997,  receipt  of payment of  Incentive
      Awards earned pursuant to this Plan may no longer be voluntarily  deferred
      pursuant to this Plan.
            (b) Also  effective on that date,  all amounts  previously  deferred
      under the voluntary deferral  provisions of this Plan shall be transferred
      (using the last sale price for the Common  Stock on December 31, 1996 as a
      reference for the amount to be transferred)  to the Deferred  Compensation
      Plan for Certain Employees of Public Service Electric and Gas Company,  as
      amended, and be treated in accordance with the terms of that plan.

10.   Termination
            (a) If the  employment  of a  Participant  by  this  Corporation  is
      terminated  by the  Participant's  death,  Disability or  Retirement,  the
      entire value of the Participant's  Account shall be distributed as soon as
      practicable.  In addition,  the Committee  shall,  if it  determines  that
      Incentive  Awards may be earned for such year of  termination,  prorate an
      Award for that part of the year in which the Participant was participating
      prior to such  termination  and this  Corporation  shall pay the  prorated
      Award  as  soon  as  practicable  after  determination,  unless  otherwise
      determined by the Committee.
            (b) If the  employment of a Participant is terminated for any reason
      other than death,  Disability  or  Retirement,  any  amounts  held for the
      Account of Participant upon any such termination  which have not been paid
      because of the mandatory  deferral  provisions of Paragraph  8(a) shall be
      forfeited,  unless otherwise determined by the Committee,  and the balance
      of the Participant's  Account shall be distributed as soon as practicable.
      In addition,  the Participant  shall not receive an Award for that part of
      the Plan Year in which the  Participant was  participating  at the time of
      termination, unless otherwise determined by the Committee.
            (c) If a Participant  becomes or ceases to be a Participant during a
      Plan Year, any Award to the Participant  shall be  appropriately  prorated
      from the time the  Participant  entered or left the Plan to the end of the
      Plan Year.
            (d) In the case of a  Participant's  death,  payment  of the  entire
      value of the Participant's Account under the Plan and/or any Award related
      to the  Participant's  final  year of  participation  shall be made to the
      Participant's  estate  as a lump  sum as soon  as  practicable  after  the
      Participant's death.
11.   Assignment
            No benefit under the Plan shall in any manner or to any extent be
assigned, alienated, or transferred by any Participant or be subject to
attachment, garnishment or other legal process.
12.   Plan Does Not Constitute an Employment Agreement
      This Plan shall not constitute a contract for the continued  employment of
any  Participant by this  Corporation.  This  Corporation  reserves the right to
modify a  Participant'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.

13.  Amendment or  Termination  of the Plan by this Corporation
            The  Board  of  Directors  of  this  Corporation  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 a Participant  in respect of an Incentive  Award  previously
earned by him which has not been  paid,  unless  such  Participant  or his legal
representative  shall consent to such change.  If this Plan is terminated during
any Plan Year in which Participants have been selected to participate, the Board
of Directors  may  authorize  the  Committee to prorate and make  provision  for
payment of Awards for such period.

14.   What Constitutes Notice
            Any notice  hereunder to a Participant  or his legal  representative
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 this
Corporation or the Committee  hereunder  shall be given either by delivering it,
or depositing it in the United States Mail,  postage prepaid,  to the Secretary,
Enterprise Diversified Holdings Incorporated c/o/Public Service Enterprise Group
Incorporated, 80 Park Plaza, T4B, P.O. Box 1171, Newark, New Jersey 07101.

15.   Advance Disclaimer of Any Waiver
            Failure by this Corporation or the Committee 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.
16.   Effect of Invalidity of Any Part of the Plan
            The invalidity or unenforceability of any provision hereof shall
in no way affect the validity of enforceability of any other provision.
17.   Plan Binding on Any Successor Owner
            Except as otherwise provided herein, this Plan shall inure to the
benefit of and be binding upon this Corporation, its successors and assigns,
including but not limited to any corporation which may acquire all or
substantially all of this Corporation's assets and business or with or into
which this Corporation may be consolidated or merged.
18.   Laws Governing This Plan
            Except to the extent federal laws applies, this Plan shall be
governed by the laws of the State of New Jersey.
19.   Miscellaneous
            The masculine pronoun shall also mean the feminine wherever
appropriate.
20.   Withholding
            This Corporation shall have the right to deduct from any payment
any sums to be withheld by federal, state, or local tax law.  There is no
obligation hereunder that any Participant or other person be advised in
advance of the existence of the tax or the amount so required to be withheld.
21.   Effective Date
            This Plan shall be effective as of January 1, 1993.