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

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q
                                   (Mark One)
            [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2000

                                       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            Address, and Telephone Number         Identification
  Number                                                      No.
----------  ------------------------------------------  ----------------
 1-9120          PUBLIC SERVICE ENTERPRISE GROUP          22-2625848
                            INCORPORATED
                   (A New Jersey Corporation)
                          80 Park Plaza
                          P.O. Box 1171
                  Newark, New Jersey 07101-1171
                          973 430-7000
                       http://www.pseg.com

  1-973      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


                    PSEG ENERGY HOLDINGS, INC.            22-2983750
                    (A New Jersey Corporation)
                        80 Park Plaza-T22
                  Newark, New Jersey 07101-4194
                          973 456-3581


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.

     Public Service Enterprise Group Incorporated       Yes X    No ___

     Public Service Electric and Gas Company            Yes X    No ___

     PSEG Energy Holdings Inc.                          Yes ___  No  X


As  of   July  31, 2000,   Public  Service  Enterprise  Group  Incorporated  had
outstanding  214,406,518  shares  of its sole  class  of  Common  Stock  without
par value.

As  of  July  31,  2000,  Public  Service  Electric  and  Gas Company  and  PSEG
Energy  Holdings Inc. had issued and  outstanding  132,450,344 and 100 shares of
common  stock,  without  nominal  or par value,  respectively, all of which were
privately held,  beneficially  and of record by Public Service  Enterprise Group
Incorporated.


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

<PAGE>
================================================================================
                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
================================================================================

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
PART I.  FINANCIAL INFORMATION

   Item 1. Financial Statements

     Public Service Enterprise Group Incorporated (PSEG)..................     1

     Public Service Electric and Gas Company (PSE&G)......................     5

     PSEG Energy Holdings Inc. (Energy Holdings)..........................     9

     Notes to Consolidated Financial Statements -- PSEG...................    13

     Notes to Consolidated Financial Statements -- PSE&G...................   23

     Notes to Consolidated Financial Statements -- Energy Holdings.........   24

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

       PSEG ..............................................................    25

       PSE&G..............................................................    37

       Energy Holdings....................................................    37

   Item 3. Qualitative and Quantitative Disclosures About Market Risk.....    39

PART II.  OTHER INFORMATION

   Item 1. Legal Proceedings..............................................    40

   Item 5. Other Information..............................................    40

   Item 6. Exhibits and Reports on Form 8-K...............................    42

   Signatures -- PSEG.....................................................    43

   Signatures -- PSE&G....................................................    43

   Signatures -- Energy Holdings..........................................    44

<PAGE>

================================================================================
                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
================================================================================

                          PART I. FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>



                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                        CONSOLIDATED STATEMENTS OF INCOME
                (Millions of Dollars, except for Per Share Data)
                                   (Unaudited)


                                                              Three Months Ended                     Six Months Ended
                                                                   June 30,                              June 30,
                                                       ---------------------------------    ------------------------------------
                                                           2000               1999               2000                1999
                                                       -------------     ---------------    ----------------    ----------------
<S>                                                    <C>               <C>                <C>                 <C>
OPERATING REVENUES
   Electric Revenues *
     Bundled                                           $        --       $       1,020      $           --      $        1,986
     Generation                                                555                  --               1,113                  --
     Transmission and Distribution                             483                  --                 887                  --
                                                       -------------     ---------------    ----------------    ----------------
       Total Electric Revenues                               1,038               1,020               2,000               1,986
   Gas Distribution                                            319                 277               1,066                 977
   Other                                                       164                 139                 379                 268
                                                       -------------     ---------------    ----------------    ----------------
       Total Operating Revenues                              1,521               1,436               3,445               3,231
                                                       -------------     ---------------    ----------------    ----------------
OPERATING EXPENSES
   Electric Energy Costs                                       280                 238                 496                 463
   Gas Costs                                                   237                 177                 717                 626
   Operation and Maintenance                                   487                 419                 972                 857
   Depreciation and Amortization                                86                 122                 176                 288
   Taxes Other Than Income Taxes                                38                  43                  88                  99
                                                       -------------     ---------------    ----------------    ----------------
       Total Operating Expenses                              1,128                 999               2,449               2,333
                                                       -------------     ---------------    ----------------    ----------------
OPERATING INCOME                                               393                 437                 996                 898
Other Income and Deductions                                      6                  10                  17                  16
Interest Expense                                              (137)               (117)               (274)               (229)
Preferred Securities Dividend Requirements                     (23)                (28)                (47)                (52)
                                                       -------------     ---------------    ----------------    ----------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM              239                 302                 692                 633
Income Taxes                                                   (97)               (121)               (280)               (264)
                                                       -------------     ---------------    ----------------    ----------------
INCOME BEFORE EXTRAORDINARY ITEM                               142                 181                 412                 369
Extraordinary Item (net of tax of $345)                         --                (790)                 --                (790)
                                                       -------------     ---------------    ----------------    ----------------
NET INCOME (LOSS)                                      $       142       $         (609)    $          412      $         (421)
                                                       =============     ===============    ================    ================

WEIGHTED AVERAGE COMMON
   SHARES OUTSTANDING (000's)                              215,394             219,571             215,886             221,122
                                                       =============     ===============    ================    ================
EARNINGS (LOSS) PER SHARE (BASIC
AND DILUTED):
INCOME BEFORE EXTRAORDINARY ITEM
                                                       $      0.66       $        0.83      $         1.91      $         1.67
Extraordinary Item (net of tax)                                 --               (3.60)                 --               (3.57)
                                                       -------------     ---------------    ----------------    ----------------
NET INCOME (LOSS)                                      $      0.66       $       (2.77)     $         1.91      $        (1.90)
                                                       =============     ===============    ================    ================

DIVIDENDS PAID PER SHARE OF COMMON STOCK
                                                       $      0.54       $        0.54      $         1.08      $         1.08
                                                       =============     ===============    ================    ================
<FN>

* Note:  Bundled  revenues  were  recorded  based on the bundled rates in effect
through 7/31/99. Commencing with the unbundling of rates on 8/1/99, revenues are
disaggregated  between  Generation  Revenue and  Transmission  and  Distribution
Revenue.

See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                           CONSOLIDATED BALANCE SHEETS
                                     ASSETS
                              (Millions of Dollars)


                                                                                  (Unaudited)
                                                                                   June 30,             December 31,
                                                                                     2000                   1999
                                                                                ----------------      ------------------
<S>                                                                             <C>                   <C>
CURRENT ASSETS
   Cash and Cash Equivalents                                                    $          133        $            259
   Accounts Receivable:
     Customer Accounts Receivable                                                          658                     646
     Other Accounts Receivable                                                             490                     371
     Allowance for Doubtful Accounts                                                       (43)                    (40)
   Unbilled Revenues                                                                       189                     241
   Fuel                                                                                    294                     311
   Materials and Supplies, net of valuation reserves-- 2000 and 1999, $11                  149                     130
   Prepayments                                                                             280                      39
   Other                                                                                   191                      86
                                                                                ----------------      ------------------
       Total Current Assets                                                              2,341                   2,043
                                                                                ----------------      ------------------

PROPERTY, PLANT AND EQUIPMENT
   Electric - Generation                                                                 2,508                   2,355
   Electric - Transmission and Distribution                                              5,214                   5,113
   Gas - Distribution                                                                    3,094                   3,019
   Other                                                                                   596                     534
                                                                                ----------------      ------------------
       Total                                                                            11,412                  11,021
   Accumulated depreciation and amortization                                            (4,195)                 (3,943)
                                                                                ----------------      ------------------
       Net Property, Plant and Equipment                                                 7,217                   7,078
                                                                                ----------------      ------------------

NONCURRENT ASSETS
   Regulatory Assets                                                                     5,067                   5,041
   Long-Term Investments, net of accumulated amortization and
     valuation allowances -- 2000, $68; 1999, $65                                        3,957                   3,848
   Nuclear Decommissioning Fund                                                            643                     631
   Other Special Funds                                                                     132                     148
   Other, net of accumulated amortization-- 2000, $19;
     1999, $12                                                                             275                     226
                                                                                ----------------      ------------------
       Total Noncurrent Assets                                                          10,074                   9,894
                                                                                ----------------      ------------------

TOTAL ASSETS                                                                    $       19,632        $         19,015
                                                                                ================      ==================

See Notes to Consolidated Financial Statements.

</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                           CONSOLIDATED BALANCE SHEETS
                         LIABILITIES AND CAPITALIZATION
                              (Millions of Dollars)


                                                                                     (Unaudited)
                                                                                      June 30,              December 31,
                                                                                        2000                    1999
                                                                                   ----------------       ------------------
<S>                                                                                <C>                    <C>
CURRENT LIABILITIES
   Long-Term Debt Due Within One Year                                              $          778         $          1,073
   Commercial Paper and Loans                                                               2,367                    1,972
   Accounts Payable                                                                         1,077                      738
   Other                                                                                      445                      394
                                                                                   ----------------       ------------------
       Total Current Liabilities                                                            4,667                    4,177
                                                                                   ----------------       ------------------

NONCURRENT LIABILITIES
   Deferred Income Taxes and ITC                                                            3,044                    2,928
   Regulatory Liabilities                                                                     564                      604
   Nuclear Decommissioning                                                                    643                      631
   OPEB Costs                                                                                 420                      390
   Other                                                                                      546                      506
                                                                                   ----------------       ------------------
       Total Noncurrent Liabilities                                                         5,217                    5,059
                                                                                   ----------------       ------------------

COMMITMENTS AND CONTINGENT LIABILITIES                                                         --                       --
                                                                                   ----------------       ------------------
CAPITALIZATION:
   LONG-TERM DEBT                                                                           4,417                    4,575
                                                                                   ----------------       ------------------

SUBSIDIARIES' PREFERRED SECURITIES:
   Preferred Stock Without Mandatory Redemption                                                95                       95
   Preferred Stock With Mandatory Redemption                                                   75                       75
   Guaranteed Preferred Beneficial Interest in Subordinated Debentures                      1,038                    1,038
                                                                                   ----------------       ------------------
       Total Subsidiaries' Preferred Securities                                             1,208                    1,208
                                                                                   ----------------       ------------------

COMMON STOCKHOLDERS' EQUITY:
   Common Stock, issued:  231,957,608 shares                                                3,604                    3,604
   Treasury Stock, at cost: 2000--17,551,090 shares;
     1999--15,540,390 shares                                                                 (669)                    (597)
   Retained Earnings                                                                        1,371                    1,193
   Accumulated Other Comprehensive Loss                                                      (183)                    (204)
                                                                                   ----------------       ------------------
     Total Common Stockholders' Equity                                                      4,123                    3,996
                                                                                   ----------------       ------------------
       Total Capitalization                                                                 9,748                    9,779
                                                                                   ----------------       ------------------

TOTAL LIABILITIES AND CAPITALIZATION                                               $       19,632         $         19,015
                                                                                   ================       =================

See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (Millions of Dollars)
                                   (Unaudited)


                                                                                            Six Months Ended
                                                                                                June 30,
                                                                                 ----------------------------------------
                                                                                      2000                   1999
                                                                                 ----------------      ------------------
<S>                                                                              <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                                    $          412        $           (421)
   Adjustments to reconcile net income to net cash flows from
     operating activities:
   Extraordinary Loss - net of tax                                                           --                     790
   Depreciation and Amortization                                                            176                     288
   Amortization of Nuclear Fuel                                                              45                      42
   Recovery of Electric Energy and Gas Costs-- net                                           25                     106
   Provision for Deferred Income Taxes and ITC-- net                                         63                    (206)
   Investment Distributions                                                                  32                      75
   Equity Income from Partnerships                                                          (12)                    (45)
   Unrealized Gains on Investments                                                          (18)                     --
   Net Changes in certain current assets and liabilities:
     Accounts Receivable and Unbilled Revenues                                              (76)                   (160)
     Fuel and Materials and Supplies                                                         (2)                     64
     Prepayments                                                                           (241)                   (246)
     Accounts Payable                                                                       339                     137
     Other Current Assets and Liabilities                                                   (54)                    104
   Other                                                                                      7                      75
                                                                                 ----------------      ------------------
     Net Cash Provided By Operating Activities                                              696                     603
                                                                                 ----------------      ------------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Additions to Property, Plant and Equipment, excluding
     Capitalized Interest and AFDC                                                         (350)                   (172)
   Net Change in Long-Term Investments                                                      (68)                   (630)
   Other                                                                                    (16)                    (68)
                                                                                 ----------------      ------------------
     Net Cash Used in Investing Activities                                                 (434)                   (870)
                                                                                 ----------------      ------------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net Change in Short-Term Debt                                                            395                     232
   Issuance of Long-Term Debt                                                               300                     713
   Redemption/Purchase of Long-Term Debt                                                   (777)                   (203)
   Purchase of Treasury Stock                                                               (72)                   (300)
   Cash Dividends Paid on Common Stock                                                     (234)                   (238)
                                                                                 ----------------      ------------------
     Net Cash (Used in) Provided By Financing Activities                                   (388)                    204
                                                                                 ----------------      ------------------
Net Change in Cash and Cash Equivalents                                                    (126)                    (63)
Cash and Cash Equivalents at Beginning of Period                                            259                     140
                                                                                 ----------------      ------------------
Cash and Cash Equivalents at End of Period                                       $          133        $             77
                                                                                 ================      ==================

Income Taxes Paid                                                                $          323        $            307
Interest Paid                                                                    $          234        $            229

See Notes to Consolidated Financial Statements.

</TABLE>
<PAGE>
<TABLE>
<CAPTION>


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


                                                                 Three Months Ended                     Six Months Ended
                                                                      June 30,                              June 30,
                                                          ----------------------------------    ----------------------------------
                                                              2000               1999                2000               1999
                                                          --------------    ----------------    ----------------    --------------
<S>                                                       <C>               <C>                 <C>                 <C>
OPERATING REVENUES
   Electric Revenues *
     Bundled                                              $         --      $        1,020      $           --      $      1,986
     Generation                                                    555                  --               1,113                --
     Transmission and Distribution                                 483                  --                 887                --
                                                          --------------    ----------------    ----------------    --------------
       Total Electric Revenues                                   1,038               1,020               2,000             1,986
   Gas Distribution                                                319                 277               1,066               977
                                                          --------------    ----------------    ----------------    --------------
       Total Operating Revenues                                  1,357               1,297               3,066             2,963
                                                          --------------    ----------------    ----------------    --------------
OPERATING EXPENSES
   Electric Energy Costs                                           268                 235                 473               456
   Gas Costs                                                       222                 165                 679               589
   Operation and Maintenance                                       385                 365                 773               759
   Depreciation and Amortization                                    82                 120                 170               285
   Taxes Other than Income Taxes                                    39                  43                  88                99
                                                          --------------    ----------------    ----------------    --------------
       Total Operating Expenses                                    996                 928               2,183             2,188
                                                          --------------    ----------------    ----------------    --------------
OPERATING INCOME                                                   361                 369                 883               775
Other Income and Deductions                                          2                  --                  12                 3
Interest Expense                                                   (97)                (93)               (194)             (186)
Preferred Securities Dividend Requirements                         (12)                (12)                (23)              (23)
                                                          --------------    ----------------    ----------------    --------------
INCOME BEFORE INCOME TAXES AND
   EXTRAORDINARY ITEM                                              254                 264                 678               569
Income Taxes                                                      (102)               (107)               (276)             (240)
                                                          --------------    ----------------    ----------------    --------------
INCOME BEFORE EXTRAORDINARY ITEM                                   152                 157                 402               329
Extraordinary Item (net of tax of $345)                             --                (790)                 --              (790)
                                                          --------------    ----------------    ----------------    --------------
NET INCOME (LOSS)                                                  152      $         (633)     $          402      $       (461)
Preferred Stock Dividend Requirements                               (2)                 (2)                 (5)               (5)
                                                          --------------    ----------------    ----------------    --------------
EARNINGS (LOSS) AVAILABLE TO PUBLIC SERVICE
ENTERPRISE GROUP INCORPORATED
                                                          $        150      $         (635)     $          397      $       (466)
                                                          ==============    ================    ================    ==============

<FN>

* Note:  Bundled  revenues  were  recorded  based on the bundled rates in effect
through 7/31/99. Commencing with the unbundling of rates on 8/1/99, revenues are
disaggregated  between  Generation  Revenue and  Transmission  and  Distribution
Revenue.

See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


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


                                                                                     (Unaudited)
                                                                                      June 30,              December 31,
                                                                                        2000                    1999
                                                                                   ----------------       ------------------
<S>                                                                                <C>                    <C>
CURRENT ASSETS
   Cash and Cash Equivalents                                                       $           29         $            173
   Accounts Receivable:
     Customer Accounts Receivable                                                             455                      529
     Other Accounts Receivable                                                                457                      313
     Allowance for Doubtful Accounts                                                          (37)                     (35)
   Unbilled Revenues                                                                          189                      241
   Fuel                                                                                       288                      308
   Materials and Supplies, net of valuation reserves-- 2000 and 1999, $11                     139                      130
   Prepayments                                                                                273                       34
   Other                                                                                      159                       50
                                                                                   ----------------       ------------------
     Total Current Assets                                                                   1,952                    1,743
                                                                                   ----------------       ------------------
PROPERTY, PLANT AND EQUIPMENT
   Electric - Generation                                                                    2,298                    2,284
   Electric - Transmission and Distribution                                                 5,214                    5,113
   Gas - Distribution                                                                       3,094                    3,019
   Other                                                                                      446                      457
                                                                                   ----------------       ------------------
     Total                                                                                 11,052                   10,873
   Accumulated Depreciation and Amortization                                               (4,150)                  (3,911)
                                                                                   ----------------       ------------------
     Net Property, Plant and Equipment                                                      6,902                    6,962
                                                                                   ----------------       ------------------

NONCURRENT ASSETS
   Regulatory Assets                                                                        5,067                    5,041
   Long-Term Investments                                                                      100                       99
   Nuclear Decommissioning Fund                                                               643                      631
   Other Special Funds                                                                        132                      148
   Other                                                                                       98                      100
                                                                                   ----------------       ------------------
     Total Noncurrent Assets                                                                6,040                    6,019
                                                                                   ----------------       ------------------

TOTAL ASSETS                                                                       $       14,894         $         14,724
                                                                                   ================       ==================

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)
                                                                                     June 30,               December 31,
                                                                                       2000                     1999
                                                                                 ------------------       ------------------
<S>                                                                              <C>                      <C>
CURRENT LIABILITIES
   Long-Term Debt Due Within One Year                                            $             --         $            623
   Commercial Paper and Loans                                                               1,782                    1,475
   Accounts Payable                                                                         1,020                      676
   Other                                                                                      285                      281
                                                                                 ------------------       ------------------
     Total Current Liabilities                                                              3,087                    3,055
                                                                                 ------------------       ------------------

NONCURRENT LIABILITIES
   Deferred Income Taxes and ITC                                                            2,093                    2,032
   Regulatory Liabilities                                                                     564                      604
   Nuclear Decommissioning                                                                    643                      631
   OPEB Costs                                                                                 418                      390
   Other                                                                                      491                      479
                                                                                 ------------------       ------------------
     Total Noncurrent Liabilities                                                           4,209                    4,136
                                                                                 ------------------       ------------------

COMMITMENTS AND CONTINGENT LIABILITIES                                                         --                       --
                                                                                 ------------------       ------------------

CAPITALIZATION:

LONG-TERM DEBT                                                                              3,101                    3,099
                                                                                 ------------------       ------------------

PREFERRED SECURITIES:
   Preferred Stock Without Mandatory Redemption                                                95                       95
   Preferred Stock With Mandatory Redemption                                                   75                       75
   Subsidiaries' Preferred Securities:
     Guaranteed Preferred Beneficial Interest in Subordinated
       Debentures                                                                             513                      513
                                                                                 ------------------       ------------------
         Total Preferred Securities                                                           683                      683
                                                                                 ------------------       ------------------

COMMON STOCKHOLDER'S EQUITY:
   Common Stock, issued:  132,450,344 shares                                                2,563                    2,563
   Contributed Capital                                                                        594                      594
   Retained Earnings                                                                          660                      597
   Accumulated Other Comprehensive Loss                                                        (3)                      (3)
                                                                                 ------------------       ------------------
     Total Common Stockholder's Equity                                                      3,814                    3,751
                                                                                 ------------------       ------------------
       Total Capitalization                                                                 7,598                    7,533
                                                                                 ------------------       ------------------

TOTAL LIABILITIES AND CAPITALIZATION                                             $         14,894         $         14,724
                                                                                 ==================       ==================

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)


                                                                                            Six Months Ended
                                                                                                June 30,
                                                                                 ----------------------------------------
                                                                                      2000                   1999
                                                                                 ----------------      ------------------
<S>                                                                              <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                                    $          402        $           (461)
   Adjustments to reconcile net income to net cash flows from
     operating activities:
   Extraordinary Loss - net of tax                                                           --                     790
   Depreciation and Amortization                                                            170                     285
   Amortization of Nuclear Fuel                                                              45                      42
   Recovery of Electric Energy and Gas Costs-- net                                           25                     106
   Provision for Deferred Income Taxes and ITC-- net                                         61                    (193)
   Net Changes in Certain Current Assets and Liabilities:
     Accounts Receivable and Unbilled Revenues                                              (16)                   (146)
     Fuel and Materials and Supplies                                                         11                      64
     Prepayments                                                                           (239)                   (251)
     Accounts Payable                                                                       379                     126
     Other Current Assets and Liabilities                                                  (105)                    107
   Other                                                                                     23                      69
                                                                                 ----------------      ------------------
     Net Cash Provided By Operating Activities                                              756                     538
                                                                                 ----------------      ------------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Additions to Property, Plant and Equipment, excluding
     Capitalized Interest and AFDC                                                         (230)                   (172)
   Other                                                                                    (17)                    (57)
                                                                                 ----------------      ------------------
     Net Cash Used in Investing Activities                                                 (247)                   (229)
                                                                                 ----------------      ------------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net Change in Short-Term Debt                                                            307                      90
   Redemption/Purchase of Long-Term Debt                                                   (621)                    (17)
   Cash Dividends Paid                                                                     (339)                   (396)
                                                                                 ----------------      ------------------
     Net Cash Used in Financing Activities                                                 (653)                   (323)
                                                                                 ----------------      ------------------
Net Change in Cash and Cash Equivalents                                                    (144)                    (14)
Cash and Cash Equivalents at Beginning of Period                                            173                      42
                                                                                 ----------------      ------------------
Cash and Cash Equivalents at End of Period                                       $           29        $             28
                                                                                 ================      ==================

Income Taxes Paid                                                                $          387        $            335
Interest Paid                                                                    $          190        $            197


See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                            PSEG ENERGY HOLDINGS INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                              (Millions of Dollars)
                                   (Unaudited)

                                                               Three Months Ended                     Six Months Ended
                                                                    June 30,                              June 30,
                                                       -----------------------------------    ----------------------------------
                                                             2000                1999              2000                1999
                                                       ---------------     ---------------    --------------      --------------
<S>                                                    <C>                 <C>                <C>                 <C>
OPERATING REVENUES
   Income from Joint Ventures
     and Partnerships                                  $          31       $          30      $         61        $         58
   Energy Service Revenues                                        80                  36               153                  57
   Energy Supply Revenues                                         21                  16                58                  46
   Income from Capital and Operating Leases                       37                  28                75                  53
   Net Investment Gains (Losses)                                 (12)                 22                18                  41
   Other                                                          7                    7                14                  13
                                                       ---------------     ---------------    --------------      --------------
       Total Operating Revenues                                  164                 139               379                 268
                                                       ---------------     ---------------    --------------      --------------
OPERATING EXPENSES
   Cost of Energy Sales                                           24                  16                58                  45
   Restructure Costs                                              --                  --                 7                  --
   Operation and Maintenance                                     102                  55               194                  99
   Depreciation and Amortization                                   3                   2                 6                   3
                                                       ---------------     ---------------    --------------      --------------
       Total Operating Expenses                                  129                  73               265                 147
                                                       ---------------     ---------------    --------------      --------------
OPERATING INCOME                                                  35                  66               114                 121
Other Income                                                      --                   4                 2                   7
Interest Expense-Net                                             (36)                (21)              (72)                (40)
                                                       ---------------     ---------------    --------------      --------------
INCOME (LOSS) BEFORE INCOME TAXES                                 (1)                 49                44                  88
Income Taxes                                                       1                 (17)              (13)                (30)
Minority Interests                                                 1                  --                 1                  --
                                                       ---------------     ---------------    --------------      --------------
NET INCOME                                                         1                   32               32                  58
   Preferred Stock Dividend Requirements                          (6)                 (6)              (13)                (13)
                                                       ---------------     ---------------    --------------      --------------
EARNINGS (LOSSES) AVAILABLE TO PUBLIC
SERVICE ENTERPRISE GROUP INCORPORATED                  $          (5)      $          26       $        19        $         45
                                                       ===============     ===============    ==============      ==============

See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                            PSEG ENERGY HOLDINGS INC.
                           CONSOLIDATED BALANCE SHEETS
                                     ASSETS
                              (Millions of Dollars)


                                                                                        (Unaudited)
                                                                                          June 30,             December 31,
                                                                                            2000                   1999
                                                                                     -------------------    --------------------
<S>                                                                                  <C>                    <C>
CURRENT ASSETS
   Cash and Cash Equivalents                                                         $              16      $               43
   Accounts Receivable:
     Trade                                                                                         172                     111
     Other                                                                                          36                      31
     Allowance for Doubtful Accounts                                                                (5)                     (5)
   Assets Held for Sale                                                                             36                      36
   Notes Receivable                                                                                 12                      12
   Other Current Assets                                                                              5                      12
                                                                                     -------------------    --------------------
       Total Current Assets                                                                        272                     240
                                                                                     -------------------    --------------------

PROPERTY AND EQUIPMENT
   Real Estate, net of valuation allowances 2000 and 1999, $22                                      89                      34
   Property and Equipment                                                                           57                      45
                                                                                     -------------------    --------------------
       Total                                                                                       146                      79
   Accumulated Depreciation and Amortization                                                       (45)                    (33)
                                                                                     -------------------    --------------------
       Net Property and Equipment                                                                  101                      46
                                                                                     -------------------    --------------------

INVESTMENTS
   Capital Leases - Net                                                                          1,854                   1,759
   Corporate Joint Ventures                                                                      1,461                   1,428
   Partnerships Interests                                                                          463                     493
   Other Investments                                                                                80                      73
                                                                                     -------------------    --------------------
       Total Investments                                                                         3,858                   3,753
                                                                                     -------------------    --------------------

OTHER ASSETS                                                                                        82                      75
                                                                                     -------------------    --------------------

   TOTAL ASSETS                                                                      $           4,313      $            4,114
                                                                                     ===================    ====================

See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                            PSEG ENERGY HOLDINGS INC.
                           CONSOLIDATED BALANCE SHEETS
                         LIABILITIES AND CAPITALIZATION
                              (Millions of Dollars)


                                                                                         (Unaudited)
                                                                                           June 30,             December 31,
                                                                                             2000                   1999
                                                                                       -----------------      ------------------
<S>                                                                                    <C>                    <C>
CURRENT LIABILITIES
   Long-Term Debt Due Within One Year                                                  $           204        $            175
   Notes Payable                                                                                   249                     351
   Accounts Payable:
     Trade                                                                                          49                      41
     Interest                                                                                       31                      20
     Other                                                                                          54                      43
   Other Current Liabilities                                                                        12                      11
                                                                                       -----------------      ------------------
       Total Current Liabilities                                                                   599                     641
                                                                                       -----------------      ------------------
NONCURRENT LIABILITIES
   Deferred Income Taxes and ITC                                                                   951                     896
   Other Noncurrent Liabilities                                                                     30                      25
                                                                                       -----------------      ------------------
       Total Noncurrent Liabilities                                                                981                     921
                                                                                       -----------------      ------------------

COMMITMENTS AND CONTINGENT LIABILITIES                                                              --                      --
                                                                                       -----------------      ------------------

MINORITY INTERESTS                                                                                   7                       2
                                                                                       -----------------      ------------------

CAPITALIZATION
   LONG-TERM DEBT                                                                                1,316                   1,175
                                                                                       -----------------      ------------------


STOCKHOLDER'S EQUITY
   Common Stock, issued: 100 shares                                                                 --                      --
   Preferred Stock                                                                                 509                     509
   Additional Paid-in Capital                                                                      790                     790
   Retained Earnings                                                                               291                     276
   Accumulated Other Comprehensive Loss                                                           (180)                   (200)
                                                                                       -----------------      ------------------
     Total Stockholder's Equity                                                                  1,410                   1,375
                                                                                       -----------------      ------------------
       Total Capitalization                                                                      2,726                   2,550
                                                                                       -----------------      ------------------

TOTAL LIABILITIES AND CAPITALIZATION                                                   $         4,313        $          4,114
                                                                                       =================      ==================

See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                            PSEG ENERGY HOLDINGS INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (Millions of Dollars)
                                   (Unaudited)
                                                                                            Six Months Ended
                                                                                                June 30,
                                                                                 ----------------------------------------
                                                                                      2000                   1999
                                                                                 ----------------      ------------------
<S>                                                                              <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                                    $           32        $             58
   Adjustments to reconcile net income to net cash flows from
     operating activities:
   Depreciation and Amortization                                                             12                       8
   Deferred Income Taxes (Other than Leases)                                                 (1)                     (9)
   Income from Leasing Activities                                                            --                      (5)
   Investment Distributions                                                                  32                      76
   Equity Income from Partnerships                                                           (3)                    (19)
   Net Gains on Investments                                                                 (18)                    (40)
   Restructure Costs                                                                          7                      --
   Net Changes in certain current assets and liabilities:
     Accounts Receivable                                                                    (87)                    (10)
     Taxes Payable                                                                            1                      (1)
     Accounts Payable                                                                        66                      40
     Interest Payable                                                                        10                       2
     Other Current Assets and Liabilities                                                   (30)                      2
   Other                                                                                      4                      (3)
                                                                                 ----------------      ------------------
     Net Cash Provided By Operating Activities                                               25                      99
                                                                                 ----------------      ------------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Increase in Partnerships and Joint Ventures                                              (61)                   (484)
   Investments in Capital Leases                                                            (77)                   (133)
   Proceeds from Sales of Capital Leases                                                      9                      --
   Additions to Property and Equipment                                                       (5)                     (3)
   Additions to Deferred Project Costs                                                       (2)                     (5)
   Return on Capital from Partnerships                                                       71                      --
   Other                                                                                    (10)                    (13)
                                                                                 ----------------      ------------------
     Net Cash Used in Investing Activities                                                  (75)                   (638)
                                                                                 ----------------      ------------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from Additional Paid-in Capital                                                  --                     200
   Cash Dividends Paid                                                                      (17)                    (13)
   Repayment of Borrowings                                                                 (154)                   (180)
   Proceeds from Borrowings                                                                 189                     537
   Other                                                                                      5                      (3)
                                                                                 ----------------      ------------------
     Net Cash Provided By Financing Activities                                               23                     541
                                                                                 ----------------      ------------------
Net Change in Cash and Cash Equivalents                                                     (27)                      2
Cash and Cash Equivalents at Beginning of Period                                             43                       9
                                                                                 ----------------      ------------------
Cash and Cash Equivalents at End of Period                                       $           16        $             11
                                                                                 ================      ==================

Income Tax Benefits                                                              $          (57)       $            (16)
Interest Paid                                                                    $           31        $             33

See Notes to Consolidated Financial Statements.
</TABLE>


<PAGE>
                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.  Basis of Presentation

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.  Public Service  Enterprise  Group's (PSEG) and Public
Service Electric and Gas Company's (PSE&G) consolidated financial statements and
Notes to Consolidated Financial Statements (Notes) should be read in conjunction
with their 1999 Annual Report on Form 10-K and Quarterly Report on Form 10-Q for
the quarter ended March 31, 2000. PSEG Energy Holdings Inc.'s (Energy  Holdings)
consolidated  financial  statements and Notes should be read in conjunction with
its  Registration  Statement on Form S-4 filed June 29, 2000. These Notes update
and  supplement  matters  discussed in PSEG's and PSE&G's 1999 Annual  Report on
Form 10-K and Energy Holdings' Registration Statement on Form S-4 filed June 29,
2000.

     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 PSEG's
and PSE&G's 1999 Annual  Report on Form 10-K and Energy  Holdings'  Registration
Statement on Form S-4 filed June 29, 2000.  Certain  reclassifications  of prior
period data have been made to conform with the current presentation.

Note 2.  Regulatory Issues and Accounting Impacts of Deregulation

New Jersey Energy Master Plan Proceedings and Related Orders

     Following  the  enactment  of the New Jersey  Electric  Discount and Energy
Competition  Act  (Energy  Competition  Act),  the New  Jersey  Board of  Public
Utilities  (BPU)  rendered  its  summary  decision   relating  to  PSE&G's  rate
unbundling,  stranded costs and  restructuring  proceedings  (Summary Order) and
subsequently issued PSEG's Final Order in these matters,  providing, among other
things,  for the  transfer to an  affiliate  of all of its  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 1999, the BPU issued its order approving  PSE&G's petition relating
to the proposed  securitization  transaction  (Finance Order) which  authorized,
among other things, the issuance and sale of $2.525 billion of transition bonds,
including an estimated $125 million of transaction costs. The Energy Competition
Act, the BPU's  Summary  Order and Final Order and the related BPU  proceedings,
referred to as the Energy Master Plan Proceedings,  opened the New Jersey energy
markets to competition by allowing all New Jersey retail electric  customers to,
among other things, select their electric supplier commencing August 1, 1999 and
all New Jersey  retail gas  customers to select  their gas  supplier  commencing
January 1, 2000.

     In October and  November  1999,  two appeals of certain  provisions  of the
Final Order and two appeals of certain  provisions of the related  Finance Order
were filed in the Appellate Division of the New Jersey Superior Court (Appellate
Division)  on behalf  of  several  customers  and the  Office  of the  Ratepayer
Advocate. In an order

<PAGE>

                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

issued  April  13, 2000, a  three-judge  Appellate  Division  panel  unanimously
affirmed the Final Order and Finance Order.  Thereafter,  the appellants filed a
Petition  requesting  Certification  and a Notice of Appeal  with the New Jersey
Supreme Court seeking  review of the Appellate  Division  decision.  On July 14,
2000,  the New Jersey Supreme Court granted  Certification  with respect to both
matters. In a subsequent  scheduling order, the New Jersey Supreme Court ordered
the appellants to file supplemental  briefs supporting their positions by August
20,  2000  and the  respondents,  including  the BPU and  PSE&G,  to file  their
response  briefs within 30 days  thereafter.  Oral arguments for all parties are
scheduled  for  November  8, 2000.  PSE&G is unable to predict the timing or the
outcome of the Supreme Court review.

     As  a  result  of  this  review,   PSE&G's  $2.525  billion  securitization
transaction  has been delayed.  Since the Energy  Competition Act and the Orders
require PSE&G to apply the net proceeds of  securitization to reduce its capital
structure,  in anticipation of this transaction PSE&G has retired at maturity or
through  open-market  purchases $1.045 billion aggregate principal amount of its
long-term  debt.  Such  retirements  and purchases  were funded with  short-term
obligations,  which at June 30, 2000 were approximately $1.8 billion. Due to the
delay in securitization,  PSE&G has requested authority from the BPU to issue up
to $1.0 billion of long-term debt with maturities not to exceed 36 months. While
PSE&G expects such authority to be granted, no assurances can be given.  Failure
to receive such authority on a timely basis could have a material adverse effect
on the financial  condition,  results of operations  and net cash flows of PSE&G
and PSEG.

     While PSE&G  continues to believe that the Appellate  Division's  unanimous
decision was  correct,  it can give no  assurances  with respect to the ultimate
timing or  disposition  of these  matters by the New Jersey  Supreme  Court.  An
adverse outcome to this review or substantial additional delays beyond the first
quarter of 2001,  could have a material  adverse  impact on PSEG's,  PSE&G's and
Energy Holdings' financial  condition,  results of operations and net cash flows
and could  require  revisions to financing  plans,  revisions to business  plans
delaying or restricting  current  growth  strategies and the imposition of other
operational and/or financial measures.

Extraordinary Charge and Other Accounting Impacts of Deregulation

     As a result of the BPU's issuance of the Summary Order in April 1999, PSE&G
determined  that  Statement  of  Financial   Accounting   Standards   (SFAS)  71
"Accounting for the Effects of Regulation" (SFAS 71) was no longer applicable to
the  electric  generation  portion  of its  business,  in  accordance  with  the
requirements  of Emerging  Issues Task Force  Issue 97-4,  "Deregulation  of the
Pricing of  Electricity - Issues Related to the  Application of FASB  Statements
No. 71 and No.  101" (EITF  97-4).  Accordingly,  in the second  quarter,  PSE&G
recorded an extraordinary  charge to earnings of $790 million (after tax). PSE&G
accounted  for  this  charge  consistent  with  the  requirements  of SFAS  101,
"Regulated  Enterprises - Accounting for the  Discontinuation  of Application of
FASB  Statement No. 71". The  extraordinary  charge  recorded in 1999  consisted
primarily of the write-down of PSE&G's nuclear and fossil generating stations in
accordance with SFAS 121,  "Accounting  for the Impairment of Long-Lived  Assets
and for  Long-Lived  Assets to be  Disposed  Of" (SFAS 121).  PSE&G  performed a
discounted cash flow analysis on a unit-by-unit basis to determine the amount of
the impairment.  As a result of this impairment analysis,  the net book value of
the generating  stations was reduced by approximately  $5.0 billion (pre-tax) or
approximately  $3.1 billion (net of tax). This amount was offset by the creation
of a $4.057 billion  (pre-tax),  or $2.4 billion (net of tax)  regulatory  asset
related to the future receipt of securitization proceeds, as provided for in the
Summary Order and affirmed in the Final Order.

     In addition to the impairment of PSE&G's electric generating stations,  the
extraordinary charge consisted of various accounting  adjustments to reflect the
absence of cost of service regulation in the electric  generation portion of the
business in the future.  The  adjustments  primarily  related to  materials  and
supplies,  general  plant  items and  liabilities  for certain  contractual  and
environmental obligations.

     Other  accounting  impacts  of the  discontinuation  of  SFAS  71  included
reclassifying the Accrued Nuclear  Decommissioning  Reserve and the Accrued Cost
of Removal  for  generation-related  assets  from  Accumulated  Depreciation  to
Long-Term   Liabilities.   In  accordance  with  the  Final  Order,  PSE&G  also
reclassified  a $569  million  excess  depreciation  reserve  related to PSE&G's
electric  distribution  assets from  Accumulated  Depreciation  to a  Regulatory
Liability.  Such amount will be  amortized in  accordance  with the terms of the
Final Order over the period from January 1, 2000 to July 31, 2003.

Note 3. Regulatory Assets and Liabilities

     At June 30, 2000 and December 31,  1999,  respectively,  PSEG and PSE&G had
deferred the following  regulatory  assets and  liabilities on the  Consolidated
Balance Sheets:
<TABLE>
<CAPTION>

                                                                             June 30,           December 31,
                                                                               2000                 1999
                                                                         ---------------     -----------------
                                                                                (Millions of Dollars)
<S>                                                                             <C>                   <C>
Regulatory Assets:
   Stranded Costs to be Securitized...........................                  $4,057                $4,057
   SFAS 109 Income Taxes......................................                     284                   286
   OPEB Costs.................................................                     227                   237
   Societal Benefits Charges (SBC)............................                     136                   130
   Demand Side Management Costs...............................                      11                     7
   Environmental Costs........................................                     108                    94
   Unamortized Loss on Reacquired Debt and Debt Expense.......                     110                   117
   Other......................................................                     134                   113
                                                                         ---------------     -----------------
       Total Regulatory Assets................................                  $5,067                $5,041
                                                                         ===============     =================

Regulatory Liabilities:
   Excess Depreciation Reserve................................                    $506                  $569
   Non-utility Generation Market Transition Charge (NTC)......                      18                    20
   Overrecovered Gas Costs....................................                      40                    15
                                                                         ---------------     -----------------
       Total Regulatory Liabilities...........................                    $564                  $604
                                                                         ===============     =================
</TABLE>

Note 4.  Commitments and Contingent Liabilities

Asset Purchases

     In May 2000,  PSEG's  subsidiary,  PSEG Power LLC (Power) purchased Niagara
Mohawk Power Corporation's  (Niagara Mohawk) 400 megawatt (MW) oil and gas-fired
electric generating station in Albany, New York (Albany Steam Station) for $47.5
million. Under the terms of the acquisition, Niagara Mohawk has the potential to
receive up to an additional $9 million if Power chooses to pursue  redevelopment
of the Albany Steam Station.  Under a transition  power supply contract in place
through  September 2003,  Niagara Mohawk will purchase  electricity from Power's
subsidiary, PSEG Energy Resources and Trade LLC (ER&T) at prices consistent with
those  established in Niagara  Mohawk's  regulatory  agreement with the New York
Public Service Commission.

     In  September  1999,  Power  announced  an  agreement  to  acquire  all  of
Conectiv's  interests in Salem Nuclear Generating Station (Salem) and Hope Creek
Nuclear Generating Station (Hope Creek) and half of Conectiv's interest in Peach
Bottom Atomic Power Station  (Peach  Bottom) for an aggregate  purchase price of
$15.4  million  plus the net book value of  Conectiv's  nuclear fuel at closing.
Payment of Power's  obligation under such agreement has been guaranteed by PSEG.
The majority of regulatory  approvals  necessary for this  acquisition have been
obtained,  including the approval by the BPU. However,  in order for Conectiv to
complete  the sale  the BPU must  issue a  second  order to  address  Conectiv's
stranded cost recovery. Conectiv has advised Power that it will not complete the
transaction  until the time for appeal  following the issuance of the second BPU
order has expired.

PSE&G Manufactured Gas Plant Remediation Program

     PSE&G is currently  working  with New Jersey  Department  of  Environmental
Protection (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  costs  of
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.

Passaic River Site

     The U.S.  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 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",  including the
former Harrison Gas Plant and the Essex Generating Station. 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.

Energy Holdings

     Energy Holdings and/or PSEG Global,  Inc. (Global) have guaranteed  certain
obligations  of Global's  affiliates,  including  equity  funding for  projects,
performance  or other  obligations  related to certain of their  projects  in an
aggregate  amount  of  approximately  $419  million  as  of  June  30,  2000.  A
substantial  portion  of such  guarantees  will be  eliminated  upon  funding of
project  equity  commitments.  A  subscription  agreement  for PSEG to  purchase
Global's capital stock secures approximately $3 million of such obligations.

     Global and a partner,  through an  investment in Turboven,  an  independent
generation  company  in  Venezuela,  have  constructed  two  gas-fired  electric
generation  facilities with an installed capacity of 120 MW and have plans for a
third of 80 MW to serve industrial customers in Venezuela.  On January 28, 2000,
a lawsuit was filed against  Turboven by  Venezuela's  state power  distribution
company, charging that Turboven was damaging its distribution system through its
supply of  independently  generated  power from one of its plants.  Turboven was
ordered to cease  operations by a superior  court judge's  decisions  pending an
investigation into the claim filed by the power distribution company. On May 17,
2000, the First Court for the Litigation of Administrative  Matters of Venezuela
issued an order  lifting the  injunction  and  rejecting  the  arguments  of the
Venezuela state power distribution company. The period of appeal has expired. On
May 24,  2000,  the  Venezuela  state power  distribution  company and  Turboven
entered into an agreement to coordinate the operations and  maintenance of their
respective installations. The two generation facilities have enetered commercial
operation.


Note 5.  Financial Instruments and Risk Management

     PSEG's  operations  give rise to exposure to market  risks from  changes in
commodity prices, interest rates, foreign currency exchange rates and securities
prices. PSEG's policy is to use derivative financial instruments for the purpose
of managing market risk consistent with its business plans and prudent  business
practices.

Forward Purchase Agreement-PSEG

     In December 1999, as part of PSEG's share repurchase program,  PSEG entered
into a  Forward  Purchase  Agreement  with a third  party  which  has  purchased
approximately  6.4 million shares at a cost of approximately  $225 million.  The
transaction  may be  settled  in  cash or  with  shares  of  Common  Stock.  Any
repurchase  of these shares will not be reflected on PSEG's  balance sheet until
settlement of the  transaction.  PSEG does not expect to settle this transaction
prior to the  securitization  financing  which has been  delayed  from the third
quarter of 2000 to at least the first quarter of 2001.

Commodity-Related Instruments -- PSE&G (including Power)

     At June 30, 2000 and December 31, 1999,  PSE&G held or issued commodity and
financial  instruments that reduce exposure to price  fluctuations  from factors
such as weather,  environmental policies,  changes in demand, changes in supply,
state and Federal regulatory  policies and other events.  These instruments,  in
conjunction  with owned  electric  generating  capacity  and physical gas supply
contracts,   are  designed  to  cover   estimated   electric  and  gas  customer
commitments. PSE&G uses futures, forwards, swaps and options to manage and hedge
price risk related to these market exposures.

     At June 30, 2000,  PSE&G had outstanding  commodity  financial  instruments
with a notional  contract  quantity of 49.9 million mWh of electricity  and 60.8
million  MMBTU of natural  gas.  At December  31,  1999,  PSE&G had  outstanding
commodity  financial  instruments  with a  notional  contract  quantity  of 36.1
million mWh of  electricity  and 25.5  million  MMBTU of natural  gas.  Notional
amounts are  indicative  only of the volume of activity and are not a measure of
market risk.

     PSE&G's energy trading and related contracts have been marked to market and
gains and losses from such contracts  were included in earnings.  PSE&G recorded
$43.6  million and $18.5  million of gains in the six months ended June 30, 2000
and 1999, respectively, related to these contracts.

Commodity-Related Instruments -- Energy Holdings

     In June 2000, Energy Holdings'  subsidiary,  PSEG Energy  Technologies Inc.
(Energy  Technologies)  outsourced  certain supply services under its retail gas
service agreements.  With this transaction,  Energy Technologies has changed the
manner in which it operates  its energy and gas  commodity  business and at June
30,  2000  there  were  no  electric  or  gas  commodity  financial  instruments
outstanding.  Energy  Holdings  had  recorded  $1.7  million of gains in the six
months ended June 30, 2000 related to these instruments.

Equity Securities -- Energy Holdings

     PSEG Resources Inc.  (Resources) has  investments in equity  securities and
limited partnerships.  Resources carries its investments in equity securities at
their  approximate  fair  value  as of the  reporting  date.  Consequently,  the
carrying value of these  investments is affected by changes in the fair value of
the  underlying  securities.  Fair value is  determined  by adjusting the market
value of the  securities  for liquidity  and market  volatility  factors,  where
appropriate.  The aggregate fair values of such investments  which had available
market  prices at June 30, 2000 and December 31, 1999 were $142 million and $131
million,  respectively.  The increase in fair value was  primarily due to higher
valuation of various  securities  within  Resources'  portfolio.  The  potential
change in fair value  resulting from a hypothetical  10% change in quoted market
prices of these  investments  amounted  to $12  million at June 30, 2000 and $11
million at December 31, 1999.

Foreign Currencies -- Energy Holdings

     In accordance with their growth strategies,  Global and Resources have made
international  investments  of  approximately  $1.5  billion  and $1.1  billion,
respectively, as of June 30, 2000.

     Resources'  international  investments  are primarily  leveraged  leases of
assets  located in  Australia,  New Zealand,  the  Netherlands,  Germany and the
United  Kingdom  with  associated  revenues  denominated  in U.S.  dollars,  and
therefore, not subject to foreign currency risk.

     Global's international  investments are primarily in projects that generate
or distribute  electricity in Argentina,  Brazil,  Chile, China, India, Peru and
Venezuela.  Investing in foreign  countries  involves certain  additional risks.
Economic  conditions  that result in higher  comparative  rates of  inflation in
foreign  countries are likely to result in declining  values in such  countries'
currencies.  As  currencies  fluctuate  against  the  U.S.  dollar,  there  is a
corresponding  change in Global's  investment value in terms of the U.S. dollar.
Such change is reflected as an increase or decrease in the investment  value and
other  comprehensive  income,  a separate  component  of  stockholders'  equity.
Cumulatively, net foreign currency devaluations have reduced the reported amount
of PSEG's total stockholders' equity by approximately $180 million.

     Global had consolidated  project debt totaling  approximately $94.5 million
associated with Global's 32% investment in a Brazilian distribution company that
is non-recourse to Global, Energy Holdings and PSEG. The debt was denominated in
the Brazilian Real and was indexed to a basket of currencies, including the U.S.
dollar.  The debt was  refinanced  with funds from  Energy  Holdings  and a $190
million  United States  dollar  denominated  loan at the Brazilian  distribution
company of which Global's share is $62 million.  The functional  currency of the
distribution  company is the Brazilian  Real, so its debt is subject to exchange
rate risk as the  Brazilian  Real  fluctuates  with the  United  States  dollar.
Changes  in the  exchange  rate  cause  the  loan  amount,  as  reported  in the
functional  currency,  to be marked  upward or  downward,  with an offset to the
income statement. Global has entered into a $60 million currency collar expiring
on December  29, 2000 to mitigate  the  potential  loss caused by a  significant
devaluation of the  functional  currency  against the United States  dollar.  By
entering  into the  collar,  Global's  maximum  exposure  related to the loan is
limited to approximately $10 million in 2000.

Interest Rates

     PSEG,  PSE&G and Energy  Holdings  are  subject to the risk of  fluctuating
interest  rates in the normal course of business.  Their  policies are to manage
interest  rate risk through the use of fixed rate debt,  floating  rate debt and
interest rate swaps.  As of June 30, 2000, a  hypothetical  10% change in market
interest  rates would result in a $6 million,  $13 million and $2 million change
in annual  interest  costs related to short-term and floating rate debt at PSEG,
PSE&G and Energy Holdings, respectively.

Note 6.  Income Taxes

PSEG's effective income tax rate is as follows:
<TABLE>
<CAPTION>


                                                                    Quarter Ended               Six Months Ended
                                                                      June 30,                      June 30,
                                                               -------------------------    ---------------------------
                                                                 2000        1999 (A)          2000         1999 (A)
                                                               ----------    -----------    ------------    -----------

<S>                                                              <C>            <C>            <C>             <C>
Federal tax provision at statutory rate...................       35.0%          35.0%          35.0%           35.0%
New Jersey Corporate Business Tax, net of Federal benefit.        5.9%           5.9%           5.9%            5.9%
Other-- net...............................................       (0.3)%         (0.9)%         (0.4)%           0.7%
                                                               ----------    -----------    ------------    -----------
     Effective Income Tax Rate.............................      40.6%          40.0%          40.5%           41.6%
                                                               ==========    ===========    ============    ===========

(A)  Excludes  the impact of the  extraordinary  charge  recorded  in the second
     quarter of 1999.

</TABLE>

Note 7.  Financial Information by Business Segments

Basis of Organization

     The reportable segments disclosed herein were determined based on a variety
of factors  including  the  regulatory  environment  of each of PSEG's  lines of
business  and the types of products  and services  offered.  Effective  with the
unbundling  of  PSE&G's  rates on  August 1,  1999 and the  deregulation  of the
electric generation portion of PSE&G's business,  the basis of segment reporting
changed  beginning  with the third quarter of 1999.  The  generation  and energy
trading  portions of PSE&G's  business  are now  separate  reportable  segments,
whereas they  previously had been part of the Electric  segment.  Estimates have
been used to separate historical, pre-August 1, 1999, electric segment data into
the Generation,  Energy  Resources and Trade,  and Transmission and Distribution
segments of PSE&G's business.



<PAGE>


     Information related to the segments of PSEG's business is detailed below:

<TABLE>
<CAPTION>

                                                                                       Energy                 Consolidated
                               Generation     ER&T     T & D    Resources   Global   Technologies  Other (A)     Total
                               -------------------------------------------------------------------------------------------
                                                                  (Millions of Dollars)
<S>                                  <C>        <C>      <C>         <C>       <C>         <C>           <C>        <C>
For the Quarter Ended
June 30, 2000:
Total Operating Revenues...          $523       $32      $802        $26       $33         $105          $--        $1,521
Segment Net Income (Loss)..            52        16        80          3         5           (6)          (8)          142
                                  =======   =======   =======    =======   =======      =======      =======       =======

For the Quarter Ended
June 30, 1999:
Total Operating Revenues...          $680       $17      $600        $51       $34          $54          $--        $1,436
Segment Income Before
   Extraordinary Item......           119         9        29         24         8           (2)          (6)          181
Segment Net Income (Loss)..        (3,071)        9     2,429         24         8           (2)          (6)         (609)
                                  =======   =======   =======    =======   =======      =======      =======       =======


For the Six Months Ended
June 30, 2000:
Total Operating Revenues...        $1,047       $66    $1,953        $92       $71         $216          $--        $3,445
Segment Net Income (Loss)..           161        33       204         32        14          (11)         (21)          412
                                  =======   =======   =======    =======   =======      =======      =======       =======


For the Six Months Ended
June 30, 1999:
Total Operating Revenues...        $1,338       $35    $1,590        $97       $62         $109          $--        $3,231
Segment Income Before
   Extraordinary Item......           205        17       107         46        15           (4)         (17)          369
Segment Net Income (Loss)..        (2,985)       17     2,507         46        15           (4)         (17)         (421)
                                  =======   =======   =======    =======   =======      =======      =======       =======


As of June 30, 2000:
Total Assets...............        $2,403      $581   $12,256     $2,201    $1,776         $296         $119       $19,632
                                  =======   =======   =======    =======   =======      =======      =======       =======


As of December 31, 1999:
Total Assets...............        $3,055      $246   $11,423     $2,096    $1,715         $252         $228       $19,015
                                  =======   =======   =======    =======   =======      =======      =======       =======


(A)  PSEG's  other  activities   include  amounts  applicable  to  PSEG  (parent
     corporation),  Energy  Holdings  (parent  corporation),   Enterprise  Group
     Development  Corporation  and  intercompany  eliminations.  The net  losses
     primarily relate to financing and certain  administrative and general costs
     at the parent corporations.
</TABLE>

Geographic  information for PSEG is disclosed below. The foreign investments and
operations  noted below were made through Energy  Holdings.  PSE&G does not have
foreign investments or operations.

<TABLE>
<CAPTION>


                                                     Revenues (1)                              Identifiable Assets
                                   ---------------------------------------------------    -------------------------------
                                       Quarter Ended             Six Months Ended
                                          June 30,                    June 30,             June 30,         December 31,
                                   -----------------------     -----------------------    -----------     ---------------
                                     2000          1999           2000         1999          2000              1999
                                   ---------     ---------     ----------    ---------    -----------     ---------------

<S>                                 <C>           <C>            <C>          <C>           <C>                 <C>
United States.................      $1,476        $1,397         $3,352       $3,165        $17,091             $16,595
Foreign Countries (2).........          45            39             93           66          2,541               2,420
                                   ---------     ---------     ----------    ---------    -----------     ---------------
     Total....................      $1,521        $1,436         $3,445       $3,231        $19,632             $19,015
                                   ---------     ---------     ----------    ---------    -----------     ---------------


Identifiable investments in foreign countries include amounts from:
     Netherlands                                                                               $712                $623
     Chile and Peru                                                                             519                 520
     Argentina                                                                                  355                 356
     Brazil (3)                                                                                 323                 330
     Other                                                                                      632                 591
                                                                                          -----------     ---------------
         Total                                                                               $2,541              $2,420
                                                                                          ===========     ===============


(1)  Revenues  are  attributed  to  countries  based  on  the  locations  of the
     investments.  Global's  revenue  includes  its share of the net income from
     joint ventures recorded under the equity method of accounting.

(2)  Total assets are net of foreign currency  translation  adjustment of $(200)
     million  (pretax)  as of June 30,  2000 and $(222)  million  (pretax) as of
     December 31, 1999.

(3)  Amount is net of foreign currency translation  adjustment of $(148) million
     (pretax) as of June 30, 2000 and $(189) million (pretax) as of December 31,
     1999.

</TABLE>


Note 8.  Accounting Matters

     In June 2000, the FASB issued Statement of Financial  Accounting  Standards
(SFAS) No. 138,  "Accounting  for  Certain  Derivative  Instruments  and Certain
Hedging Activities" (SFAS 138) modifying the requirements  included in SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). PSEG,
PSE&G and Energy  Holdings are  currently  evaluating  the impact of SFAS 133 as
part of their implementation plan.

     In December 1999, the SEC released Staff  Accounting  Bulletin No. 101 (SAB
101) which provides  guidance on the timing of revenue  recognition in financial
statements.  The basic  guidelines  on revenue  recognition  state that  revenue
should not be recognized until it is realized or realizable and earned.  SAB 101
provides  specific  criteria to assist in this  determination.  PSEG,  PSE&G and
Energy  Holdings are in the process of determining  the possible  effects of the
adoption of SAB 101 on existing revenue recognition  practices.  The adoption of
SAB 101 is not  expected  to have a  material  adverse  effect on the  financial
statements of PSEG,  PSE&G or Energy  Holdings.

<PAGE>

                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Concluded

     In June 1999,  the FASB  issued SFAS No. 137,  "Accounting  for  Derivative
Instruments  and Hedging  Activities -- Deferral of the  Effective  Date of FASB
Statement No. 133" (SFAS 137) to defer the  effective  date of SFAS 133, for one
year. Consequently, SFAS 133 will be effective for all fiscal quarters beginning
after January 1, 2001. The FASB also decided to defer by one year the transition
date regarding embedded derivatives in SFAS 133. SFAS 133 establishes accounting
and reporting standards for derivative  instruments and hedging  activities.  It
requires  an entity  to  recognize  all  derivatives,  within  the scope of this
statement,  as assets or liabilities  on the balance sheet at fair value.  Also,
derivatives  that are not hedges must be adjusted to fair value through  income.
If a derivative  is a hedge,  changes in the fair value of the  derivative  will
either be offset against the change in fair value of the hedged asset, liability
or firm  commitment  through  earnings or be recognized  in other  comprehensive
income until the hedged item is recognized in earnings,  depending on the nature
of the hedge. The ineffective portion of a hedge will be immediately  recognized
in earnings. PSEG, PSE&G and Energy Holdings are currently evaluating the impact
of SFAS 133 as part of their implementation plan.

Note 9.  Comprehensive Income

Comprehensive Income (Loss), Net of Tax:
<TABLE>
<CAPTION>

                                                                 Quarter Ended                    Six Months Ended
                                                                   June 30,                           June 30,
                                                         ------------------------------        -----------------------
                                                            2000              1999               2000         1999
                                                         -----------       ------------        ---------    ----------
                                                                            (Millions of Dollars)

<S>                                                           <C>               <C>               <C>          <C>
Net income (loss)...................................          $142              $(609)            $412         $(421)
Foreign currency translation, net of tax (A)........            (8)                (2)              21          (127)
                                                         -----------       ------------        ---------    ----------
     Comprehensive income/(loss)....................          $134              $(611)            $433         $(548)
                                                         ===========       ============        =========    ==========

(A)  Net of tax of $(0.8) million and $(0.2) million for the quarters ended June
     30, 2000 and 1999,  respectively,  and $2.2 million and $(14.1) million for
     the six months ended June 30, 2000 and 1999, respectively.

</TABLE>

Note 10.  Related Party Transactions

Energy Holdings

     Approximately  90% of the  electricity  generated  by the Eagle Point Power
Plant, a 50% owned equity investment of Global, is sold to PSE&G under a 25-year
power purchase contract  terminating in May 2016.  Global's share of partnership
revenues  received  from  PSE&G  represented  approximately  $17 and $31 for the
quarter and six months ended June 30, 2000 and approximately $13 and $26 for the
quarter and six months ended June 30, 1999.

<PAGE>

                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The Notes to Consolidated  Financial Statements of PSEG are incorporated by
reference insofar as they relate to PSE&G and its subsidiaries:

         Note 1.    Basis of Presentation
         Note 2.    Regulatory Issues
         Note 3.    Regulatory Assets and Liabilities
         Note 4.    Commitments and Contingent Liabilities
         Note 5.    Financial Instruments and Risk Management
         Note 7.    Financial Information by Business Segments
         Note 8.    Accounting Matters
         Note 10.   Related Party Transactions

Note 6.  Income Taxes

PSE&G's effective income tax rate is as follows:
<TABLE>
<CAPTION>

                                                                    Quarter Ended              Six Months Ended
                                                                      June 30,                     June 30,
                                                               -------------------------    -------------------------
                                                                  2000        1999 (A)        2000         1999 (A)
                                                               ----------    -----------    ---------     -----------
<S>                                                              <C>            <C>           <C>             <C>
Federal tax provision at statutory rate..................        35.0%          35.0%         35.0%           35.0%
New Jersey Corporate Business Tax, net of Federal benefit         5.9%           5.9%          5.9%            5.9%
Other-- net..............................................        (0.7)%         (0.1)%        (0.2)%           1.5%
                                                               ----------    -----------    ---------     -----------
     Effective Income Tax Rate............................       40.2%          40.8%         40.7%           42.4%
                                                               ==========    ===========    =========     ===========

(A)  Excludes  the impact of the  extraordinary  charge  recorded  in the second
     quarter of 1999.
</TABLE>

Note 9.  Comprehensive Income

     For the quarters ended June 30, 2000 and 1999, PSE&G's comprehensive income
equaled the consolidated net income of PSE&G.

<PAGE>

                            PSEG ENERGY HOLDINGS INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Notes to  Consolidated  Financial  Statements  of PSEG are  incorporated  by
reference insofar as they relate to Energy Holdings and its subsidiaries:

         Note 1.    Basis of Presentation
         Note 2.    Regulatory Issues
         Note 3.    Regulatory Assets and Liabilities
         Note 4.    Commitments and Contingent Liabilities
         Note 5.    Financial Instruments and Risk Management
         Note 7.    Financial Information by Business Segments
         Note 8.    Accounting Matters
         Note 10.   Related Party Transactions

Note 6.  Income Taxes

     Energy Holdings'  effective tax rate was 29.3% and 35.1% for the six months
ended June 30, 2000 and six months  ended June 30,  1999,  respectively.  Energy
Hodlings  effective tax rate differs from the statutory  federal income tax rate
of 35.0%  primarily due to the imposition of state taxes and the accruals at the
rate of 10% of Global's  foreign income due to the  incremental  cost associated
with the repatriation of foreign earnings.  Energy Holdings does not consolidate
foreign  projects  and there is no foreign  income tax  reflected  in income tax
expense in Energy Holdings' consolidated financial statements at June 30, 2000.


Note 9.  Comprehensive Income

     Comprehensive Income (Loss), Net of Tax:

<TABLE>
<CAPTION>
                                                                     Quarter Ended                 Six Months Ended
                                                                       June 30,                        June 30,
                                                               --------------------------     ---------------------------
                                                                  2000           1999            2000            1999
                                                               -----------    -----------     ------------    -----------
                                                                                 (Millions of Dollars)

<S>                                                                  <C>            <C>               <C>           <C>
Net income (loss)....................................                $(5)           $26               $19           $45
Foreign currency translation, net of tax (A).........                 (8)            (2)               21          (127)
                                                               -----------    -----------     ------------    -----------
     Comprehensive income/(loss).....................               $(13)           $24               $40          $(82)
                                                               ===========    ===========     ============    ===========
</TABLE>

Net of tax of $(0.8)  million and $(0.2) million for the quarters ended June 30,
2000 and 1999,  respectively,  and $2.2 million and $(14.1)  million for the six
months ended June 30, 2000 and 1999, respectively.


<PAGE>
                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

                 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 Enterprise Group  Incorporated  (PSEG) and Public
Service  Electric and Gas Company  (PSE&G)  1999 Annual  Report on Form 10-K and
Quarterly  Report on Form 10-Q for the quarter ended March 31, 2000 and the PSEG
Energy Holdings Inc.'s (Energy  Holdings)  Registration  Statement filed on Form
S-4 on June 29, 2000,  affecting the  consolidated  financial  condition and the
results  of  operations  of  PSEG,   PSE&G,   and  Energy   Holdings  and  their
subsidiaries.  This discussion refers to the Consolidated  Financial  Statements
(Statements) and related Notes to Consolidated  Financial  Statements (Notes) of
PSEG,  PSE&G and Energy  Holdings  and should be read in  conjunction  with such
Statements and Notes.

Overview and Future Outlook

     Following  the  enactment  of the New Jersey  Electric  Discount and Energy
Competition  Act  (Energy  Competition  Act),  the New  Jersey  Board of  Public
Utilities  (BPU)  rendered  its  summary  decision   relating  to  PSE&G's  rate
unbundling,  stranded costs and  restructuring  proceedings  (Summary Order) and
subsequently issued it's Final Order in these matters, providing, among other
things,  for the  transfer to an  affiliate  of all of its  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 1999, the BPU issued its order approving  PSE&G's petition relating
to the proposed  securitization  transaction  (Finance Order) which  authorized,
among other things, the issuance and sale of $2.525 billion of transition bonds,
including an estimated $125 million of transaction costs. The Energy Competition
Act, the BPU's  Summary  Order and Final Order and the related BPU  proceedings,
referred to as the Energy Master Plan Proceedings,  opened the New Jersey energy
markets to competition by allowing all New Jersey retail electric  customers to,
among other things, select their electric supplier commencing August 1, 1999 and
all New Jersey  retail gas  customers to select  their gas  supplier  commencing
January 1, 2000.  Beginning August 1, 1999, PSE&G instituted a 5% rate reduction
and implemented other applicable provisions of the Final Order.

     In October and  November  1999,  two appeals of certain  provisions  of the
Final Order and two appeals of certain  provisions of the related  Finance Order
were filed in the Appellate Division of the New Jersey Superior Court (Appellate
Division)  on behalf  of  several  customers  and the  Office  of the  Ratepayer
Advocate.  In an order issued April 13, 2000, a three-judge  Appellate  Division
panel unanimously  affirmed the Final Order and Finance Order.  Thereafter,  the
appellants filed a Petition requesting Certification and a Notice of Appeal with
the New Jersey Supreme Court seeking review of the Appellate  Division decision.
On July 14,  2000,  the New Jersey  Supreme  Court  granted  Certification  with
respect  to both  matters.  In a  subsequent  scheduling  order,  the New Jersey
Supreme Court  ordered the  appellants to file  supplemental  briefs  supporting
their  positions by August 20, 2000 and the  respondents,  including the BPU and
PSE&G, to file their response briefs within 30 days  thereafter.  Oral arguments
for all parties are scheduled  for November 8, 2000.  PSE&G is unable to predict
the timing or the outcome of the Supreme Court review.

     As  a  result  of  this  review,   PSE&G's  $2.525  billion  securitization
transaction has been delayed.  Since the Energy Master Plan Proceedings  require
PSE&G  to apply  the net  proceeds  of  securitization  to  reduce  its  capital
structure,  in anticipation of this transaction PSE&G has retired at maturity or
through  open-market  purchases $1.045 billion aggregate principal amount of its
long-term  debt.  Such  retirements  and purchases  were funded with  short-term
obligations,  which at June 30, 2000 were approximately $1.8 billion. Due to the
delay in securitization,  PSE&G has requested authority from the BPU to issue up
to $1.0 billion of long-term debt with maturities not to exceed 36 months. While
PSE&G expects such authority to be granted, no assurances can be given.  Failure
to receive such authority on a timely basis could have a material adverse effect
on the financial  condition,  results of operations  and net cash flows of PSE&G
and PSEG.

     While PSE&G  continues to believe that the Appellate  Division's  unanimous
decision was  correct,  it can give no  assurances  with respect to the ultimate
timing or  disposition  of these  matters by the New Jersey  Supreme  Court.  An
adverse outcome to this review or substantial additional delays beyond the first
quarter of 2001,  could have a material  adverse  impact on PSEG's,  PSE&G's and
Energy Holdings' financial  condition,  results of operations and net cash flows
and could  require  revisions to financing  plans,  revisions to business  plans
delaying or restricting  current  growth  strategies and the imposition of other
operational and/or financial measures.

     PSEG has positioned  Energy  Holdings as a major part of its planned growth
strategy.  In order to achieve this  strategy,  PSEG Global Inc.  (Global)  will
focus on generation and  distribution  investments  within targeted  high-growth
regions.  A  significant  portion  of  Global's  growth  is  expected  to  occur
internationally  due to the current and anticipated  growth in electric capacity
required in certain regions of the world.  PSEG Resources Inc.  (Resources) will
utilize  its market  access,  industry  knowledge  and  transaction  structuring
capabilities to expand its energy-related  financial investment portfolio.  PSEG
Energy  Technologies,  Inc.  (Energy  Technologies)  will  continue  to  provide
heating,   ventilating  and  air  conditioning   (HVAC)  contracting  and  other
energy-related  services to industrial and commercial  customers in Northeastern
and Middle Atlantic United States.

     As a result of the Final Order,  PSEG  organized PSEG Power LLC (Power) and
its  subsidiaries  to,  among other  things,  acquire,  own and operate  PSE&G's
electric  generation assets.  PSE&G believes that all of the necessary approvals
to sell the generation business to Power have been obtained.  In addition to the
anticipated acquisition of PSE&G's  generation-related assets, Power has several
facilities which are in operation which it has acquired or constructed since its
formation in 1999.  Due to the New Jersey  Supreme  Court's  review of the Final
Order, a planned capital market financing for Power has been delayed.

     To the  extent  that  the  discussion  that  follows  reports  on  business
conducted under full monopoly regulation of the utility  businesses,  it must be
understood  that such  businesses  have changed due to the  deregulation  of the
electric generation and natural gas commodity sales businesses. Past results are
not an indication of future business prospects or financial results.

Results of Operations
<TABLE>
<CAPTION>

                                                                            Earnings (Losses)
                                                       --------------------------------------------------------------
                                                             Quarter Ended                    Six Months Ended
                                                               June 30,                           June 30,
                                                       ---------------------------        ---------------------------
                                                         2000            1999               2000            1999
                                                       -----------    ------------        -----------    ------------
                                                                          (Millions of Dollars)

<S>                                                        <C>             <C>                <C>             <C>
PSE&G, Before Extraordinary Item.............              $150            $155               $397            $324
PSE&G Extraordinary Item.....................                --            (790)                --            (790)
                                                       -----------    ------------        -----------    ------------
     Total PSE&G.............................               150            (635)               397            (466)
Energy Holdings..............................                (5)             26                 19              45
PSEG*........................................                (3)             --                 (4)             --
                                                       -----------    ------------        -----------    ------------
     Total PSEG..............................              $142           $(609)              $412           $(421)
                                                       ===========    ============        ===========    ============

</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                                                           Contribution to Earnings Per Share (Basic and Diluted)
                                                        --------------------------------------------------------------
                                                              Quarter Ended                    Six Months Ended
                                                                June 30,                           June 30,
                                                        ---------------------------        ---------------------------
                                                          2000            1999               2000            1999
                                                        -----------     -----------        -----------    ------------

<S>                                                        <C>            <C>                <C>             <C>
PSE&G, Before Extraordinary Item.............              $0.69          $0.71              $1.84           $1.46
PSE&G Extraordinary Item.....................                 --          (3.60)                --           (3.57)
                                                       ------------    -----------        -----------     -----------
     Total PSE&G.............................               0.69          (2.89)              1.84           (2.11)
Energy Holdings..............................              (0.02)          0.12               0.09            0.21
PSEG*........................................              (0.01)            --              (0.02)             --
                                                       ------------    -----------        -----------
                                                                                                          -----------
     Total PSEG..............................              $0.66         $(2.77)              $1.91         $(1.90)
                                                       ============    ===========        ===========     ===========

*Interest on certain financing transactions
</TABLE>



     Basic and diluted  earnings per share of PSEG common stock  (Common  Stock)
were $0.66 for the quarter  ended June 30,  2000,  a decrease of $0.17 per share
from the comparable 1999 period,  excluding the extraordinary  charge. Basic and
diluted  earnings  per share of Common Stock were $1.91 for the six months ended
June 30, 2000, an increase of $0.24 per share from the  comparable  1999 period,
excluding the extraordinary charge.

     Excluding the  extraordinary  charge from 1999 relating to deregulation and
the  discontinuation of Statement of Financial  Accounting  Standards (SFAS) No.
71,  "Accounting  for the  Effects of Certain  Types of  Regulation"  (SFAS 71),
PSE&G's contribution to earnings per share of Common Stock for the quarter ended
June 30, 2000 decreased $0.02 from the comparable 1999 period.  The decrease for
the  quarter  ended June 30,  2000 was  primarily  due to the 5% rate  reduction
required by the Final Order,  which  commenced on August 1, 1999,  combined with
replacement  power expenses that resulted from a scheduled  refueling  outage at
the Hope Creek Nuclear Generating Station.  Higher electric and gas sales due to
more favorable  weather and lower  depreciation and amortization  resulting from
the amortization of the Excess  Depreciation  Reserve  beginning in January 2000
helped to offset some of the decrease.

     Excluding  the  extraordinary  charge from 1999,  PSE&G's  contribution  to
earnings  per  share of Common  Stock for the six  months  ended  June 30,  2000
increased $0.38 from the comparable 1999 period. This increase was primarily due
to  higher  electric  and gas  sales  due to more  favorable  weather  and lower
depreciation and amortization resulting from the lower net book value of PSE&G's
generation  related  assets  and the  amortization  of the  Excess  Depreciation
Reserve  beginning in January 2000.  These were partially  offset by the 5% rate
reduction  required by the Final Order combined with replacement  power expenses
that  resulted from the  refueling  outage at the Hope Creek Nuclear  Generating
Station.

     Energy Holdings' contribution to earnings per share of Common Stock for the
quarter  and  six  months  ended  June  30,  2000  decreased  $0.14  and  $0.12,
respectively,   from  the  comparable  1999  periods,  primarily  due  to  lower
unrealized gains from Resources'  investment  portfolio in the second quarter of
2000.

     As a result of PSEG's  stock  repurchase  program  which began in September
1998,  earnings  per share of Common  Stock for the quarter and six months ended
June 30, 2000 increased $0.01 and $0.05, respectively,  from the comparable 1999
periods.  A total  of 17.8  million  shares  had been  repurchased  at a cost of
approximately $679 million under this program as of June 30, 2000.



<PAGE>


PSE&G -- Revenues

     Electric

     Revenues  increased  $18  million  or 1.7% and $14  million or 0.7% for the
quarter and six months ended June 30, 2000 from the comparable  periods in 1999,
respectively,  primarily due to favorable  weather in the second quarter of 2000
and higher profits from wholesale  activities as compared to the same periods in
1999 plus adjustments made to revise estimated Demand Side Management (DSM) lost
revenues.  These  increases were  substantially  offset by the 5% rate reduction
required by the Final Order which decreased  generation revenues for the quarter
and six months ended June 30, 2000 by approximately $50 million and $96 million,
respectively. Once the securitization transaction is completed, there will be an
additional 2% rate reduction.

     In addition,  customer  migration  from PSE&G could  further  reduce future
basic generation service (BGS) revenues.  However,  such customer migration also
creates the opportunity to sell available energy and capacity into the wholesale
market. As of June 30, 2000  approximately 7% of the customer load traditionally
served by PSE&G was being served by third party  suppliers.  Also, since PSE&G's
distribution  customers have the ability to change energy  suppliers,  customers
could return to PSE&G for energy supply under the  fixed-rate  BGS tariff during
summer  periods  when  energy  costs are  typically  higher,  which could have a
material adverse effect on Power and PSEG.

     Gas

     Revenues increased $42 million or 15% and $89 million or 9% for the quarter
and six  months  ended  June 30,  2000  from  the  comparable  periods  in 1999,
respectively,  due to  several  factors,  including  favorable  weather  and the
strength of the New Jersey  economy.  Customer  migration  due to the opening of
full  competition  in 2000 could reduce future  revenues.

PSE&G -- Expenses

     Electric Energy Costs

     Electric  Energy Costs  increased  $33 million or 14% and $17 million or 4%
for the quarter  and six months  ended June 30,  2000 from the  comparable  1999
periods,  respectively.  The increase was primarily due to the replacement power
expenses  that  resulted  from the  refueling  outage at the Hope Creek  Nuclear
Generating Station.

     Gas Costs

     As a result of the  increase in gas  revenues  discussed  above,  Gas Costs
increased  $57  million or 35% and $90  million or 15% for the  quarter  and six
months ended June 30, 2000 from the comparable 1999 periods, respectively.

     Operation and Maintenance

     Operation  and  Maintenance  expense  increased  $20  million or 5% and $14
million  or 2% for the  quarter  and six  months  ended  June 30,  2000 from the
comparable  1999 periods,  respectively.  These  increases were primarily due to
higher  transmission  and  distribution  costs,  including  higher materials and
support services as well as higher costs related to wholesale activities.



<PAGE>


     Depreciation and Amortization

     Depreciation and Amortization expense decreased $38 million or 32% and $115
million  or 40% for the  quarter  and six months  ended  June 30,  2000 from the
comparable  1999  periods,  respectively.  The decrease was primarily due to the
amortization of the regulatory  liability for the excess  electric  distribution
depreciation  reserve,  which commenced on January 1, 2000, and reduced expenses
for the quarter and six months ended June 30, 2000 by approximately  $31 million
and $63 million,  respectively.  In addition,  for the six months ended June 30,
2000,  the lower net book value  balances of PSE&G's  generation-related  assets
which were  reduced as of April 1, 1999 as a result of the  impairment  recorded
pursuant to SFAS 121,  "Accounting  for the Impairment of Long-Lived  Assets and
for Long-Lived Assets to Be Disposed Of" (SFAS 121), resulting in a reduction of
expenses  of  approximately  $60  million as  compared to the same period in the
prior year.

     Once the  securitization  transaction  is  complete,  PSE&G  will  begin to
amortize the regulatory asset recorded for stranded costs with such amortization
expense offsetting these decreases.

     Income Taxes

     Income Taxes decreased $5 million or 5% for the quarter ended June 30, 2000
from the comparable 1999 period, primarily due to lower pre-tax operating income
and increased $36 million or 15% for the six months ended June 30, 2000 from the
comparable 1999 period, primarily due to higher pre-tax operating income.

Energy Holdings


Energy Holdings--Revenues

     Revenues  increased  $25  million  for the  quarter  ended June 30, 2000 as
compared to the same period in 1999.  The increase  primarily  resulted  from an
increase  at  Energy   Technologies   due  to  the  addition  of  revenues  from
acquisitions of heating,  ventilating and air conditioning (HVAC) and mechanical
service  contracting  companies  in 2000  and  1999,  offset  by a  decrease  at
Resources  due to lower income from  existing  financial  investments.  Revenues
increased $111 million for the six months ended June 30, 2000 as compared to the
same period in 1999. The increase was primarily due to additional  revenues from
Energy  Technologies  acquisitions  of HVAC and mechanical  service  contracting
companies.

Energy Holdings--Operating Expenses

     Operating  expenses  increased $56 million and $118 million for the quarter
and six months ended June 30, 2000,  respectively.  The increases were primarily
due to the addition of operating  expenses from the entities  acquired by Energy
Technologies in 2000 and 1999.

Energy Holdings--Interest Expense and Preferred Dividends

     Net  financing  expenses  increased  $15  million  and $32  million for the
quarter and six months ended June 30, 2000. Both increases were primarily due to
higher levels of debt required to finance investment and acquisition  activities
at Global and Resources and higher interest rates.

Energy Holdings - Earnings Before Interest and Taxes (EBIT) Contribution

     The results of operations for each of Energy  Holdings'  business  segments
are explained  below with reference to the EBIT  contribution.  Energy  Holdings
borrows on the basis of a combined  credit  profile to finance the activities of
its  subsidiaries.  As such, the capital  structure of each of the businesses is
managed by Energy Holdings. Debt at each subsidiary is evidenced by demand notes
with Energy Holdings and PSEG Capital Corporation (PSEG Capital).

<TABLE>
<CAPTION>


                                                      Quarter Ended                     Six Months Ended
                                                         June 30,                           June 30,
                                                ---------------------------        ---------------------------
                                                   2000            1999               2000            1999
                                                -----------     -----------        -----------     -----------
                                                                    (Millions of Dollars)
<S>                                                   <C>             <C>                <C>             <C>
EBIT:
     Global............................               $23             $22                $49             $40
     Resources.........................                22              48                 85              92
     Energy Technologies...............                (8)             (2)               (16)             (5)
     Other.............................                (2)              2                 (2)              1
                                                -----------     -----------        -----------     -----------
Total EBIT.............................               $35             $70               $116            $128
                                                ===========     ===========        ===========     ===========
</TABLE>

         Global

     Global's  investments  consist primarily of minority ownership positions in
projects  and joint  ventures,  none of which it  consolidates.  Other than fees
collected for providing operations and maintenance  services,  Global's revenues
primarily  represent  its pro-rata  ownership  share of net income  generated by
project  affiliates  which is accounted for by the equity method of  accounting.
The  expenses in the table  below are those  required  to develop  projects  and
administrative and general expenses required to operate the business as a whole.
Project operating expenses are not reported as direct expenses of Global but are
deducted  to arrive at net income of  project  affiliates,  a pro-rata  share of
which is reported as revenues by Global.

<TABLE>
<CAPTION>


                                                      Quarter Ended                     Six Months Ended
                                                         June 30,                           June 30,
                                                ---------------------------        ---------------------------
                                                   2000            1999               2000            1999
                                                -----------     -----------        -----------     -----------
                                                                    (Millions of Dollars)
<S>                                                   <C>             <C>                <C>             <C>
     Revenues..........................               $33             $34                $71             $62
     Expenses..........................                11              14                 23              28
                                                -----------     -----------        -----------     -----------
     Operating Income..................                22              20                 48              34
     Other Income......................                 1               2                  1               6
                                                -----------     -----------        -----------     -----------
Total EBIT.............................               $23             $22                $49             $40
                                                ===========     ===========        ===========     ===========
</TABLE>

     Global's EBIT contribution  increased $1 million for the quarter ended June
30, 2000 from the  comparable  period in 1999.  Revenues  for the  quarter  were
stable as revenues from new investments in  distribution  companies in Chile and
Peru  helped  to offset  lower  revenue  from  Global's  Argentine  distribution
company, which were lower due to certain refinancings.  Lower administrative and
general  expenses in the second quarter related to new project  development also
increased Global's EBIT contribution.

     Global's  EBIT  contribution  increased $9 million for the six months ended
June 30, 2000 from the comparable period in 1999. The increase was primarily due
to higher income from the  above-mentioned  new  investments as well as improved
performance from Global's Brazilian  distribution  company,  partially offset by
lower revenue from Global's Argentine distribution company, which were lower due
to certain refinancings.

<PAGE>
         Resources

     Resources  derives  its  leveraged  lease  revenues  primarily  from rental
payments  and tax  benefits  associated  with  such  transactions.  As a passive
investor  in  limited  partnership  project  financing  transactions,  Resources
recognizes  revenue  from its  pro-rata  share of the income  generated by these
investments.  As an owner of beneficial interests in two leveraged buyout funds,
Resources  recognizes  revenue as the share  prices of public  companies  in the
leveraged  buyout  funds  fluctuate.  In  addition,  revenue  is  recognized  as
companies  in the  fund  distribute  dividend  income  through  the  fund to the
investors and as the fund liquidates its holdings.

<TABLE>
<CAPTION>

                                                              Quarter Ended                  Six Months Ended
                                                                June 30,                         June 30,
                                                         -------------------------       ---------------------------
                                                           2000           1999             2000            1999
                                                         -----------    ----------       -----------     -----------
                                                                           (Millions of Dollars)

<S>                                                            <C>          <C>               <C>             <C>
     Revenues...................................               $26          $51               $92             $97
     Expenses...................................                 4            3                 7               5
                                                         -----------    ----------       -----------     -----------
Total EBIT......................................               $22          $48               $85             $92
                                                         ===========    ==========       ===========     ===========
</TABLE>

     Resources'  EBIT  contribution  decreased $26 million for the quarter ended
June 30, 2000 from the comparable period in 1999. The decrease was primarily due
to fair value  adjustments  related to  securities  in leveraged  buyout  funds.
Revenues  decreased  $25 million  for the  quarter  ended June 30, 2000 from the
comparable  period  in  1999.  The  decrease  was  primarily  due to fair  value
adjustments  related to securities  in leveraged  buyout funds as well as a gain
recorded in the prior year from the sale of a leveraged lease,  partially offset
by higher  income  from new  leveraged  lease  investments.  Operating  expenses
remained relatively constant for both comparable periods.

     Resources' EBIT contribution  decreased $7 million for the six months ended
June 30, 2000 from the comparable period in 1999. The decrease was primarily due
to fair value  adjustments  related to  securities  in leveraged  buyout  funds.
Revenues  decreased  $5 million  for the  quarter  ended June 30,  2000 from the
comparable  period  in 1999.  The  decrease  was  primarily  due to very  strong
performance of Resources' investments in leveraged buyout funds in the first six
months of 1999  compared  to  moderate  gains in the  first six  months of 2000.
Revenues  were  also  impacted  by  higher  income  from  new  leveraged   lease
investments  as well as a gain  recorded  in the  prior  year from the sale of a
leveraged  lease.  Operating  expenses  remained  relatively  constant  for both
comparable periods.

         Energy Technologies

     Energy Technologies  derives its revenues from energy sales and the sale of
energy-related  equipment and services.


<TABLE>
<CAPTION>


                                                               Quarter Ended                    Six Months Ended
                                                                 June 30,                           June 30,
                                                         ---------------------------        ---------------------------
                                                           2000            1999               2000            1999
                                                         -----------     -----------        -----------     -----------
                                                                            (Millions of Dollars)

<S>                                                           <C>             <C>               <C>             <C>
     Revenues...................................              $105            $54               $216            $109
     Expenses...................................               113             56                232             114
                                                         -----------     -----------        -----------     -----------
Total EBIT......................................              $(8)            $(2)              $(16)            $(5)
                                                         ===========     ===========        ===========     ===========
</TABLE>

     Energy Technologies' EBIT contribution decreased $6 million for the quarter
ended June 30, 2000 from the comparable period in 1999.  Revenues  increased $51
million  and  operating   expenses   increased  $57  million  primarily  due  to
acquisitions of HVAC and mechanical  service  contracting  companies in 2000 and
1999.

     Energy  Technologies'  EBIT contribution  decreased $11 million for the six
months  ended  June  30,  2000  from the  comparable  period  in 1999.  Revenues
increased $107 million and operating  expenses  increased $118 million primarily
due to acquisitions of HVAC and mechanical service contracting companies in 2000
and 1999. Also included in the increased operating expenses, Energy Technologies
recognized a charge to income for approximately  $6.6 million for the six months
ended June 30, 2000. Of this amount approximately $2 million related to employee
severance  costs  applicable to the termination of  approximately  60 employees,
$1.6 million related to deferred  transportation  costs and $3.0 million related
to the write-off of computer hardware and software.  As of June 30, 2000, of the
60 employees to be terminated,  approximately  50 employees have been terminated
and there remains an outstanding liability of approximately $0.5 million related
to employee severance costs on Energy Holdings' consolidated balance sheet.


Liquidity and Capital Resources

     PSEG and PSE&G

     PSEG is a holding  company and, as such,  has no operations of its own. The
following  discussion  of  PSEG's  liquidity  and  capital  resources  is  on  a
consolidated  basis,  noting  the uses and  contributions  of PSEG's  two direct
operating subsidiaries in 2000, PSE&G and Energy Holdings.

     As noted above,  on July 14, 2000,  the New Jersey Supreme Court decided to
hear appeals of the BPU Energy Master Plan decision. As a result, a planned $2.5
billion  securitization  financing  by PSE&G  has been  delayed  from the  third
quarter of 2000 to at least the first quarter of 2001,  and a planned  financing
of $1.5 billion by Power has been similarly delayed.

     Going forward,  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. Following Power's initial external financing,  Power's capital needs will
be funded with cash  generated  from  operations  and may be  supplemented  with
external financings and equity infusions from PSEG as dictated by Power's growth
strategy. The delay of the securitization  financing could impact the ability of
PSEG to make  equity  infusions  into Power which could  affect  Power's  growth
strategy.  Also as a result of the delay in securitization,  PSEG and PSE&G will
utilize  various   medium-term   financings  to  refinance   existing  debt  and
maturities. As previously noted, PSE&G filed a petition with the BPU on July 27,
2000 to  approve  the  issuance  of up to $1  billion  of  long-term  debt  with
maturities of up to three years.

     On September 17, 1999,  the BPU issued its Finance Order which  authorized,
among other things, the imposition of a non-bypassable transition bond charge on
PSE&G's customers;  the sale of PSE&G's property right in such charge created by
the Energy Competition Act 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.  Pending a favorable  resolution of matters now
before the New Jersey Supreme  Court,  PSEG and PSE&G do not expect such sale of
transition bonds and the receipt of proceeds prior to the first quarter of 2001.

     Both the right of PSE&G to receive the bondable  transition charge pursuant
to the  securitization  transaction  and the  proceeds  from the transfer of its
generation-related  assets to Power are property  subject to the lien of PSE&G's
First and Refunding Mortgage (Mortgage). All such property will be released from
the lien of the Mortgage at the time of receipt of the cash  proceeds  from such
sale. In accordance  with the provisions of the Mortgage,  the net proceeds from
the sale of such released property will be deposited with the Trustee.

     The  Mortgage  authorizes  PSE&G to exercise  one or more of the  following
options as to the application of proceeds of such released property, at its sole
discretion:

     1.   Withdraw   funds  for  corporate   use  by  utilizing   additions  and
          improvements and/or retired bonds. (Option 1)

     2.   Direct  the  Trustee  to  invest  the  proceeds  in  U.S.   Government
          Securities. (Option 2)

     3.   Direct the Trustee to purchase its Mortgage Bonds at the lowest prices
          obtainable,  at or below  par  value.  If the  Trustee  is  unable  to
          purchase  sufficient Mortgage Bonds to exhaust such proceeds deposited
          with it, the  balance  may be applied on a pro rata basis  towards the
          redemption of eligible  series of Mortgage  Bonds  outstanding at par.
          (Option 3)

     During the twelve  months  ended June 30,  2000,  $723  million of Mortgage
Bonds  matured and $318  million of Mortgage  Bonds were  purchased  in the open
market.  At June 30, 2000,  PSE&G had a total of $3.1 billion of Mortgage  Bonds
outstanding, of which $2.3 billion are taxable registered Mortgage Bonds subject
to the special redemption  provisions  outlined in Option 3 (Redeemable  Bonds).
Further, $777 million of the Mortgage Bonds outstanding are tax-exempt Pollution
Control Bonds and $15 million are two series of taxable  coupon  Mortgage  Bonds
due 2037 (Coupon  Bonds).  Neither the  Pollution  Control  Bonds nor the Coupon
Bonds are subject to the special redemption provisions outlined in Option 3.

     PSE&G has not yet made a final  decision as to the amount and the manner in
which it will retire or redeem its Mortgage Bonds.  Such a decision will be made
on or about  the  time  the  proceeds  from  securitization  and the sale of the
generation-related  assets to Power are deposited with the Trustee, on the basis
of market  conditions and other factors  existing at that time (see Overview and
Future  Outlook).  Based on current  information,  a likely  utilization  of the
options available to PSE&G, as noted above, could be as follows:

     A.   Withdraw $2.4 billion of net proceeds from securitization under Option
          1, above. These proceeds would be used to:

          i.   Redeem $123.5 million of Pollution Control Bonds now redeemable;

          ii.  Retire PSE&G's outstanding short-term debt; and

          iii. Reduce PSE&G common and/or preferred  securities with the balance
               of proceeds.

     B.   Withdraw the proceeds from the generation-related  asset sale to Power
          under  Option 1. These  proceeds  will be used to reduce  PSE&G common
          and/or preferred securities.

     As previously reported, in anticipation of securitization,  PSEG's Board of
Directors  has  authorized  the  repurchase  of up to an aggregate of 30 million
shares  of  Common  Stock  in the  open  market.  At June  30,  2000,  PSEG  had
repurchased  approximately  17.8 million  shares of Common  Stock,  at a cost of
approximately  $679 million.  The repurchased  shares have been held as treasury
stock or used for other corporate purposes.  In December 1999, PSEG entered into
a  Forward   Purchase   Agreement   with  a  third  party  which  has  purchased
approximately  6.4 million shares at a cost of approximately  $225 million.  The
transaction  may be  settled  in  cash or  with  shares  of  Common  Stock.  Any
repurchase  of these shares will not be reflected on PSEG's  balance sheet until
settlement  of the  transaction.  Market  conditions  and  the  availability  of
alternative  investments  will  dictate if and when more shares of Common  Stock
will be repurchased under this authorization.

     Dividend  payments  on Common  Stock  were  $0.54  per  share  and  totaled
approximately  $234  million and $238  million for the six months ended June 30,
2000 and 1999,  respectively.  PSEG has not increased its dividend rate in eight
years in order to retain  additional  capital for reinvestment and to reduce its
payout ratio as earnings grow.  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 $334 million and $392 million to PSEG for
the six months ended June 30, 2000 and 1999,  respectively.  These  amounts were
used to fund PSEG's  Common Stock  dividends  and to support a portion of PSEG's
stock repurchase program.

     PSEG  believes  that it will have  adequate  earnings  and cash flow in the
future from PSE&G and Power to maintain  Common  Stock  dividends at the current
level.  However,  the amounts and dates of such dividends declared in the future
will necessarily be dependent upon PSEG's future earnings, cash flows, financial
requirements and other factors.  Earnings and cash flows required to support the
dividend will become more volatile as PSEG's  business  changes from one that is
principally regulated to one that is principally competitive.

     Energy Holdings

   It is intended that Global and  Resources  will provide the earnings and cash
flow for Energy Holdings' long-term growth.  Resources' investments are designed
to  produce  immediate  cash flow and  earnings  that  enable  Global and Energy
Technologies to focus on longer investment horizons. During the next five years,
Energy Holdings will need  significant  capital to fund its planned  growth.  In
addition to cash  generated from  operations,  Energy  Holdings'  growth will be
funded through external  financings and equity infusions from PSEG. The delay of
the  securitization  financing  could  impact the ability of PSEG to continue to
make equity  infusions into Energy Holdings which could affect Energy  Holdings'
growth strategy.

     Cash flow from operating  activities decreased $74 million from $99 million
to $25  million  for the six months  ended  June 30,  2000 as  compared  to 1999
primarily due to an increase in days sales  outstanding  at Energy  Technologies
resulting from a delay in billing due to the transition to outsource vendors and
due to lower income and investment distributions.


     Regulatory Restrictions
     -----------------------

     As a result of a 1992 BPU proceeding  concerning the  relationship of PSE&G
to PSEG's non-utility businesses (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 June 30, 2000,  these assets were in excess of the 20% limit and such
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.

     As a result of the  accounting  impacts  resulting from the Final Order and
the  deregulation of the electric  generation  business in New Jersey,  PSEG and
PSE&G no  longer  believe  that the 20%  non-utility  asset  limitation  remains
appropriate  and  believe  further  that  modifications  to  the  Focused  Audit
limitations  will be  required.  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.  The BPU  directed  PSE&G to file a petition
addressing  the Focused  Audit prior to the end of the first quarter of 2000. In
March 2000,  PSE&G submitted a letter to the BPU as its initial  compliance with
this filing  requirement in which it notified 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.  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. PSEG and
PSE&G  believe that these issues will be  satisfactorily  resolved,  although no
assurances  can be given.  In addition,  if PSEG were no longer exempt under the
Public Utility Holding Company Act (PUHCA),  PSEG and its subsidiaries  would be
subject  to  additional  regulation  by the SEC with  respect to  financing  and
investing activities,  including the amount and type of non-utility investments.
PSEG believes, however, that this would not have a material adverse impact on it
and its subsidiaries.

Capital Requirements

     PSEG

         Power

     On July 19, 2000, Power announced that it will construct a two-unit,  1,186
MW natural-gas fired combined-cycle generating facility at its Linden Generating
Station at a cost of approximately $590 million with completion  expected in May
2003.  Three existing  oil-fired  steam units at Linden with a total capacity of
436 MW will be retired upon completion of the new facility.

     Also in 2000,  Power  announced  that it will  construct  a 500 MW  natural
gas-fired, combined-cycle electric generating plant at Bergen Generating Station
at a cost of approximately  $290 million with completion  expected in June 2002.
Power has also installed four new combustion  turbines at Burlington  Generating
Station and two new combustion turbines at Linden Generating Station, adding 186
MW and 164 MW,  respectively,  of  electric  generating  capacity,  at a cost of
approximately $151 million.  The new combustion turbines were all operational as
of July 2000.

     In May 2000,  Power acquired  Niagara Mohawk Power  Corporation's  (Niagara
Mohawk) 400 MW oil and gas-fired electric generating station in Albany, New York
(Albany Steam  Station) for $47.5  million.  Under the terms of the  acquisition
agreement,  Niagara  Mohawk could also receive up to an additional $9 million if
Power chooses to pursue redevelopment of the Albany Steam Station.

     In  September  1999,  Power  announced  that it had signed an  agreement to
acquire all of  Conectiv's  interests in the Salem  Nuclear  Generating  Station
(Salem) and the Hope Creek Nuclear  Generating  Station (Hope Creek) and half of
Conectiv's  interest in the Peach Bottom  Atomic Power Station  (Peach  Bottom),
totaling 544 MW for an aggregate  purchase  price of $15.4  million plus the net
book value of nuclear  fuel at  closing.  For  further  discussion,  see Note 4.
Commitments and Contingent Liabilities of Notes.

     PSE&G

     PSE&G  has  substantial  commitments  as part of its  ongoing  construction
program.  PSE&G's construction program is 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.

     For the six months  ended June 30,  2000 PSE&G had net plant  additions  of
$230 million,  excluding Allowance for Funds Used During Construction (AFDC) and
capitalized interest, a $58 million increase from the corresponding 1999 period.

     Energy Holdings

     Investment activity in 2000 will be subject to periodic review and revision
and may vary significantly depending upon the opportunities  presented.  Factors
affecting actual  expenditures and investments  include  availability of capital
and suitable  investment  opportunities,  market  volatility  and local economic
trends.

     Over the next  several  years,  Energy  Holdings,  certain  of its  project
affiliates and PSEG Capital will be required to refinance  maturing debt,  incur
additional debt and provide equity to fund investment activity. 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 Energy Holdings' financial  condition,  results of operations and net
cash flows (see Liquidity and Capital Resources-Regulatory Restrictions above).

External Financings

     PSEG

     At June 30,  2000,  PSEG had a  committed  $150  million  revolving  credit
facility  which will expire in December  2002.  At June 30, 2000,  there were no
borrowings  under this revolving  credit  facility.  On September 8, 1999,  PSEG
entered into an uncommitted  line of credit with a bank with no stated limit. At
June 30, 2000, PSEG had $121 million outstanding under this line of credit.

     PSEG has an $850  million  commercial  paper  program to provide  funds for
general  corporate  purposes and,  until  securitization  proceeds are received,
provide funds for Power.  On June 30, 2000,  PSEG had  commercial  paper of $214
million outstanding.

     To provide  liquidity for its  commercial  paper  program,  PSEG has a $570
million  revolving  credit  facility  expiring in March 2001 and a $280  million
revolving  credit facility  expiring in March 2005.  These agreements are with a
group of banks and provide for borrowings  with maturities of up to one year. As
of June 30, 2000 there were no borrowings outstanding under these facilities.

     In 1998,  PSEG  issued  $100  million of  Extendible  Notes,  Series A, due
November 22, 2000.  These Notes were  automatically  tendered and  remarketed in
February 2000. The interest rate through  maturity is at the three-month  London
Interbank Offered Rate (LIBOR) plus 0.22%, reset quarterly.

     Also in 1998, PSEG issued $175 million of Extendible  Notes,  Series B, due
November 22, 2000. These Notes were automatically tendered and remarketed in May
2000. The interest rate through maturity is at the three-month LIBOR plus 0.32%,
reset quarterly.

     In 1999, PSEG issued $300 million of Extendible  Notes,  Series C, due June
15, 2001. These Notes were automatically  tendered and remarketed in March 2000.
The interest  rate through  September  2000 is at  three-month  LIBOR plus 0.20%
reset quarterly. These Notes will again be automatically tendered and remarketed
in September 2000.

     PSE&G

     As of June 30, 2000, the Mortgage would permit up to $2.9 billion aggregate
principal amount of new Mortgage Bonds to be issued against  previous  additions
and improvements,  the level of which will be impacted by the actions ultimately
taken in  connection  with  securitization  and the  sale of  generation-related
assets to Power (see  Liquidity  and Capital  Resources  -- PSEG and PSE&G).  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.  PSE&G expects to
apply for and receive  necessary BPU  authorization  for external  financings to
meet its requirements over the next five years, as needed. While PSE&G expects
such authority to be granted, no assurances can be given. Failure to receive
such authority on a timely basis could have a material adverse effect on the
financial condition, results of operations and net cash flows of PSE&G and PSEG.

     On July 27, 2000, PSE&G filed a petition with the BPU requesting  authority
to issue up to $1  billion  of new  long-term  debt on the  basis of  previously
matured, redeemed or purchased debt.

     On May 1, 2000, $288 million of PSE&G's 6.0% Bonds, Series QQ, matured.

     On June 1, 2000, $235 million of PSE&G's 6.5% Bonds, Series XX, matured.

     PSE&G  maintains  a $1.5  billion  commercial  paper  program.  To  provide
liquidity for this program,  PSE&G has a $450 million revolving credit agreement
expiring in June 2001, a $650 million credit facility  expiring in June 2002 and
a $400 million credit  facility  expiring in September  2000.  These  agreements
provide for borrowings  with  maturities of up to one year. As of June 30, 2000,
there were no borrowings outstanding under these facilities.

     The BPU has authorized  PSE&G to issue and have outstanding at any one time
through  January 2, 2001, not more than $2.0 billion of short-term  obligations,
consisting of commercial  paper and other  unsecured  borrowings  from banks and
other lenders. PSE&G has several uncommitted lines of credit with banks. On June
30, 2000, PSE&G had $1.7 billion of short-term debt outstanding,  including $313
million borrowed against its uncommitted bank lines of credit.

     PSE&G Fuel Corporation (Fuelco) has a $125 million commercial paper program
to finance a 42.49%  share of Peach  Bottom  nuclear  fuel,  supported by a $125
million  revolving credit facility with a group of banks,  which expires on June
28, 2001.  PSE&G has  guaranteed  repayment of Fuelco's  respective  obligations
under this  program.  As of June 30, 2000,  Fuelco had  commercial  paper of $60
million outstanding.  After the purchase of PSE&G's generation-related assets is
completed,  it is  anticipated  that Fuelco's  commercial  paper program will be
discontinued  and financing of Peach Bottom  nuclear fuel will be funded through
Power.

     Energy Holdings

     Energy  Holdings  expects to  complete  an  exchange  offer in August  2000
exchanging  $400 million of publicly  traded 10.0% Senior Notes due October 2009
for notes which were issued in October 1999 in a private placement.

     In May 2000,  Energy Holdings  extended its $165 million 364-day  revolving
line of  credit  to May  2001.  As of  June  30,  2000  there  were  no  amounts
outstanding under this line.

         Global

     In June 2000,  Global  repaid at  maturity a $71.0  million  loan which was
incurred to  partially  finance its  investment  in  EDEN/EDES,  a  distribution
company in Argentina.

     In May 2000,  Global  refinanced  a $94.5  million  loan  which  financed a
portion of its investment in RGE, a distribution company in Brazil. The debt was
refinanced  with funds from Energy  Holdings  and a $190 million  United  States
dollar denominated loan at the Brazilian distribution company, of which Global's
share  is  $62  million.  For  a  further  discussion,  see  Note  5.  Financial
Instruments and Risk Management.

Foreign Operations

     In accordance with their growth strategies,  Global and Resources have made
approximately  $1.5 billion and $1.1  billion,  respectively,  of  international
investments.  As of June 30,  2000,  foreign  investments  represented  12.9% of
PSEG's  consolidated  assets and the  revenues  from those  foreign  investments
contributed  2.7% to  consolidated  revenues  for the six months  ended June 30,
2000.  For  discussion  of the  foreign  currency  risk,  see Note 5.  Financial
Instruments and Risk Management of Notes.

PSE&G and Energy Holdings

     The information  required by this item is incorporated  herein by reference
to the  following  portions of PSEG's  Management's  Discussion  and Analysis of
Financial  Condition and Results of Operations,  insofar as they relate to PSE&G
and Energy Holdings and their subsidiaries: Overview and Future Outlook; Results
of Operations;  Liquidity and Capital Resources; External Financings and Foreign
Operations.

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.  PSEG,  PSE&G and Energy
Holdings   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
PSEG,  PSE&G and Energy  Holdings  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;  managing  rapidly
changing wholesale energy trading operations in conjunction with electricity and
gas  production,   transmission  and  distribution  systems;   managing  foreign
investments  and electric  generation and  distribution  operations in locations
outside of the  traditional  utility  service  territory;  political and foreign
currency risks; an increasingly competitive energy marketplace;  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;  exposure to market price fluctuations and volatility of fuel
and power supply, power output, marketable securities,  among others; ability to
obtain  adequate  and timely rate relief,  cost  recovery,  and other  necessary
regulatory approvals;  ability to obtain securitization proceeds; Federal, state
and foreign 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;  nuclear decommissioning and the availability of storage facilities
for spent nuclear fuel;  licensing and regulatory approval necessary for nuclear
and other operating  stations;  the ability to  economically  and safely operate
nuclear  facilities in accordance  with regulatory  requirements;  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 PSEG's market risk  sensitive  instruments  and
positions  is the  potential  loss  arising  from  adverse  changes in commodity
prices,  pollution credits,  equity security prices,  interest rates and foreign
currency exchange rates as discussed below.  PSEG'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 utilizes
an  independent  risk  oversight  function to ensure  compliance  with corporate
policies and prudent risk management practices.

     PSEG is  exposed  to  credit  losses  in the  event of  non-performance  or
non-payment by  counterparties.  PSEG also has a credit management process which
is used to assess,  monitor and mitigate  counterparty exposure for PSEG and its
subsidiaries.  In  the  event  of  non-performance  or  non-payment  by a  major
counterparty,  there  may  be a  material  adverse  impact  on  PSEG's  and  its
subsidiaries' financial condition,  results of operations or net cash flows. For
discussion of interest rates, commodity-related  instruments,  equity securities
and  foreign  currency  risks,  see  Note  5.  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  owned
electric generating capacity and physical gas supply contracts,  are designed to
cover estimated electric and gas customer commitments.

     PSEG uses a value-at-risk  model to assess the market risk of its commodity
business.  This model includes fixed price sales commitments,  owned generation,
native  load  requirements,  physical  and  financial  contracts.  Value-at-risk
represents  the potential  gains or losses for  instruments or portfolios due to
changes in market  factors,  for a specified time period and  confidence  level.
PSEG estimates  value-at-risk  across its commodity  business using a model with
historical volatilities and correlations.

     The measured  value-at-risk using a  variance/co-variance  model with a 95%
confidence level over a one-week time horizon at June 30, 2000 was approximately
$12  million,  compared to the  December  31,  1999 level of $3 million.  PSEG's
calculated  value-at-risk  represents an estimate of the potential change in the
value of its portfolio of physical and financial derivative  instruments.  These
estimates,  however, are not necessarily indicative of actual results, which may
differ due to the fact that  actual  market  rate  fluctuations  may differ from
forecasted  fluctuations  and due to the fact  that  the  portfolio  of  hedging
instruments may change over the holding period.

<PAGE>
                           PART II. OTHER INFORMATION

                            ITEM 1. LEGAL PROCEEDINGS

     Certain  information  reported under Item 3 of Part I of PSEG's and PSE&G's
1999  Annual  Report  on Form  10-K and  Quarterly  Report  on Form 10-Q for the
quarter ended March 31, 2000 and Energy Holdings' Registration Statement on Form
S-4, filed June 29, 2000, is updated below.

(1)  Form 10-K, pages 5, 27, 33, 64 and 69 and March 31, 2000 Form 10-Q, pages 9
     and 17.  See Pages 13 and 25.  Proceedings  before the BPU in the matter of
     the  Energy  Master  Plan Phase II  Proceeding  to  investigate  the future
     structure  of  the  Electric  Power  Industry,   Docket  Nos.  EX94120585Y,
     EO97070462 and EO97070463.

(2)  Form 10-K, pages 8, 27, 34 and 69 and March 31, 2000 Form 10-Q, pages 9 and
     17. See Pages 13 and 25.  Appeals of the BPUs Final Order and Finance Order
     in the Energy Master Plan Proceedings,  Docket Nos. C1263-99, C-1265-99 and
     C-1413-99.

(3)  Form S-4 pages 41, 42, F-33 and F-38. See Page 16.  Proceedings  before the
     First  Court for the  Litigation  of  Administrative  Matters of  Venezuela
     regarding electric generation  facilities owned and operated by Turboven in
     Venezuela in which Global has invested.

                            ITEM 5. OTHER INFORMATION

     Certain information reported under PSEG's and PSE&G's 1999 Annual Report on
Form 10-K and Quarterly Report on Form 10-Q for the quarter ended March 31, 2000
and Energy Holdings' Registration Statement on Form S-4, filed June 29, 2000, is
updated below.  References are to the related pages on the Form 10-K,  Form 10-Q
or Form S-4, as appropriate, as printed and distributed.

Investment in Pantellos Corporation

     New  Matter.  In June 2000,  Resources  invested  $4  million in  Pantellos
Corporation,  a company  founded by 21 leading North American energy and utility
companies to operate and manage an open,  independent  internet  marketplace for
the  purchase  of  goods  and  services  between  the  energy  industry  and its
suppliers.  It is expected  that PSEG's  operating  companies  will utilize this
exchange with the goal of reducing their total cost of procurement.

Metering, Billing and Account Services

     Form 10-K, page 8 and March 31, 2000 Form 10-Q, page 29. In accordance with
the Energy  Competition  Act, the BPU has reached a settlement with the electric
utilities and suppliers,  in determining the extent to which  metering,  billing
and customer  services may become  competitive.  As a result of the  settlement,
competition is limited to consolidated billing for energy services. The metering
and other support  functions will remain with PSE&G until August 2003,  although
proceedings on these issues will commence in 2002. The effects of competition in
the  consolidated  billing process for energy services is not expected to have a
material effect on the results of operations,  cash flows or financial  position
of PSE&G or PSEG.

Gas Unbundling

     Form  10-K,  page  9. In  January  2000,  the BPU  issued  a  verbal  order
approving,  with certain  modifications,  PSE&G's stipulation  regarding its gas
unbundling  filing.  The verbal order  provided for the  unbundling of firm rate
schedules into  commodity and  transportation  components.  It also provides for
changes in existing rate  schedules.  On July 31, 2000, the BPU issued a written
order  memorializing  the  verbal  order  which  calls  for the new  rates to be
implemented for all service provided on and after August 1, 2000.

Levelized Gas Adjustment Clause (LGAC)

     Form 10-K, page 9. On July 27, 2000, PSE&G filed an amended motion with the
BPU requesting interim  authorization by September 1, 2000 to change the monthly
pricing  mechanism in PSE&G's LGAC to cover currently  estimated price increases
on a per month basis, excercisable in any month with no annual limit. The change
will also allow PSE&G to decrease prices if the expected  increases in gas costs
do not occur. PSE&G cannot predict the outcome of this matter at this time.

Affiliate Standards

     Form 10-K, page 9 and March 31, 2000 Form 10-Q, page 29. On March 15, 2000,
the BPU  issued a written  order,  Affiliate  Relations,  Fair  Competition  and
Accounting Standards and Related Reporting  Requirements  (Affiliate Standards),
as required by the Energy Competition Act. PSE&G filed a compliance plan on June
15, 2000 to describe  the  internal  policy and  procedures  necessary to ensure
compliance with such Affiliate  Standards.  The BPU will subsequently conduct an
audit of utilities'  competitive  activities and compliance  with such Affiliate
Standards. Management believes that the adoption of Affiliate Standards will not
have a material adverse effect on PSEG's or PSE&G's financial condition, results
of operations or net cash flows.

PJM Interconnection LLC (PJM)

     Form 10-K, page 12. To establish PJM as an Independent System Operator,  it
was necessary for the Office of Interconnection of PJM to have access to certain
computer hardware and software. Accordingly, the PJM transmission owners jointly
paid for the  development  and/or  acquisition of certain  information  systems,
intellectual property and other related assets for this purpose. PJM and the PJM
transmission  owners  have filed  with the FERC for the sale of these  assets to
PJM.  Since PJM will recover its costs from its  customers  over several  years,
PSE&G's  estimated $23 million of proceeds from this sale,  which is expected to
occur in 2000, will be largely offset by the increased costs.

Nuclear Fuel Disposal

     Form 10-K, page 15. Pursuant to NRC rules,  spent nuclear fuel generated in
any reactor can be stored in reactor  facility  storage pools or in  independent
spent fuel storage  installations  located at or away-from-reactor  sites for at
least 30 years beyond the licensed life for reactor operation (which may include
the term of a revised  or renewed  license).  As a result of  reracking  the two
spent fuel pools at Salem,  the  availability  of  adequate  spent fuel  storage
capacity is  estimated  through  2012 for Salem 1 and 2016 for Salem 2, prior to
losing an operational full core discharge  reserve.  The Hope Creek pool is also
fully racked and it is expected to provide storage capacity until 2007, prior to
losing an operational full core discharge reserve.  PSE&G is currently assessing
available options which could satisfy the potential need for additional  storage
capacity,  including the option of constructing an on-site storage facility that
would  satisfy the spent fuel storage  needs of both Salem and Hope Creek.  PECO
Energy has advised PSE&G that it has constructed an on-site dry storage facility
at Peach Bottom which is now operational to provide  additional storage capacity
through the end of the current licenses for the two Peach Bottom units.

     Under the  Nuclear  Waste  Policy Act of 1982  (NWPA),  the  United  States
Department  of Energy (DOE) is required to begin taking  possession of all spent
nuclear fuel  generated by the Company's  nuclear units for disposal by no later
than 1998. DOE construction of a permanent  disposal  facility has not begun and
DOE has  announced  that it does not expect a facility to be  available  earlier
than 2010.  PECO Energy has advised  PSE&G that it had signed an agreement  with
the DOE  applicable  to Peach  Bottom under which PECO would be  reimbursed  for
costs  resulting  from the DOE's delay in  accepting  spent  nuclear  fuel.  The
agreement  allows PECO to reduce the charges  paid to the Nuclear  Waste Fund to
reflect  costs  reasonably  incurred  due to the DOE's  delay.  Past and  future
expenditures  associated  with Peach  Bottom's  recently  completed  on-site dry
storage  facility  would be  eligible  for this  reduction  in future  DOE fees.
Negotiations  of  settlements  relating to other  plants will be  conducted on a
plant-by-plant basis.

Low Level Radioactive Waste

     Form 10-K,  page 16. On July 1, 2000,  New  Jersey,  Connecticut  and South
Carolina formed the Atlantic Compact.  This arrangement gives New Jersey nuclear
generators,  including  PSE&G,  continued  access to the Barnwell  LLRW disposal
facility  (Barnwell),  which is owned by South Carolina.  PSEG and PSE&G believe
that the formation of the Atlantic Compact will provide for adequate radioactive
waste  disposal  for  Salem  and Hope  Creek  through  the end of their  current
licenses, although no assurances can be given.

<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>

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

                              -------------- --------------------------------------------------------------------------
                              Exhibit        Document
                              Number
  --------------------------- -------------- --------------------------------------------------------------------------
<S>                           <C>
                              12             Computation of Ratios of Earnings to Fixed Charges (PSEG)
  PSEG
                              27(A)          Financial Data Schedule (PSEG)
  --------------------------- -------------- --------------------------------------------------------------------------
                              3b(1)          By Laws of PSE&G

                              12(A)          Computation of Ratios of Earnings to Fixed Charges (PSE&G)
  PSE&G

                              12(B)          Computation of Ratios of Earnings to Fixed Charges plus Preferred Stock
                                             Dividend Requirements (PSE&G)

                              27(B)          Financial Data Schedule (PSE&G)
  --------------------------- -------------- --------------------------------------------------------------------------
                              12(C)          Computation of Ratios of Earnings to Fixed Charges (Energy Holdings)
  ENERGY HOLDINGS
                              27(C)          Financial Data Schedule (Energy Holdings)
  --------------------------- -------------- --------------------------------------------------------------------------
</TABLE>

(B)  Reports on Form 8-K

       None.


<PAGE>


                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrants  have duly  caused  these  reports to be signed on their  respective
behalf by the undersigned thereunto duly authorized.


                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                     PUBLIC SERVICE ELECTRIC and GAS COMPANY
                                  (Registrants)

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




Date: August 8, 2000


<PAGE>


                           PSEG ENERGY HOLDINGS INC.

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrants  have duly  caused  these  reports to be signed on their  respective
behalf by the undersigned thereunto duly authorized.


                            PSEG ENERGY HOLDINGS INC.
                                  (Registrant)


                           By:    DEREK DIRISIO
                           ----------------------------
                                  Derek DiRisio
                          Vice President and Controller
                         (Principal Accounting Officer)

Date: August 8, 2000