UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q/A
                                   (Mark One)
                [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
                  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the quarterly period ended March 31, 2001
                                       OR
                 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
                  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                        For the transition period from to
                                ----------------

  Commission          Registrant, State of Incorporation,      I.R.S. Employer
  File Number           Address, and Telephone Number         Identification No.
---------------     ---------------------------------------   ------------------
  001-00973         PUBLIC SERVICE ELECTRIC AND GAS COMPANY        22-1212800
                           (A New Jersey Corporation)
                                  80 Park Plaza
                                  P.O. Box 570
                          Newark, New Jersey 07101-0570
                                  973-430-7000

Indicate  by  check  mark  whether  the  registrant  (1)  has  filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___

As  of  April 30,  2001,  Public  Service  Electric  and  Gas  Company  and  had
issued and outstanding  132,450,344  shares of common stock,  without nominal or
par  value,  all of which were  privately  held,  beneficially  and of record by
Public Service Enterprise Group Incorporated.


================================================================================
                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
================================================================================

                                TABLE OF CONTENTS
                                                                         PAGE
                                                                         ----
PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements                                            1

Item 2.    Management's Discussion and Analysis of Financial              13
             Condition and Results of Operations

Item 3.    Qualitative and Quantitative Disclosures About Market Risk     17


PART II. OTHER INFORMATION

Item 1.    Legal Proceedings                                              18

Item 5.    Other Information                                              18

Item 6.    Exhibits and Reports on Form 8-K                               18

Signature                                                                 19

<PAGE>

================================================================================
                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
================================================================================

                          PART I. FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS


<PAGE>


================================================================================
                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
================================================================================

<TABLE>
<CAPTION>
                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
                              (Millions of Dollars)
                                   (Unaudited)


                                                                            For the Quarters Ended
                                                                                   March 31,
                                                                  --------------------------------------------
                                                                         2001                     2000
                                                                  -------------------       ------------------
<S>                                                                           <C>                      <C>
OPERATING REVENUES
   Generation                                                      $             --          $           530
   Electric Transmission and Distribution                                       870                      374
   Gas Distribution                                                           1,082                      747
   Trading                                                                       --                      614
                                                                  -------------------       ------------------
       Total Operating Revenues                                               1,952                    2,265
                                                                  -------------------       ------------------
OPERATING EXPENSES
   Energy Costs                                                                 553                      771
   Gas Costs                                                                    787                      457
   Operation and Maintenance                                                    250                      378
   Depreciation and Amortization                                                 72                       88
   Taxes Other Than Income Taxes                                                 43                       49
                                                                  -------------------       ------------------
       Total Operating Expenses                                               1,705                    1,743
                                                                  -------------------       ------------------
OPERATING INCOME                                                                247                      522
Other Income and Deductions                                                      11                       10
Interest Expense - Net                                                          (58)                     (97)
Preferred Securities Dividend Requirements of Subsidiaries                      (11)                     (11)
                                                                  -------------------       ------------------
INCOME BEFORE INCOME TAXES                                                      189                      424
Income Taxes                                                                    (77)                    (174)
                                                                  -------------------       ------------------
NET INCOME                                                                      112                      250
Preferred Securities Dividend Requirements and Premium on
Redemption                                                                       (3)                      (2)
                                                                  -------------------       ------------------
EARNINGS AVAILABLE TO PUBLIC SERVICE
  ENTERPRISE GROUP INCORPORATED                                    $            109          $           248
                                                                  ==================        =================

See Notes to Consolidated Financial Statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
                           CONSOLIDATED BALANCE SHEETS
                                     ASSETS
                              (Millions of Dollars)


                                                           (Unaudited)
                                                            March 31,             December 31,
                                                              2001                    2000
                                                         ----------------       ------------------
<S>                                                      <C>                    <C>
CURRENT ASSETS
   Cash and Cash Equivalents                             $           93         $             39
   Restricted Cash                                                   15                       --
   Accounts Receivable:
     Customer Accounts Receivable                                   787                      614
     Other Accounts Receivable                                       76                       71
     Allowance for Doubtful Accounts                                (46)                     (39)
   Unbilled Revenues                                                245                      357
   Fuel                                                             202                      372
   Materials and Supplies                                            58                       48
   Prepayments                                                        9                        5
   Other                                                             17                       24
                                                         ----------------       ------------------
     Total Current Assets                                         1,456                    1,491
                                                         ----------------       ------------------

PROPERTY, PLANT AND EQUIPMENT
   Transmission and Distribution                                  8,497                    8,479
   Other                                                            424                      420
                                                         ----------------       ------------------
     Total                                                        8,921                    8,899
   Accumulated Depreciation and Amortization                     (3,173)                  (3,139)
                                                         ----------------       ------------------
     Net Property, Plant and Equipment                            5,748                    5,760
                                                         ----------------       ------------------

NONCURRENT ASSETS
   Regulatory Assets                                              5,238                    4,995
   Notes Receivable - Affiliated Companies                        1,084                    2,786
   Long-Term Investments                                            112                      109
   Other                                                            129                      126
                                                         ----------------       ------------------
     Total Noncurrent Assets                                      6,563                    8,016
                                                         ----------------       ------------------
TOTAL ASSETS                                             $       13,767         $         15,267
                                                         ================       ==================

See Notes to Consolidated Financial Statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
                           CONSOLIDATED BALANCE SHEETS
                         LIABILITIES AND CAPITALIZATION
                              (Millions of Dollars)


                                                                                      (Unaudited)
                                                                                       March 31,              December 31,
                                                                                         2001                     2000
                                                                                   ------------------       ------------------
<S>                                                                                <C>                      <C>
CURRENT LIABILITIES
   Long-Term Debt Due Within One Year                                              $            179         $            100
   Commercial Paper and Loans                                                                   157                    1,543
   Accounts Payable                                                                             362                      440
   Accounts Payable-Affiliated Companies                                                        186                      308
   Accrued Taxes                                                                                 93                       25
   Other                                                                                        331                      228
                                                                                   ------------------       ------------------
     Total Current Liabilities                                                                1,308                    2,644
                                                                                   ------------------       ------------------
NONCURRENT LIABILITIES
   Deferred Income Taxes and ITC                                                              2,701                    2,701
   Regulatory Liabilities                                                                       412                      470
   OPEB Costs                                                                                   451                      441
   Other                                                                                        220                      223
                                                                                   ------------------       ------------------
     Total Noncurrent Liabilities                                                             3,784                    3,835
                                                                                   ------------------       ------------------
COMMITMENTS AND CONTINGENT LIABILITIES                                                           --                       --
                                                                                   ------------------       ------------------

CAPITALIZATION
   LONG-TERM DEBT
     Long-Term Debt, excluding amounts due within one year                                    3,539                    3,590
     Subsidiary's Transition Bonds                                                            2,446                       --
                                                                                   ------------------       ------------------
     Total Long-Term Debt                                                                     5,985                    3,590
                                                                                   ==================       ==================

   PREFERRED SECURITIES
     Preferred Stock Without Mandatory Redemption                                                80                       95
     Preferred Stock With Mandatory Redemption                                                   --                       75
     Subsidiaries' Preferred Securities:
     Guaranteed Preferred Beneficial Interest in Subordinated Debentures                        363                      513
                                                                                   ------------------       ------------------
       Total Preferred Securities                                                               443                      683
                                                                                   ------------------       ------------------
   COMMON STOCKHOLDER'S EQUITY
     Common Stock, issued:  132,450,344 shares                                                  892                    2,563
     Contributed Capital                                                                         --                      594
     Basis Adjustment                                                                           986                      986
     Retained Earnings                                                                          372                      375
     Accumulated Other Comprehensive Loss                                                        (3)                      (3)
                                                                                   ------------------       ------------------
       Total Common Stockholder's Equity                                                      2,247                    4,515
                                                                                   ------------------       ------------------
         Total Capitalization                                                                 8,675                    8,788
                                                                                   ------------------       ------------------
TOTAL LIABILITIES AND CAPITALIZATION                                               $         13,767         $         15,267
                                                                                   ==================       ==================

See Notes to Consolidated Financial Statements.
</TABLE>



<PAGE>
<TABLE>
<CAPTION>


                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (Millions of Dollars)
                                   (Unaudited)


                                                                                             For the Quarters Ended
                                                                                                    March 31,
                                                                                    ------------------------------------------
                                                                                         2001                     2000
                                                                                    ----------------       -------------------
<S>                                                                                 <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)                                                                $          112        $              250
   Adjustments to reconcile net income (loss) to net cash flows from
     operating activities:
   Depreciation and Amortization                                                                72                        88
   Amortization of Nuclear Fuel                                                                 --                        26
   (Deferral)Recovery of Gas Costs-- net                                                       (80)                       16
   Provision for Deferred Income Taxes and ITC-- net                                            (4)                       18
   Net Changes in Certain Current Assets and Liabilities:
     Restricted Cash                                                                           (15)                       --
     Accounts Receivable and Unbilled Revenues                                                 (59)                      (70)
     Inventory - Fuel and Materials and Supplies                                               160                       141
     Prepayments                                                                                (4)                       23
     Accounts Payable                                                                         (191)                      231
     Accrued Taxes                                                                              68                        48
     Other Current Assets and Liabilities                                                      101                        35
   Other                                                                                       (10)                       46
                                                                                    ----------------       -------------------
     Net Cash Provided By Operating Activities                                                 150                       852
                                                                                    ----------------       -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
   Additions to Property, Plant and Equipment, excluding
     Capitalized Interest and AFDC                                                             (63)                     (110)
   Other                                                                                        (3)                        4
                                                                                    ----------------       -------------------
     Net Cash Used in Investing Activities                                                     (66)                     (106)
                                                                                    ----------------       -------------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net Change in Short-Term Debt                                                            (1,386)                     (570)
   Issuance of Long-Term Debt                                                                2,525                        --
   Deferred Issuance Costs                                                                    (200)                       --
   Redemption/Purchase of Long-Term Debt                                                       (51)                      (99)
   Collection of Note Receivable - Affiliated Company                                        2,786                        --
   Issuance of Note Receivable -Affiliated Company                                          (1,084)                       --
   Redemption of Preferred Securities                                                         (240)                       --
   Return of Capital                                                                        (2,265)                       --
   Cash Dividends Paid on Common Stock                                                        (112)                     (217)
   Other                                                                                        (3)                       (2)
                                                                                    ----------------       -------------------
     Net Cash  Used in  Financing Activities                                                   (30)                     (888)
                                                                                    ----------------       -------------------
Net Change in Cash and Cash Equivalents                                                         54                      (142)
Cash and Cash Equivalents at Beginning of Period                                                39                       173
                                                                                    ----------------       -------------------
Cash and Cash Equivalents at End of Period                                          $           93        $               31
                                                                                    ================       ===================

Income Taxes Paid                                                                   $            -        $                -
Interest Paid                                                                       $           84        $               90


See Notes to Consolidated Financial Statements.
</TABLE>


<PAGE>


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                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
================================================================================

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.  Organization and Basis of Presentation

Organization

     Public Service Electric and Gas Company, (PSE&G), a wholly-owned subsidiary
of Public Service Enterprise Group  Incorporated  (PSEG), is an operating public
utility providing  electric and gas service in certain areas within the State of
New Jersey. Following the transfer of its generation-related  assets to Power in
August  2000,   PSE&G  continues  to  own  and  operate  its   transmission  and
distribution business.

Basis of Presentation

     The financial statements included herein have been prepared pursuant to the
rules and regulations of the Securities and Exchange  Commission (SEC).  Certain
information  and note  disclosures  normally  included in  financial  statements
prepared in accordance with generally accepted  accounting  principles have been
condensed or omitted  pursuant to such rules and  regulations.  However,  in the
opinion of  management,  the  disclosures  are adequate to make the  information
presented not misleading.  These consolidated  financial statements and Notes to
Consolidated Financial Statements (Notes) should be read in conjunction with the
Notes  contained in PSE&G's 2000 Annual Report on Form 10-K.  These Notes update
and supplement matters discussed in PSE&G's 2000 Annual Report on Form 10-K.

     The unaudited  financial  information  furnished  reflects all  adjustments
which are, in the opinion of  management,  necessary to fairly state the results
for the interim periods presented. The year-end consolidated balance sheets were
derived from the audited  consolidated  financial statements included in PSE&G's
2000 Annual Report on Form 10-K. Certain  reclassifications of prior period data
have been made to conform with the current presentation.

     Restricted Cash

     PSE&G Transition Funding LLC (Transition Funding), a PSE&G subsidiary,  has
deposited  funds with a Trustee  which are  required  to be used for  payment of
principal, interest and other expenses related to its transition bonds (see Note
3. Regulatory  Issues).  Accordingly,  these funds are classified as "Restricted
Cash" on PSE&G's Consolidated Balance Sheets.

Note 2.  Accounting Matters

     In July 2000,  the  Emerging  Issues Task Force  (EITF)  99-19,  "Reporting
Revenue  Gross as a Principal  versus Net as an Agent"  (EITF  99-19),  provided
guidance on the issue of whether a company  should  report  revenue based on the
gross  amount  billed to the customer or the net amount  retained.  The guidance
states that whether a company should recognize revenue based on the gross amount
billed or the net retained requires significant judgement,  which depends on the
relevant facts and circumstances.  In the first quarter of 2001, based on PSEG's
analysis and  interpretation  of EITF 99-19, PSEG Power LLC (Power) reported all
the revenues  and cost of goods sold on a gross basis for the  physical  lateral
energy sales and purchases and capacity sales and purchases.  Power continues to
report swaps, futures, option premiums,  firm transmission rights,  transmission
congestion credits,  and purchases and sales of emission credits on a net basis.
The prior year  financial  statements  for PSE&G,  which include  results of the
generation  and  trading  operations,   have  been  restated  for  comparability
purposes.

     Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative  Instruments and Hedging  Activities" (SFAS 133) is effective for all
fiscal years beginning  after June 15, 2000.  SFAS 133, as amended,  establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts,  and for hedging activities.
Under SFAS 133, certain contracts that were not formerly considered  derivatives
may now meet the definition of a derivative.  PSE&G and its subsidiaries adopted
SFAS 133 effective  January 1, 2001.  PSE&G  recorded no  transition  adjustment
relating to the adoption of SFAS 133. See Note 6. Financial Instruments and Risk
Management.

     The Financial Accounting Standards Board's (FASB) Derivative Implementation
Group  (DIG),  has  issued  tentative   guidance  regarding  certain  derivative
contracts and eligibility of those contracts for the normal  purchases and sales
exceptions.  PSE&G and its subsidiaries are currently  evaluating this tentative
guidance and cannot  predict the impact on its financial  position or results of
operations, however such impact could be material.


<PAGE>


================================================================================
                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
================================================================================

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Note 3.  Regulatory Issues

New Jersey Energy Master Plan Proceedings and Related Orders

     In August 1999, following the enactment of the New Jersey Electric Discount
and Energy  Competition  Act,  the New Jersey  Board of Public  Utilities  (BPU)
rendered a Final Order relating to PSE&G's rate  unbundling,  stranded costs and
restructuring  proceedings (Final Order) providing,  among other things, for the
transfer to an affiliate of all of PSE&G's electric generation facilities, plant
and  equipment  for $2.443  billion and all other  related  property,  including
materials,  supplies  and  fuel at the net book  value  thereof,  together  with
associated rights and liabilities.

     Also in the Final Order,  the BPU concluded that PSE&G should recover up to
$2.94  billion (net of tax) of its  generation-related  stranded  costs  through
securitization  of $2.4 billion and an opportunity to recover up to $540 million
(net of tax) of its  unsecuritized  generation-related  stranded  costs on a net
present  value basis.  The $540 million is subject to recovery  through a market
transition  charge  (MTC).  Following  the issuance of the Final Order,  the BPU
issued  its  order  approving   PSE&G's   petition   relating  to  the  proposed
securitization transaction (Finance Order) which authorized, among other things,
the imposition of a non-bypassable TBC on PSE&G's customers; the sale of PSE&G's
property  right in such  charge to a  bankruptcy-remote  financing  entity;  the
issuance  and sale of  $2.525  billion  of  transition  bonds by such  entity as
consideration  for such property  right,  including an estimated $125 million of
transaction  costs; and the application by PSE&G of the transition bond proceeds
to retire outstanding debt and/or equity.

     In October and November 1999,  appeals were filed  challenging the validity
of the Finance Order,  as well as the Final Order.  In April 2000, the Appellate
Division of the New Jersey  Superior  Court  unanimously  rejected the arguments
made by appellants and affirmed the Final Order and Finance Order.  In May 2000,
the appellants  requested the New Jersey Supreme Court to review certain aspects
of the Appellate Division  decision.  In July 2000, the New Jersey Supreme Court
granted the requests of the New Jersey Business User's Coalition, the New Jersey
Ratepayer  Advocate (RPA) and Co-Steel Raritan  (Co-Steel),  an individual PSE&G
customer. On December 6, 2000, by a vote of 4 to 1, the New Jersey Supreme Court
issued its order  affirming the judgment of the Appellate  Division.  The 10-day
period  during  which a party  may  request  reconsideration  of this  order has
expired and thus the New Jersey Supreme Court decision is final. As with any New
Jersey  Supreme  Court  decision,  a party may request the court to enlarge this
10-day period under its rules.  However,  Management  believes that, in light of
the language of the court's order  determining that it is in the public interest
to expedite the disposition of the appeals,  this relief would be  extraordinary
and that  reconsideration  would  not be  granted  in any  event.  Although  the
opinions of the New Jersey Supreme Court justices relating to the order have not
been issued, that does not affect the finality of the order.

     In August 2000, in compliance with the Final Order,  PSE&G  transferred its
electric  generation  business to Power and its  subsidiaries  in  exchange  for
Power's promissory note (Promissory Note) in the amount of $2.786 billion.

     On January 31, 2001, $2.525 billion of transition bonds (non-recourse asset
based  securities)  were issued by  Transition  Funding,  in eight  classes with
maturities  ranging  from 1 year to 15 years.  Also on January 31,  2001,  PSE&G
received  payment from Power on its Promissory Note used to finance the transfer
of its generation  business.  The proceeds from these  transactions were used to
pay for certain debt  issuance and related  costs for  securitization,  retire a
portion of PSE&G's outstanding short-term debt, reduce PSE&G common equity, loan
funds to PSEG and make various short-term investments.

Asset Transfer to Power

     As noted above,  PSE&G  transferred  its electric  generating  business and
wholesale  power  contracts to Power and its  subsidiaries  in August 2000.  The
transfer  price,  as  specified in the BPU order,  was $2.443  billion plus $343
million  for other  generating  related  assets  and  liabilities.  Because  the
transfer was between  affiliates,  PSE&G and Power  recorded the sale at the net
book value of the assets and  liabilities  rather than the transfer  price.  The
difference  between  the  total  transfer  price  and the net book  value of the
generation-related  assets and liabilities was recorded as an equity  adjustment
on PSE&G's  Consolidated  Balance  Sheets.  Power repaid the Promissory  Note on
January 31, 2001, with funds provided from PSEG in the form of equity and loans.

Note 4. Regulatory Assets and Liabilities

     At March 31, 2001 and December 31, 2000,  respectively,  PSE&G deferred the
following regulatory assets and liabilities on the Consolidated Balance Sheets:

<TABLE>
<CAPTION>

                                                                        March 31,         December 31,
                                                                          2001                2000
                                                                      ---------------    -----------------
                                                                            (Millions of Dollars)

<S>                                                                          <C>                 <C>
Regulatory Assets:
   Stranded Costs to be Recovered.............................               $4,273              $4,093
   SFAS 109 Income Taxes......................................                  311                 285
   OPEB Costs.................................................                  227                 232
   Societal Benefits Charges (SBC)............................                   68                 135
   Underrecovered Gas Costs...................................                   54                   -
   Environmental Costs........................................                   74                  13
   Unamortized Loss on Reacquired Debt and Debt Expense.......                  101                 104
   Non-Utility Market Transition Charge (NTC).................                   22                   7
   Other......................................................                  108                 126
                                                                      ---------------    -----------------
       Total Regulatory Assets................................               $5,238              $4,995
                                                                      ===============    =================

Regulatory Liabilities:
   Excess Depreciation Reserve................................                 $412                $444
   Overrecovered Gas Costs....................................                   -                   26
                                                                      ---------------    -----------------
       Total Regulatory Liabilities...........................                 $412                $470
                                                                      ===============    =================

</TABLE>

Note 5.  Commitments and Contingent Liabilities

Hazardous Waste

     The New Jersey Department of Environmental  Protection (NJDEP)  regulations
concerning site investigation and remediation  require an ecological  evaluation
of  potential  injuries  to  natural  resources  in  connection  with a remedial
investigation  of contaminated  sites.  The NJDEP is presently  working with the
industry  to  develop  procedures  for  implementing  these  regulations.  These
regulations may substantially increase the costs of environmental investigations
and  remediations,  where  necessary,  particularly at sites situated on surface
water bodies.  PSE&G and predecessor  companies  owned and/or  operated  certain
facilities situated on surface water bodies,  certain of which are currently the
subject of remedial  activities.  The financial  impact of these  regulations on
these projects is not currently  estimable.  PSE&G does not anticipate  that the
compliance  with these  regulations  will have a material  adverse effect on its
financial position, results of operations or net cash flows.

Manufactured Gas Plant Remediation Program

     PSE&G is  currently  working  with the NJDEP  under a program  (Remediation
Program) to assess,  investigate  and,  if  necessary,  remediate  environmental
conditions at PSE&G's  former  manufactured  gas plant sites.  To date, 38 sites
have been  identified.  The  Remediation  Program is  periodically  reviewed and
revised  by  PSE&G  based  on  regulatory  requirements,   experience  with  the
Remediation Program and available remediation technologies.  The long-term costs
of the  Remediation  Program cannot be reasonably  estimated,  but experience to
date indicates that  approximately $20 million per year could be incurred over a
period of about 30 years and that the overall cost could be material.  The costs
for this remediation effort are recovered through the SBC.

     Net  of  recoveries,   costs  incurred  through  March  31,  2001  for  the
Remediation  Program amounted to $129 million.  In addition,  at March 31, 2001,
PSE&G's  estimated  liability for remediation  costs through 2003 aggregated $74
million. Expenditures beyond 2003 cannot be reasonably estimated.

Passaic River Site

     The United States Environmental Protection Agency (EPA) has determined that
a six mile  stretch of the Passaic  River in Newark,  New Jersey is a "facility"
within the  meaning of that term under the Federal  Comprehensive  Environmental
Response,  Compensation and Liability Act of 1980 (CERCLA) and that, to date, at
least thirteen  corporations,  including  PSE&G,  may be potentially  liable for
performing   required  remedial  actions  to  address  potential   environmental
pollution at the Passaic River "facility." PSE&G and certain of its predecessors
operated   industrial   facilities  at  properties   within  the  Passaic  River
"facility,"  comprised  of  four  former  manufactured  gas  plants  (MGP),  one
operating electric generating station and one former generating  station.  Costs
to clean up former MGPs are  recoverable  from utility  customers under the SBC.
The operating  electric  generating station has been transferred to Power, which
is responsible for its  remediation.  PSE&G cannot predict what action,  if any,
the EPA or any third party may take against PSE&G with respect to these matters,
or in such  event,  what  costs  PSE&G may  incur to  address  any such  claims.
However, such costs may be material.

Note 6.  Financial Instruments and Risk Management

Commodity-Related Instruments

     PSE&G  enters  into swaps,  options  and  futures for its gas  distribution
business to reduce exposure to price  fluctations  from factors such as weather,
changes in demand and changes in supply. These instruments,  in conjunction with
physical  gas supply  contracts,  are designed to cover  estimated  gas customer
commitments.

     At March 31, 2001, PSE&G had outstanding  commodity  financial  instruments
with a notional contract quantity of 17.8 million MMBTU (million British thermal
units) of natural gas.  Notional  amounts are  indicative  only of the volume of
activity  and are not a measure of market  risk.  The  unrealized  loss on these
contracts  was $30 million and $6 million as of March 31, 2001 and  December 31,
2000, respectively. Gains and losses relating to these financial instruments are
recovered through the Levelized Gas Adjustment Clause.

Interest Rates

     PSE&G is subject to the risk of  fluctuating  interest  rates in the normal
course of business.  PSE&G's policy is to manage  interest rate risk through the
use of fixed rate debt,  floating rate debt and interest rate swaps. As of March
31, 2001, a hypothetical  10% change in market  interest rates would result in a
$4 million  change in annual  interest  costs related to short-term and floating
rate debt at PSE&G.

     Transition Funding has entered into an interest rate swap on its sole class
of floating rate transition bonds. The notional amount of the interest rate swap
is $496.6 million.  The interest rate swap is indexed to the  three-month  LIBOR
rate. The fair value of the interest rate swap was approximately $(10.5) million
as of March  31,  2001  and was  recorded  as a  derivative  liability,  with an
offsetting  amount recorded as a regulatory  asset on the  Consolidated  Balance
Sheets.  This  amount  will  vary over  time as a result  of  changes  in market
conditions.

Note 7.  Income Taxes

     PSE&G's effective income tax rate is as follows:

<TABLE>
<CAPTION>
                                                                                          Quarter Ended
                                                                                            March 31,
                                                                                   -----------------------------
                                                                                      2001             2000
                                                                                   -----------      ------------
<S>                                                                                     <C>              <C>
     Federal tax provision at statutory rate.............................              35.0%             35.0%
     New Jersey Corporate Business Tax, net of Federal benefit...........               5.9%              5.9%
     Other -- net........................................................              (0.2)%             0.1%
                                                                                   -----------      ------------
          Effective Income Tax Rate......................................              40.7%             41.0%
                                                                                   ===========      ============
</TABLE>


<PAGE>

================================================================================
                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
================================================================================
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


Note 8.  Financial Information by Business Segments

     Information  related to the segments of PSE&G's business is detailed below.
Following the transfer of its generation-related assets to Power in August 2000,
PSE&G  continues  to own and operate its  transmission  and  distribution  (T&D)
business as its only remaining reportable segment.

<TABLE>
<CAPTION>

     -------------------------------------------------------------------------------------------------------------

                                                                                                   Consolidated
                                                          Generation       Trading        T & D         Total
                                                        ---------------  -----------  ----------- ----------------
<S>                                                               <C>          <C>       <C>              <C>
                                                                               (Millions of Dollars)
       For the Quarter Ended
       March 31, 2001:
       Total Operating Revenues........................           $--          $--       $1,952           $1,952
       Segment Net Income..............................           $--          $--         $109             $109
                                                        ===============  ===========  =========== ================

     -------------------------------------------------------------------------------------------------------------

       For the Quarter Ended
       March 31, 2000:
       Total Operating Revenues........................          $530         $614       $1,121           $2,265
       Segment Net Income..............................          $109          $17         $122             $248
                                                        ===============  ===========  =========== ================

     -------------------------------------------------------------------------------------------------------------

       As of March 31, 2001:
       Total Assets....................................           $--          $--      $13,767          $13,767

                                                        ===============  ===========  =========== ================

     -------------------------------------------------------------------------------------------------------------

       As of December 31, 2000:
       Total Assets....................................           $--          $--      $15,267          $15,267
                                                        ===============  ===========  =========== ================

     -------------------------------------------------------------------------------------------------------------

</TABLE>

Note 9.  Comprehensive Income

     For the  quarters  ended  March 31,  2001 and 2000,  PSE&G's  comprehensive
income equaled its consolidated net income.



<PAGE>


================================================================================
                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
================================================================================

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Concluded

Note 10.  Related Party Transactions

PSE&G and Power

     PSE&G's  transfer of its electric  generating  assets was in exchange for a
Promissory  Note from Power.  Interest on the Promissory  Note was payable at an
annual  rate of 14.23%,  which  represented  PSE&G's  weighted  average  cost of
capital. For the period from January 1, 2001 to January 31, 2001, PSE&G recorded
interest income of  approximately  $34 million  relating to the Promissory Note.
Power repaid the Promissory Note on January 31, 2001.

     In addition,  on January 31, 2001,  PSE&G loaned $1.084  billion to PSEG at
14.23% and recorded interest income of approximately $26 million relating to the
loan for the quarter ended March 31, 2001. PSE&G also returned $2.265 billion of
capital to PSEG on January 31, 2001 utilizing  proceeds from  securitization and
the  generation  asset  sale,  as required  by the Final  Order,  as part of its
recapitalization. PSEG repaid the loan to PSE&G on April 16, 2001.

     Effective  with the transfer of the  electric  generation  business,  Power
charges  PSE&G for MTC and the energy and capacity  provided to meet PSE&G's BGS
requirements. Through March 31, 2001, Power has charged PSE&G approximately $463
million for MTC and BGS. As of March 31, 2001, PSE&G's payable to Power relating
to these costs was  approximately  $154  million.  From  January 1, 2001 through
March 31,  2001,  PSE&G sold energy and capacity to Power at the market price of
approximately  $43 million,  which PSE&G  purchased  under  various  non-utility
generation (NUG) contracts at a costs above market prices. As of March 31, 2001,
PSE&G's  receivable  related to these purchases was  approximately  $16 million.
PSE&G,  as a result of the Final Order,  has  established  an NTC to recover the
above  market  costs  related to these NUG  contracts.  The  difference  between
PSE&G's  cost and their  recovery  of costs  through the NTC and sales to Power,
which are at the  locational  marginal price (LMP) set by the PJM ISO for energy
and at wholesale market prices for capacity, is deferred as a regulatory asset.


<PAGE>


================================================================================
                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
================================================================================

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     Following  are the  significant  changes  in or  additions  to  information
reported in the Public  Service  Electric and Gas Company's  (PSE&G) 2000 Annual
Report on Form 10-K  affecting  the  consolidated  financial  condition  and the
results of operations of PSE&G and its  subsidiaries.  This discussion refers to
the  Consolidated  Financial  Statements   (Statements)  and  related  Notes  to
Consolidated  Financial  Statements  (Notes)  of  PSE&G  and  should  be read in
conjunction with such Statements and Notes.

Results of Operations

     Revenues

     Generation

     Following  the  transfer of PSE&G's  generation  business to PSEG Power LLC
(Power) in August 2000, PSE&G no longer records  Generation  revenues.  Revenues
relating to the basic  generation  service (BGS) supplied to electric  customers
are included in Transmission and  Distribution  revenues of PSE&G and are offset
by a  corresponding  expense in Energy  Costs for the amount paid to Power under
the BGS contract.

     Transmission and Distribution

     Transmission  and Distribution  revenues  increased $831 million or 74% for
the quarter ended March 31, 2001 from the  comparable  period in 2000  primarily
due to the  inclusion  of  $506  million  of  revenues  which  are  offset  by a
corresponding  $506 million increase in Energy Costs relating to BGS,  discussed
above,  and  increased  revenues  relating to the increase in natural gas prices
being passed along to gas customers under certain transportation only contracts.
Under these  contracts,  PSE&G is  responsible  only for  delivery of gas to its
customers.  Such customers are  responsible for payment to PSE&G for the cost of
the commodity and as PSE&G's costs on behalf of these  customers  increase,  the
customer's rates to recover the cost of gas will increase.  Also contributing to
this  increase  were higher  sales  resulting  from colder  weather in the first
quarter of 2001 as compared to the same period in 2000 and higher rates approved
by the BPU to allow PSE&G to recover for increasing natural gas costs.

     Trading

     Together with the transfer of PSE&G's  generation  business to Power, PSE&G
transferred  its trading  operations  to Power in August 2000 and  therefore  no
longer has trading revenues.

     Energy Costs

     Energy Costs  decreased $218 million or 28% for the quarter ended March 31,
2001 from the  comparable  2000  period  primarily  due to the  transfer  of the
generation  business  to Power in August  2000  which had  Energy  costs of $727
million.  This decrease was partially offset by the inclusion of $506 million of
Energy Costs for energy purchased from Power to satisfy the BGS obligation.

     Gas Costs

     Gas Costs  increased  $330  million or 72% for the quarter  ended March 31,
2001 from the  comparable  2000 period  primarily  due to the higher  prices for
natural gas. Also contributing to the increase was higher demand for natural gas
due to colder  weather  in the first  quarter  of 2001 as  compared  to the same
period in 2000.

<PAGE>

      Operations and Maintenance

     Operations and Maintenance  expense decreased $128 million or 34% primarily
due to the  elimination of $140 million in Operations and  Maintenance  expenses
resulting from the transfer of the generation  business to Power in August 2000.
The decrease was partially  offset as a result of lower capital  project work in
the first quarter of 2001 than in the comparable 2000 period.

     Depreciation and Amortization

     Depreciation and Amortization  expense decreased $16 million or 18% for the
quarter ended March 31, 2001 from the comparable  2000 period.  The decrease was
primarily due to the elimination of $36 million in Depreciation and Amortization
expenses  resulting  from the  transfer of the  generation  business to Power in
August 2000. The decrease was partially offset by  approximately  $20 million of
the  amortization  on the regulatory  asset recorded for PSE&G's  stranded costs
beginning in February 2001.

     Interest Expense

     Net Interest  Expense  decreased  $39 million or 40% for the quarter  ended
March 31, 2001 from the comparable  2000 period  primarily due to  approximately
$60 million of interest received from Power and PSEG for the intercompany  loans
relating to the generation  business  transfer in August 2000. This decrease was
partially  offset  by  interest  of $27  million  on the  bonds  issued by PSE&G
Transition  Funding LLC  (Transition  Funding) on January  31,  2001,  discussed
below.

Liquidity and Capital Resources

     On January 31,  2001,  $2.525  billion of  transition  bonds were issued by
Transition Funding. PSE&G also received payment from Power on its $2.786 billion
Promissory Note used to finance the transfer of PSE&G's  generation  business to
Power.  The proceeds from these  transactions  were used to pay for certain debt
issuance  and  related  costs for  securitization,  redeem a portion  of PSE&G's
outstanding  short-term debt, reduce PSE&G common equity by $2.265 billion, loan
funds to PSEG of $1.084 billion and make various  short-term  investments.  PSEG
repaid the loan to PSE&G on April 16, 2001.  These funds are expected to be used
for further debt and/or equity  reductions in 2001 including payment of maturing
and certain redeemable  securities.  Any inability to obtain required additional
external  capital  or  to  extend  or  replace  maturing  debt  and/or  existing
agreements at current  levels and  reasonable  interest rates may affect PSE&G's
financial condition, results of operations and net cash flows.

     Cash  generated  from PSE&G's  transmission  and  distribution  business is
expected to provide the majority of the funds for PSE&G's business needs.  Since
1986,  PSE&G has made regular cash  payments to PSEG in the form of dividends on
outstanding shares of PSE&G's common stock. PSE&G paid common stock dividends of
$112 million and $117 million to PSEG for the quarters  ended March 31, 2001 and
2000,  respectively.

     In March 2001 PSE&G  redeemed  all of its $150  million of 9.375%  Series A
cumulative  income  preferred  securities,  all  of its  $75  million  of  5.97%
preferred stock, $15 million of its 6.75% preferred stock and $52 million of its
floating rate notes due December 7, 2002.

     Regulatory Restrictions

     As a result  of a 1992 BPU  proceeding  concerning  the  impact  of  PSEG's
non-utility investments on PSE&G (Focused Audit), the BPU approved a plan which,
among other things,  provided that: (1) PSEG would not permit PSEG's non-utility
assets to exceed 20% of PSEG's  consolidated  assets without prior notice to the
BPU (as of December 31,  2000,  these assets were in excess of the 20% limit and
the  required  notice had been given);  (2) the PSE&G Board of  Directors  would
provide an annual  certification that the business and financing plans of Energy
Holdings  will not  adversely  affect  PSE&G;  (3) PSEG  would  (a)  limit  debt
supported by the minimum net worth  maintenance  agreement between PSEG and PSEG
Capital to $650  million  and (b) make a  good-faith  effort to  eliminate  such
support by May 2003; and (4) Energy  Holdings would pay PSE&G an affiliation fee
of up to $2 million a year to be applied by PSE&G to reduce utility rates.

     The  Final  Order   addressed  the  Focused   Audit,   noting  that  PSEG's
non-regulated  assets  would  likely  exceed  20% and that,  due to  significant
changes in the industry  and, in  particular,  PSEG's  corporate  structure as a
result of the Final  Order,  modifications  to or relief from the Focused  Audit
might be warranted. In March 2000, PSE&G submitted a letter to the BPU notifying
the BPU of its  intention  to make a filing to modify  the terms of the  Focused
Audit within 120 days after the Final Order becomes final and non-appealable. In
December  2000,  the New Jersey  Supreme Court  affirmed the appellate  decision
upholding the Final Order (see Note 3. Regulatory Issues). Also, Energy Holdings
believes that, if still required,  it is capable of eliminating  PSEG support of
PSEG Capital debt within the time period set forth in the Focused Audit.

     Regulatory  oversight by the BPU to ensure that there is no harm to utility
customers from PSEG's  non-utility  investments  is expected to continue.  PSE&G
believes  that  these  issues  will  be  satisfactorily  resolved,  although  no
assurances can be given.

Capital Requirements

     PSE&G  has  substantial  commitments  as part of its  ongoing  construction
programs. These programs are continuously reviewed and periodically revised as a
result of changes in  economic  conditions,  revised  load  forecasts,  business
strategies,   site  changes,  cost  escalations  under  construction  contracts,
requirements  of regulatory  authorities  and laws,  the timing of and amount of
electric and gas transmission  and/or  distribution rate changes and the ability
of PSE&G to raise necessary capital.

     Construction   expenditures   are  related  to   improvements   in  PSE&G's
transmission and distribution system, gas system and common facilities.  For the
quarter  ended  March 31,  2001 PSE&G had net plant  additions  of $63  million,
excluding Allowance for Funds Used During Construction (AFDC).

External Financings

     Under its Mortgage,  PSE&G may issue new First and Refunding Mortgage Bonds
against  previous  additions and  improvements  and/or  retired  Mortgage  Bonds
provided  that its ratio of earnings to fixed  charges  calculated in accordance
with its Mortgage is at least 2:1. At March 31, 2001,  PSE&G's Mortgage coverage
ratio was 3:1. As of March 31, 2001,  the Mortgage would permit up to $1 billion
aggregate  principal  amount of new Mortgage Bonds to be issued against previous
additions and improvements. In addition to the refinancing of existing long-term
debt  authorized  by the BPU in the Final  Order,  PSE&G will need to obtain BPU
authorization to issue any incremental debt financing  necessary for its capital
program.  The BPU has  authorized  PSE&G to issue up to $1 billion of  long-term
debt on the basis of  previously  matured,  redeemed or  purchased  debt through
December 31, 2001, of which $590 million has been issued.

     As   discussed   previously,   on  January  31,  2001,   transition   bonds
(non-recourse  asset  backed  securities)  in the amount of $2.525  billion were
issued  by PSE&G  Transition  Funding  LLC,  a  bankruptcy-remote,  wholly-owned
subsidiary of PSE&G, in eight classes with maturities  ranging from 1 year to 15
years.

     In March  2001,  PSE&G  reduced the maximum  size of its  commercial  paper
program  from $1.5  billion  to $900  million.  To  provide  liquidity  for this
program,  PSE&G maintains a $450 million  revolving credit facility that expires
in June 2001 and a $450 million credit facility that expires in June 2002. As of
March 31, 2001, there were no borrowings outstanding under these facilities.

     PSE&G has several  uncommitted  lines of credit  with  banks.  On March 31,
2001,  PSE&G had $155 million of short-term debt  outstanding,  borrowed against
its uncommitted bank lines of credit.

Accounting Matters

 In July 2000,  the  Emerging  Issues Task Force  (EITF)  99-19,  "Reporting
Revenue  Gross as a Principal  versus Net as an Agent"  (EITF  99-19),  provided
guidance on the issue of whether a company  should  report  revenue based on the
gross  amount  billed to the customer or the net amount  retained.  The guidance
states that whether a company should recognize revenue based on the gross amount
billed or the net retained requires significant  judgment,  which depends on the
relevant  facts and  circumstances.  In the first quarter of 2001,  based on the
analysis and  interpretation  of EITF 99-19,  PSEG reported all the revenues and
cost of goods sold on a gross  basis for the energy  related  transactions.  The
prior year financial statements for PSEG and its subsidiaries have been restated
for comparability purposes.

     The  Financial  Accounting  Standards  Board  (FASB)  issued  Statement  of
Financial  Accounting  Standards  (SFAS)  No.  133,  Accounting  for  Derivative
Instruments  and Hedging  Activities,  as amended,  which  became  effective  on
January  1, 2001.  Under  SFAS 133,  certain  contracts  that were not  formerly
considered derivatives may now meet the definition of a derivative. PSEG adopted
SFAS  133  effective  January  1,  2001.  See  Notes  2 and 9 of  Notes  to  the
Consolidated Financial Statements.

Forward Looking Statements

     Except for the  historical  information  contained  herein,  certain of the
matters discussed in this report constitute "forward-looking  statements" within
the  meaning of the  Private  Securities  Litigation  Reform  Act of 1995.  Such
forward-looking  statements are subject to risks and  uncertainties  which could
cause  actual  results  to  differ  materially  from  those  anticipated.   Such
statements are based on management's  beliefs as well as assumptions made by and
information  currently  available to  management.  When used  herein,  the words
"will",  "anticipate",   "intend",  "estimate",   "believe",  "expect",  "plan",
"hypothetical",  "potential",  variations of such words and similar  expressions
are intended to identify forward-looking statements.  PSE&G and its subsidiaries
undertake  no  obligation  to  publicly  update  or revise  any  forward-looking
statements, whether as a result of new information,  future events or otherwise.
The following  review of factors should not be construed as exhaustive or as any
admission   regarding  the  adequacy  of  disclosures  made  by  PSE&G  and  its
subsidiaries  prior to the effective date of the Private  Securities  Litigation
Reform Act of 1995.

     In addition to any assumptions  and other factors  referred to specifically
in connection  with such  forward-looking  statements,  factors that could cause
actual   results  to  differ   materially   from  those   contemplated   in  any
forward-looking  statements include,  among others, the following:  deregulation
and the unbundling of energy  supplies and services and the  establishment  of a
competitive  energy  marketplace  for products and  services;  transmission  and
distribution  systems;  sales  retention and growth  potential in a mature PSE&G
service territory; ability to complete development or acquisition of current and
future  investments;  partner and counterparty  risk; ability to obtain adequate
and timely rate relief, cost recovery, and other necessary regulatory approvals;
Federal and state  regulatory  actions;  regulatory  oversight  with  respect to
utility  and  non-utility   affiliate   relations  and   activities;   operating
restrictions,   increased  cost  and   construction   delays   attributable   to
environmental regulations;  environmental concerns; and market risk and debt and
equity market concerns associated with these issues.


                      ITEM 3. QUALITATIVE AND QUANTITATIVE
                          DISCLOSURES ABOUT MARKET RISK

     The market risk inherent in PSE&G's market risk sensitive  instruments  and
positions is the potential loss arising from adverse changes in commodity prices
and interest rates as discussed  below.  PSE&G's policy is to use derivatives to
manage risk consistent with its business plans and prudent practices. PSEG has a
Risk Management  Committee  comprised of executive officers which PSE&G utilizes
for an independent risk oversight  function to ensure  compliance with corporate
policies and prudent risk management practices.

     PSE&G is  exposed  to  credit  losses in the  event of  non-performance  or
non-payment by counterparties.  PSE&G also has a credit management process which
is used to assess,  monitor and mitigate counterparty exposure for PSE&G and its
subsidiaries.  In  the  event  of  non-performance  or  non-payment  by a  major
counterparty,  there  may be a  material  adverse  impact  on  PSE&G's  and  its
subsidiaries' financial condition,  results of operations or net cash flows. For
discussion  of  interest  rates and  commodity-related  instruments  see Note 6.
Financial Instruments and Risk Management of Notes.

     Commodity-Related Instruments

     The   availability   and  price  of  energy   commodities  are  subject  to
fluctuations from factors such as weather,  environmental  policies,  changes in
supply and demand and state and Federal  regulatory  policies.  To reduce  price
risk caused by market  fluctuations,  PSE&G  enters into  derivative  contracts,
including forwards, futures, swaps and options with approved counterparties,  to
hedge its anticipated demand. These contracts,  in conjunction with physical gas
supply contracts, are designed to cover estimated gas customer commitments.
<PAGE>

                           PART II. OTHER INFORMATION

                            ITEM 1. LEGAL PROCEEDINGS

     There are no  updates  to  information  reported  under Item 3 of Part I of
Public  Service  Electric and Gas  Company's  (PSE&G) 2000 Annual Report on Form
10-K.

                           ITEM 5. OTHER INFORMATION

     Certain information reported under PSE&G's 2000 Annual Report to the SEC is
updated  below.  References are to the related pages on the Form 10-K as printed
and distributed.

New Matter

     In May 2001,  PSE&G filed a petition  with the BPU for  authority to revise
its gas property  depreciation  rates. This matter was transferred to the Office
of Administrative Law as a contested case.

Gas Contract Transfer

     Form 10-K,  page 12. On March 16, 2001, the New Jersey  Ratepayer  Advocate
(RPA)  filed a motion to  dismiss  this case.  The motion is pending  before the
Administrative Law Judge. At a hearing held on April 16, 2001, PSE&G presented a
Stipulation of  Settlement.  PSE&G is  negotiating  to have  additional  parties
execute the Stipulation.  The  Administrative Law Judge established a litigation
schedule through June 6, 2001 at which the hearings are expected to close.

Levelized Gas Adjustment Clause (LGAC)

     Form 10-K,  page 13. On March 30,  2001 the BPU issued  its  written  Order
approving  a 2%  increases  for PSE&G in each month from April 2001 to July 2001
and providing for recovery with interest of PSE&G's actual underrecovery balance
as of October 31, 2001 over a three-year  period  beginning on December 1, 2001.
The new rates were effective on April 1, 2001.

                    ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A)  A listing of exhibits being filed with this document is as follows:

     Exhibit Number    Document
     --------------    ---------------------------------------------------------
     12                Computation of Ratios of Earnings to Fixed Charges
     12(A)             Computation of Ratios of Earnings to Fixed Charges Plus
                         Preferred Securities


(B)  Reports on Form 8-K:

     None.


<PAGE>
                                    SIGNATURE

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
                                  (Registrant)


                            By: Patricia A. Rado
                    --------------------------------------------
                                Patricia A. Rado
                          Vice President and Controller
                         (Principal Accounting Officer)


Date: May 16, 2001