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PSE&G's Logo
Public Service Electric and Gas Company

M. Peter Mellett
Vice President - Human Resources

PSE&G's Logo
Public Service Electric and Gas Company

M. Peter Mellett
Vice President - Human Resources

80 Park Plaza
Newark, New Jersey 07107
201-430-7620

Mailing Address:
PO Box 570
Newark, New Jersey, 07101
Fax: 201-642-1689

August 23, 1995

Mr. Alfred C. Koeppe
2 East Acres Drive
Pennington, NJ 08534

Dear Mr. Koeppe:

          In Conjunction with your employment as Senior Vice President -
External Affairs of Public Service Electric and Gas Company (PSE&G), the agreed
terms of employment are as follows:

          1.   The effective date of your employment with PSE&G shall be
     October 10, 1995 or such earlier date as may be agreed to in writing (the
     Date of Employment (DOE)).

          2.   You shall be paid a salary at the annual rate of $240,000,
     which salary may be increased, but shall not be reduced, thereafter
     during the five-year period commencing on the DOE.  This initial annual
     rate of salary shall remain in effect until December 31, 1996.  As a
     PSE&G Officer, you will be entitled to participate in PSE&G's Deferred
     Compensation Plan, which permits Officers to elect to defer salary. 
     Salary deferred under the Plan currently earns interest at the prime rate
     plus 1/2%.

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          3.   PSE&G will make a cash payment to you on the DOE in the
     amount of $100,000 as inducement for you to commence employment with
     PSE&G and in consideration of the loss of benefits with your current
     employer.

          4.   You shall be entitled to those benefits from time to time
     available to officers and employees of PSE&G generally, except as
     otherwise provided in this letter.  You shall be initially eligible for
     a minimum of six weeks vacation per year.  In addition, financial
     counseling will be available to you on the same terms and conditions that
     it is provided to officers of PSE&G.

          5.   You may be discharged with or without cause at any time.  If
     you should be discharged without cause during the five-year period
     commencing on DOE, PSE&G will pay to you the salary in effect pursuant
     to Paragraph 1 above at the time of your discharge for a period of twelve
     months following such discharge, or for the remainder of such five-year
     period, whichever is less.  "Cause" shall mean (I) the willful or
     negligent dereliction of, and continued failure by you to perform your
     duties with PSE&G (other than any such failure resulting from your
     incapacity due to physical or mental illness), after a written demand for
     performance is delivered to you be the Chief Executive Officer of PSE&G
     which identifies the manner in which the CEO believes that you have not
     so performed your duties, or (ii) any conduct constituting a felony or
     moral turpitude.

          6.   Your participation in PSE&G's Management Incentive
     Compensation Plan (MICP) for 1995 will reflect a full year's award.  Your
     target incentive award as Senior Vice President - External Affairs will
     initially be 25% of salary.  This may be adjusted from time to time in
     accordance with established plan procedures.  In addition, to provide an
     appropriate transition adjustment, because any MICP awards are paid out 
     one third annually over a three-year period, PSE&G will pay to you the
     following lump sum cash payments in January of the following years: 1996-
     $60,000; 1997-$40,000; 1998-$20,000; in addition to any payout which may
     result from your participation in the MICP itself.  Copies of the MICP
     and the calculation determining the 1994 corporate factor have previously
     been forwarded to you.

          7.   As Senior Vice President - External Affairs, you will
     participate in the Long-Term Incentive Plan (LTIP) of Public Service
     Enterprise Group Incorporated (Enterprise), the parent of PSE&G.  The
     LTIP provides senior officers selected by the Organization and
     Compensation Committee with options to purchase shares of Enterprise
     Common Stock.  The options generally are granted in January and become
     exercisable three years after the date of grant, and the LTIP provides
     for payments to be made, dependent upon dividends paid by Enterprise and
     future financial performance by Enterprise in comparison to other
     corporations, to assist the officers in exercising the options granted. 
     It will be recommended to the Organization and Compensation Committee
     that you be granted 1,600 options in January 1996 (which would be
     exercisable in 1999).  In addition, it will be recommended to the
     Organization and Compensation Committee that you also be granted 600
     stock options under the LTIP which are exercisable in 1996, 800 stock
     options exercisable in 1997, and 1,000 stock options exercisable in 1998. 

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     Such options would be subject to all of the provisions of the LTIP and
     would permit the purchase by you of numbers of shares granted by the
     Organization and Compensation Committee that appropriately reflect your
     responsibilities and ability to contribute to the long term success of
     Enterprise.

          8.   In light of your allied work experience, you shall be granted
     credited service, in addition to that earned as a result of your
     employment by PSE&G, for the purpose of determining any pension benefits
     from PSE&g in accordance with the following schedule:

                                             Additional Years
     Date of Termination of Employment            of Credited Service

     On or after DOE plus 5 years and
      prior to DOE plus 6 years                        10

     On or after DOE plus 6 years and
      prior to DOE plus 7 years                        20

     On or after DOE plus 7 years and
      prior to DOE plus 8 years                        23

     On or after DOE plus 8 years                      25


          The additional credited service shown in the table above is not
     cumulative, but is applied from the table depending upon when you retire. 
     For example, assuming you are currently age 48, the additional credited
     service set forth above, together with the Board's current policy of
     granting 5 years of additional credited service to officers who retire
     between age 60 and age 65-1/2, and your actual credited service, will
     afford you a total of 42 years of credited service at age 60, and 45
     years of credited service at age 63, dependent upon your actual date of
     birth and DOE.  You will be a participant in PSE&G's Pension Plan and in
     its Limited Supplemental Death Benefits and Retirement Plan.  The Limited
     Plan provides a retirement benefit of a percentage of final average
     compensation as defined in the Plan that is equal to credited service
     plus 30 years.  This would result in a target retirement benefit of 72%
     (42 years plus 30) at age 60 and 75% at age 63 (the maximum replacement
     value under the program) times final average compensation, adjusted for
     any survivorship benefit you may choose, and reduced by Social Security
     benefits and pensions from other employers as provided in the Plan. 
     Under these pension programs as presently in effect, you would be
     eligible to retire at age 55 without an early retirement penalty,
     dependent upon your actual date of birth and DOE.  The amount of your
     pension or survivorship benefits paid by your present employer (or any
     other employer) shall be deducted from the pension benefits payable to
     you or your beneficiary by PSE&G on account of such service with your
     present employer (or other employer).  The Limited Plan also provides for
     a pre-retirement death benefit paid for by PSE&G in an amount based upon
     150% of salary in effect at the time of death.
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          9.   In recognition of your need for an automobile for business
     purposes, PSE&G will provide you with a full size American made
     automobile (Oldsmobile, Buick, Chrysler or other comparable model) and
     shall provide the related maintenance, repairs, insurance and costs of
     operation thereof.  The automobile shall include a mobile telephone paid
     for by PSE&G for your use for business purposes.

          10.  As part of PSE&G's requirement for a work force that is free
     from the influence of foreign chemical substances, you will be required
     to complete a medical examination which will include definitive analysis
     of freshly voided urine specimen for the presence of commonly abused
     drugs, including marijuana.

          11.  Any and all disputes arising out of or relating to this
     Agreement or your employment, other than an unemployment or workers'
     compensation claim, shall, at the demand of either you or PSE&G, whether
     made before or after the institution of any legal proceeding, be resolved
     through binding arbitration administered by the American Arbitration
     Association (AAA) in accordance with the Employment Dispute Resolution
     Rules of the AAA and with the United States Arbitration Act.  The
     arbitration shall be conducted in New Jersey before one arbitrator.  If
     the parties cannot agree on the arbitrator within 30 days after the
     demand for an arbitration, then either party may request the AAA to
     select an arbitrator, which selection shall be deemed acceptable to both
     parties.  To the maximum extent practicable, the arbitration proceeding
     shall be concluded within 180 days of the filing the demand for
     arbitration with the AAA.  All costs and fees of the arbitration shall
     be shared equally by the parties, unless otherwise awarded by the
     arbitrator.  Each party agrees to keep all such disputes and arbitration
     proceedings strictly confidential except for disclosure of information
     required by law.

          If the foregoing is in accordance with your understanding, please
sign the enclosed copy of this letter and return it to me.


                                   Very truly yours,

                                   By:  M. PETER MELLETT
                                   ---------------------------
                                       M. Peter Mellett
                                   Vice President - Human Resources

Agreed to this 28 day
of September, 1995

By: ALFRED C. KOEPPE
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Alfred C. Koeppe