PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                    DEFERRED COMPENSATION PLAN FOR DIRECTORS








                                                       AMENDED DECEMBER 15, 1998


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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


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          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 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


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          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 Secretary of the Company),
          shall apply only to future deferrals. In the event a lump-sum


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          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


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          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. 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


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          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.

     (a)  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, including rights to income
          credits pursuant to Section 5(b) hereof, which have accrued under the
          Plan without the consent of the Participant or Beneficiary, or the
          legal representative of such person, so affected.

     (b)  Notwithstanding any other provision of this Plan, upon the occurrence
          of a Change in Control (as defined below), the income credit
          calculated pursuant to Section 5(b) hereof may not be reduced below
          the prime commercial lending rate described therein.

          For purposes of this Plan, "Change in Control" shall mean 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 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
          (iii) below; or


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               (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 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

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

               (iv) 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 (i), (ii), (iii) and
          (iv), a "Change 


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          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.


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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