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

                                  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 March 31, 1997

                                       OR

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                        For the transition period from to


   Commission       Registrant, State of Incorporation,        I.R.S. Employer
  File Number          Address, and Telephone Number          Identification No.
--------------------------------------------------------------------------------

     1-9120    PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED        22-2625848
                        (A New Jersey Corporation)
                               80 Park Plaza
                               P.O. Box 1171
                       Newark, New Jersey 07101-1171
                               201 430-7000
                            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
                               201 430-7000


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

The  number  of  shares   outstanding   of  Public  Service   Enterprise   Group
Incorporated's  sole class of common stock, as of the latest  practicable  date,
was as follows:

                     Class: Common Stock, without par value
                   Outstanding at April 30, 1997: 231,957,608

As of April 30,  1997,  Public  Service  Electric and Gas Company had issued and
outstanding  132,450,344  shares of common stock,  without nominal or par value,
all of which were privately held,  beneficially  and of record by Public Service
Enterprise Group Incorporated.

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



<PAGE>


                                TABLE OF CONTENTS
                                                                            Page

PART I.  FINANCIAL INFORMATION

   Item 1.  Financial Statements

     Public Service Enterprise Group Incorporated (Enterprise):

       Consolidated Statements of Income for the Three
       Months Ended March 31, 1997 and 1996.............................

       Consolidated Balance Sheets as of March 31, 1997
       and December 31, 1996............................................

       Consolidated Statements of Cash Flows for the Three
       Months Ended March 31, 1997 and 1996.............................

       Consolidated Statements of Retained Earnings for the Three
       Months Ended March 31, 1997 and 1996.............................

     Public Service Electric and Gas Company (PSE&G):

       Consolidated Statements of Income for the Three
       Months Ended March 31, 1997 and 1996.............................

       Consolidated Balance Sheets as of March 31, 1997
       and December 31, 1996............................................

       Consolidated Statements of Cash Flows for the Three
       Months Ended March 31, 1997 and 1996.............................

       Consolidated Statements of Retained Earnings for the Three
       Months Ended March 31, 1997 and 1996.............................

     Notes to Consolidated Financial Statements - Enterprise............

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

   Item 2. Management's Discussion and Analysis of Financial
           Condition and Results of Operations
     Enterprise.........................................................
     PSE&G  ............................................................

PART II.  OTHER INFORMATION

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

   Item 4.  Submission of Matters to a Vote of Security Holders.........

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

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

   Signatures - Public Service Enterprise Group Incorporated............

   Signatures - Public Service Electric and Gas Company.................

<PAGE>
<TABLE>
<CAPTION>

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

                                                                             Three Months Ended
                                                                                 March 31,
                                                                      ------------------------------
                                                                           1997             1996
                                                                      -------------    -------------
<S>                                                                   <C>              <C>          
OPERATING REVENUES
    Electric                                                          $     960,457    $     959,436
    Gas                                                                     733,860          796,916
    Nonutility Activities                                                    38,235           41,996
                                                                      -------------    -------------
            Total Operating Revenues                                      1,732,552        1,798,348
                                                                      -------------    -------------

OPERATING EXPENSES
    Operation
       Fuel for Electric Generation and Interchanged Power                  248,352          216,075
       Gas Purchased                                                        421,833          456,732
       Other                                                                249,340          256,861
    Maintenance                                                              57,553           95,416
    Depreciation and Amortization                                           150,339          152,346
    Taxes
       Federal Income Taxes                                                 102,984           98,102
       New Jersey Gross Receipts Taxes                                      172,046          188,436
       Other                                                                 20,921           24,942
                                                                      -------------    -------------
            Total Operating Expenses                                      1,423,368        1,488,910
                                                                      -------------    -------------

OPERATING INCOME                                                            309,184          309,438

OTHER INCOME AND DEDUCTIONS
    Settlement of Salem Litigation - Net of Taxes (Note 3)                  (53,300)            --
    Other - net                                                               2,302             (773)
                                                                      -------------    -------------
            Total Other Income and Deductions                               (50,998)            (773)
                                                                      -------------    -------------

INCOME BEFORE INTEREST CHARGES AND
    DIVIDENDS ON PREFERRED SECURITIES                                       258,186          308,665
                                                                      -------------    -------------

INTEREST CHARGES
    Long-Term Debt                                                           97,009          101,445
    Short-Term Debt                                                           5,441            7,189
    Other                                                                     7,099            6,883
                                                                      -------------    -------------
       Total Interest Charges                                               109,549          115,517
Allowance for Funds Used During Construction -
    Debt and Capitalized Interest                                            (5,546)          (4,547)
                                                                      -------------    -------------
    Net Interest Charges                                                    104,003          110,970

Preferred Securities Dividend Requirements                                   14,292           12,241
Net Loss on Preferred Stock Redemptions                                         377             --
                                                                      -------------    -------------
Income From Continuing Operations                                           139,514          185,454

Discontinued Operations - Net of Taxes (Note 5)                                --              8,650
                                                                      -------------    -------------
NET INCOME                                                            $     139,514    $     194,104
                                                                      =============    =============

SHARES OF COMMON STOCK OUTSTANDING
  End of Period                                                         231,957,608      244,697,930
  Average for Period                                                    232,071,604      244,697,930

EARNINGS PER AVERAGE SHARE
    Income From Continuing Operations                                 $        0.60    $        0.75
    Income From Discontinued Operations                                        --               0.04
                                                                      -------------    -------------

       TOTAL EARNINGS PER AVERAGE SHARE                               $        0.60    $        0.79
                                                                      =============    =============

DIVIDENDS PAID PER SHARE OF COMMON STOCK                              $        0.54    $        0.54
                                                                      =============    =============
See Notes to Consolidated Financial Statements.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>

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


                                                                                    March 31,   December 31,
                                                                                      1997          1996
                                                                                  -----------   ------------
<S>                                                                               <C>            <C>        
UTILITY PLANT - Original cost
  Electric                                                                        $13,364,416    $13,314,033
  Gas                                                                               2,577,583      2,555,901
  Common                                                                              538,993        530,185
                                                                                  -----------   ------------
       Total                                                                       16,480,992     16,400,119
  Less: Accumulated depreciation and amortization                                   6,020,933      5,889,098
                                                                                  -----------   ------------
       Net                                                                         10,460,059     10,511,021
  Nuclear Fuel in Service, net of accumulated amortization -
     1997, $276,472; 1996, $259,384                                                   182,113        198,845
                                                                                  -----------   ------------
       Net Utility Plant in Service                                                10,642,172     10,709,866
  Construction Work in Progress, including Nuclear Fuel in
    Process - 1997, $78,553; 1996, $70,455                                            468,513        445,321
  Plant Held for Future Use                                                            23,966         23,966
                                                                                  -----------   ------------
       Net Utility Plant                                                           11,134,651     11,179,153
                                                                                  -----------   ------------
INVESTMENTS AND OTHER NONCURRENT ASSETS
 Long-Term Investments, net of amortization - 1997, $14,519; 1996, $12,679, and
    net of valuation allowances - 1997, $15,969; 1996,
    $16,969                                                                         1,914,813      1,854,304
 Real Estate Property and Equipment, net of accumulated
   depreciation - 1997, $6,245; 1996, $5,906                                           64,462         64,753
 Other Plant, net of accumulated depreciation and amortization -
   1997, $7,298; 1996, $6,518, and net of valuation allowances -
   1997 and 1996, $826                                                                 39,742         37,031
 Nuclear Decommissioning and Other Special Funds                                      390,171        382,348
 Other Assets                                                                          14,114         13,548
                                                                                  -----------   ------------
       Total Investments and Other Noncurrent Assets                                2,423,302      2,351,984
                                                                                  -----------   ------------
CURRENT ASSETS
  Cash and Cash Equivalents                                                           350,769        278,903
  Accounts Receivable:
    Customer Accounts Receivable                                                      578,515        499,858
    Other Accounts Receivable                                                         213,431        241,483
    Less: Allowance for Doubtful Accounts                                              40,465         42,283
  Unbilled Revenues                                                                   180,828        248,504
  Fuel, at average cost                                                               134,787        313,019
  Materials and Supplies, at average cost, net of inventory valuation
    reserves - 1997 and 1996, $16,100                                                 148,416        147,757
  Deferred Income Taxes                                                                23,210         23,210
  Miscellaneous Current Assets                                                         23,985         33,976
                                                                                  -----------   ------------
       Total Current Assets                                                         1,613,476      1,744,427
                                                                                  -----------   ------------
DEFERRED DEBITS
  Property Abandonments - net                                                          48,822         52,573
  Oil and Gas Property Write-Down                                                      29,636         30,924
  Unamortized Debt Expense                                                            135,670        139,067
  Deferred OPEB Costs                                                                 315,997        226,171
  Unrecovered Environmental Costs                                                     127,192        125,900
  Unrecovered Plant and Regulatory Study Costs                                         33,581         33,941
  Underrecovered Electric Energy and Gas Costs - net                                  207,261        176,055
  Unrecovered SFAS 109 Deferred Income Taxes                                          748,589        751,763
  Deferred Decontamination and Decommissioning Costs                                   46,643         46,643
  Other                                                                                59,278         56,730
                                                                                  -----------   ------------
       Total Deferred Debits                                                        1,752,669      1,639,767
                                                                                  -----------   ------------
Total                                                                             $16,924,098    $16,915,331
                                                                                  ===========   ============

 See Notes to Consolidated Financial Statements.
</TABLE>



<PAGE>
<TABLE>
<CAPTION>

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


                                                                                 March 31,    December 31,
                                                                                   1997          1996
                                                                                -----------   ------------
<S>                                                                             <C>            <C>        
CAPITALIZATION
  Common Equity:
    Common Stock                                                                $ 3,603,300    $ 3,626,792
    Retained Earnings                                                             1,578,256      1,586,256
                                                                                -----------   ------------
       Total Common Equity                                                        5,181,556      5,213,048
  Subsidiaries' Preferred Securities:
    Preferred Stock Without Mandatory Redemption                                     94,523        113,392
    Preferred Stock With Mandatory Redemption                                       150,000        150,000
    Monthly Guaranteed Preferred Beneficial Interest in PSE&G's
       Subordinated Debentures                                                      210,000        210,000
    Quarterly Guaranteed Preferred Beneficial Interest in PSE&G's
      Subordinated Debentures                                                       303,000        208,000
  Long-Term Debt                                                                  4,463,916      4,580,231
                                                                                -----------   ------------
       Total Capitalization                                                      10,402,995     10,474,671
                                                                                -----------   ------------
OTHER LONG-TERM LIABILITIES
  Decontamination and Decommissioning Costs                                          46,643         46,643
  Environmental Costs                                                                84,827         85,755
  Capital Lease Obligations                                                          52,173         52,371
                                                                                -----------   ------------
       Total Other Long-Term Liabilities                                            183,643        184,769
                                                                                -----------   ------------
CURRENT LIABILITIES
  Long-Term Debt due within one year                                                607,489        547,981
  Commercial Paper and Loans                                                        542,529        638,051
  Book Overdrafts                                                                    51,547        106,372
  Accounts Payable                                                                  561,780        590,932
  Other Taxes Accrued                                                               263,334         31,577
  Interest Accrued                                                                   94,799         95,800
  Provision for Rate Refund                                                           7,585         89,210
  Other                                                                             123,594        171,831
                                                                                -----------   ------------
       Total Current Liabilities                                                  2,252,657      2,271,754
                                                                                -----------   ------------
DEFERRED CREDITS
  Deferred Income Taxes                                                           3,264,915      3,250,343
  Deferred Investment Tax Credits                                                   356,968        361,786
  Deferred OPEB Costs                                                               315,997        226,171
  Other                                                                             146,923        145,837
                                                                                -----------   ------------
       Total Deferred Credits                                                     4,084,803      3,984,137
                                                                                -----------   ------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 3)                                        --             --
                                                                                -----------   ------------
Total                                                                           $16,924,098    $16,915,331
                                                                                ===========   ============
 See Notes to Consolidated Financial Statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

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

                                                              For the Three Months Ended March 31,
                                                              ------------------------------------
                                                                       1997         1996
                                                                    ---------    ---------
<S>                                                                 <C>          <C>      
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                        $ 139,514    $ 194,104
  Adjustments to reconcile net income to net cash flows from
   operating activities:
    Depreciation and Amortization                                     150,339      151,957
    Amortization of Nuclear Fuel                                       17,088        8,905
    Deferral of Electric Energy and Gas Costs - net                   (31,206)     (37,278)
    Unrealized Losses (Gains) on Investments - net                     13,675      (10,103)
    Provision for Deferred Income Taxes - net                             682       24,484
    Investment Tax Credits - net                                       (4,600)      (5,004)
    Allowance for Funds Used During Construction - Debt and
      Capitalized Interest                                             (5,546)      (4,547)
    Proceeds from Leasing Activities                                   13,871       11,212
    Changes in certain current assets and liabilities:
     Net decrease (increase)  in Accounts Receivable and Unbilled
       Revenues                                                        15,253      (54,383)
     Net decrease in Inventory - Fuel and Materials and
       Supplies                                                       177,573      162,307
     Net decrease in Accounts Payable                                 (29,152)     (28,448)
     Net increase in Other Accrued Taxes                              231,757      243,857
     Net change in Other Current Assets and Liabilities              (120,872)      17,313
    Other                                                               5,549          469
    Net cash provided by operating activities - Discontinued
      Operations                                                         --         10,140
                                                                    ---------    ---------
       Net Cash provided by operating activities                      573,925      684,985
                                                                    ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES
  Additions to Utility Plant, excluding AFDC                         (106,408)     (96,349)
  Net increase in Long-Term Investments and Real Estate               (73,818)     (21,571)
  Contribution to Decommissioning Funds and Other Special Funds        (7,371)      (7,391)
  Cost of Plant Removal - net                                          (9,048)     (11,101)
  Other                                                                (3,385)      14,409
  Change in Net Assets - Discontinued Operations                         --         (9,481)
                                                                    ---------    ---------
       Net cash used in investing activities                         (200,030)    (131,484)
                                                                    ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES
  Net (decrease) increase  in Short-Term Debt                         (95,522)     184,625
  Decrease in Book Overdrafts                                         (54,825)      (6,642)
  Issuance of Long-Term Debt                                             --        352,451
  Redemption of Long-Term Debt                                        (56,807)    (430,070)
  Long-Term Debt Issuance and Redemption Costs                           --        (38,319)
  Redemption of Preferred Stock                                       (18,869)        --
  Issuance of Preferred Securities of Subsidiaries                     95,000         --
  Retirement of Common Stock                                          (42,588)        --
  Cash Dividends Paid on Common Stock                                (125,257)    (132,138)
  Preferred Securities Issuance Expenses                               (3,161)           2
                                                                    ---------    ---------
       Net cash used in financing activities                         (302,029)     (70,091)
                                                                    ---------    ---------
Net increase in Cash and Cash Equivalents                              71,866      483,410
Cash and Cash Equivalents at Beginning of Period                      278,903       61,964
                                                                    ---------    ---------
Cash and Cash Equivalents at End of Period                          $ 350,769    $ 545,374
                                                                    =========    =========

Income Taxes Paid                                                   $   3,078    $   7,288
Interest Paid                                                       $  74,329    $ 110,258

   See Notes to Consolidated Financial Statements.
</TABLE>



<PAGE>


                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                             (Thousands of Dollars)


                                           For the Three Months Ended March 31,
                                           ------------------------------------
                                                      1997          1996
                                                   -----------   -----------

Balance at Beginning of Period                     $ 1,586,256   $ 1,636,971
Add:
  Net Income                                           139,514       194,104
                                                   -----------   -----------

       Total                                         1,725,770     1,831,075
                                                   -----------   -----------

Deduct:
  Cash Dividends on Common Stock                       125,257       132,138
  Retirement of Common Stock                            19,096          --
  Preferred Securities Issuance Expenses                 3,161            (2)
                                                   -----------   -----------

       Total Deductions                                147,514       132,136
                                                   -----------   -----------

Balance at End of Period                           $ 1,578,256   $ 1,698,939
                                                   ===========   ===========


See Notes to Consolidated Financial Statements.


<PAGE>
<TABLE>
<CAPTION>

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

                                                                      Three Months Ended
                                                                           March 31,
                                                                ---------------------------------
                                                                     1997              1996
                                                                ----------------   --------------
<S>                                                             <C>                <C>          
OPERATING REVENUES
  Electric                                                      $     960,457      $     959,436
  Gas                                                                 733,860            796,916
                                                                --------------     --------------
       Total Operating Revenues                                     1,694,317          1,756,352
                                                                --------------     --------------

OPERATING EXPENSES
  Operation
    Fuel for Electric Generation and Interchanged Power               248,352            216,075
    Gas Purchased                                                     421,833            456,732
    Other                                                             231,663            242,890
  Maintenance                                                          57,553             95,416
  Depreciation and Amortization                                       149,159            151,433
  Taxes
    Federal Income Taxes                                              101,907             94,630
    New Jersey Gross Receipts Taxes                                   172,046            188,436
    Other                                                              19,685             23,587
                                                                --------------     --------------
       Total Operating Expenses                                     1,402,198          1,469,199
                                                                --------------     --------------

OPERATING INCOME                                                      292,119            287,153

OTHER INCOME AND DEDUCTIONS
  Settlement of Salem Litigation - Net of Taxes                       (53,300)          --
  Other - net                                                           2,296               (778)
                                                                --------------     --------------
       Total Other Income and Deductions                              (51,004)              (778)
                                                                --------------     --------------

INCOME BEFORE INTEREST CHARGES AND
  DIVIDENDS ON PREFERRED SECURITIES                                   241,115            286,375
                                                                --------------     --------------

INTEREST CHARGES
  Long-Term Debt                                                       83,830             91,512
  Short-Term Debt                                                       5,095              4,034
  Other                                                                 6,558              6,755
                                                                --------------     --------------
     Total Interest Charges                                            95,483            102,301
Allowance for Funds Used During
  Construction - Debt                                                  (4,811)            (4,291)
                                                                --------------     --------------
Net Interest Charges                                                   90,672             98,010
                                                                --------------     --------------

Preferred Securities Dividend Requirements of Subsidiaries             10,420              4,715
                                                                --------------     --------------

NET INCOME                                                            140,023            183,650

Preferred Stock Dividend Requirements                                   3,872              7,526
Net Loss on Preferred Stock Redemptions                                   377           --
                                                                --------------     --------------

EARNINGS AVAILABLE TO PUBLIC
  SERVICE ENTERPRISE GROUP
  INCORPORATED                                                  $      135,774     $      176,124
                                                                ==============     ==============

See  Notes to Consolidated Financial Statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

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


                                                                                     March 31,   December 31,
                                                                                       1997          1996
                                                                                   -----------   -----------
<S>                                                                                <C>           <C>        
UTILITY PLANT - Original cost
  Electric                                                                         $13,364,416   $13,314,033
  Gas                                                                                2,577,583     2,555,901
  Common                                                                               538,993       530,185
                                                                                   -----------   -----------
       Total                                                                        16,480,992    16,400,119
  Less: Accumulated depreciation and amortization                                    6,020,933     5,889,098
                                                                                   -----------   -----------
       Net                                                                          10,460,059    10,511,021
  Nuclear Fuel in Service, net of accumulated amortization -
    1997, $276,472; 1996, $259,384                                                     182,113       198,845
                                                                                   -----------   -----------
       Net Utility Plant in Service                                                 10,642,172    10,709,866
  Construction Work in Progress, including Nuclear Fuel in
    Process - 1997, $78,553; 1996, $70,455                                             468,513       445,321
  Plant Held for Future Use                                                             23,966        23,966
                                                                                   -----------   -----------
       Net Utility Plant                                                            11,134,651    11,179,153
                                                                                   -----------   -----------
INVESTMENTS AND OTHER NONCURRENT ASSETS
  Long-Term Investments, net of amortization - 1997, $14,519; 1996, $12,679, and
    net of valuation allowances - 1997 and
    1996, $13,969                                                                      132,892       133,342
  Nuclear Decommissioning and Other Special Funds                                      390,171       382,348
  Other Plant, net of accumulated depreciation and
    amortization - 1997, $1,174; 1996, $1,171                                           19,155        19,157
                                                                                   -----------   -----------
       Total Investments and Other Noncurrent Assets                                   542,218       534,847
                                                                                   -----------   -----------
CURRENT ASSETS
  Cash and Cash Equivalents                                                            251,377        47,639
  Accounts Receivable:
    Customer Accounts Receivable                                                       578,515       499,858
    Other Accounts Receivable                                                          152,872       175,009
    Less: Allowance for Doubtful Accounts                                               40,465        42,283
  Accounts Receivable - Associated Companies - net                                        --           4,308
  Unbilled Revenues                                                                    180,828       248,504
  Fuel, at average cost                                                                134,787       313,019
  Materials and Supplies, at average cost, net of inventory
    valuation reserves - 1997 and 1996, $16,100                                        148,416       147,757
  Deferred Income Taxes                                                                 23,210        23,210
  Miscellaneous Current Assets                                                          20,617        30,409
                                                                                   -----------   -----------
       Total Current Assets                                                          1,450,157     1,447,430
                                                                                   -----------   -----------
DEFERRED DEBITS
  Property Abandonments - net                                                           48,822        52,573
  Oil and Gas Property Write-Down                                                       29,636        30,924
  Unamortized Debt Expense                                                             134,393       137,606
  Deferred OPEB Costs                                                                  315,997       226,171
  Unrecovered Environmental Costs                                                      127,192       125,900
  Unrecovered Plant and Regulatory Study Costs                                          33,581        33,941
  Underrecovered Electric Energy and Gas Costs - net                                   207,261       176,055
  Unrecovered SFAS 109 Deferred Income Taxes                                           748,589       751,763
  Deferred Decontamination and Decommissioning Costs                                    46,643        46,643
  Other                                                                                 59,278        56,348
                                                                                   -----------   -----------
       Total Deferred Debits                                                         1,751,392     1,637,924
                                                                                   -----------   -----------
Total                                                                              $14,878,418   $14,799,354
                                                                                   ===========   ===========

See Notes to Consolidated Financial Statements 
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


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


                                                                                  March 31,    December 31,
                                                                                    1997          1996
                                                                                 -----------   -----------
<S>                                                                              <C>           <C>        
CAPITALIZATION
  Common Equity:
    Common Stock                                                                 $ 2,563,003   $ 2,563,003
    Contributed Capital from Enterprise                                              594,395       594,395
    Retained Earnings                                                              1,370,816     1,365,003
                                                                                 -----------   -----------
       Total Common Equity                                                         4,528,214     4,522,401
  Preferred Stock Without Mandatory Redemption                                        94,523       113,392
  Preferred Stock  With Mandatory Redemption                                         150,000       150,000
  Subsidiaries' Preferred Securities:
    Monthly Guaranteed Preferred Beneficial Interest in PSE&G's
       Subordinated Debentures                                                       210,000       210,000
    Quarterly Guaranteed Preferred Beneficial Interest in PSE&G's
      Subordinated Debentures                                                        303,000       208,000
  Long-Term Debt                                                                   4,005,958     4,107,331
                                                                                 -----------   -----------
       Total Capitalization                                                        9,291,695     9,311,124
                                                                                 -----------   -----------
OTHER LONG-TERM LIABILITIES
  Decontamination and Decommissioning Costs                                           46,643        46,643
  Environmental Costs                                                                 84,827        85,755
  Capital Lease Obligations                                                           52,173        52,371
                                                                                 -----------   -----------
       Total Other Long-Term Liabilities                                             183,643       184,769
                                                                                 -----------   -----------
CURRENT LIABILITIES
  Long-Term Debt due within one year                                                 500,000       423,500
  Commercial Paper and Loans                                                         542,529       638,051
  Book Overdrafts                                                                     51,547       106,372
  Accounts Payable                                                                   470,793       520,651
  Accounts Payable - Associated Companies - net                                       80,271          --
  Other Taxes Accrued                                                                204,469        33,745
  Interest Accrued                                                                    76,184        86,674
  Provision for Rate Refund                                                            7,585        89,210
  Other                                                                              123,449       132,113
                                                                                 -----------   -----------
       Total Current Liabilities                                                   2,056,827     2,030,316
                                                                                 -----------   -----------
DEFERRED CREDITS
  Deferred Income Taxes                                                            2,545,767     2,557,587
  Deferred Investment Tax Credits                                                    346,945       351,637
  Deferred OPEB Costs                                                                315,997       226,171
  Other                                                                              137,544       137,750
                                                                                 -----------   -----------
       Total Deferred Credits                                                      3,346,253     3,273,145
                                                                                 -----------   -----------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 3)                                         --            --
                                                                                 -----------   -----------
Total                                                                            $14,878,418   $14,799,354
                                                                                 ===========   ===========

See Notes to Consolidated Financial Statements 
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


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

                                                                          For the Three Months Ended March 31,
                                                                          ------------------------------------
                                                                                  1997         1996
                                                                                ---------    ---------
<S>                                                                             <C>          <C>      
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                                    $ 140,023    $ 183,650
  Adjustments to reconcile net income to net cash flows from
   operating activities:
    Depreciation and Amortization                                                 149,159      151,044
    Amortization of Nuclear Fuel                                                   17,088        8,905
    Deferral of Electric Energy and Gas Costs - net                               (31,206)     (37,278)
    Provision for Deferred Income Taxes - net                                      (8,646)      22,442
    Investment Tax Credits - net                                                   (4,692)      (4,743)
    Allowance for Funds Used During Construction - Debt                            (4,811)      (4,291)
    Changes in certain current assets and liabilities:
     Net decrease (increase)  in Accounts Receivable and Unbilled
       Revenues                                                                    13,646      (50,783)
     Net decrease in Inventory - Fuel and Materials and
       Supplies                                                                   177,573      162,307
     Net increase in Accounts Payable                                              30,413       18,912
     Net increase in Other Accrued Taxes                                          170,724      191,804
     Net change in Other Current Assets and Liabilities                           (90,987)      27,036
    Other                                                                           2,981        3,385
                                                                                ---------    ---------
       Net cash provided by operating activities                                  561,265      672,390
                                                                                ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES
  Additions to Utility Plant, excluding AFDC                                     (106,408)     (96,349)
  Net increase in Long-Term Investments                                            (1,403)     (19,188)
  Contribution to Decommissioning Funds and Other Special Funds                    (7,371)      (7,391)
  Cost of Plant Removal - net                                                      (9,048)     (11,101)
  Other                                                                                 2          (13)
                                                                                ---------    ---------
       Net cash used in investing activities                                     (124,228)    (134,042)
                                                                                ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES
  Net (decrease) increase  in Short-Term Debt                                     (95,522)     180,839
  Decrease in Book Overdrafts                                                     (54,825)      (6,642)
  Issuance of Long-Term Debt                                                         --        352,451
  Redemption of Long-Term Debt                                                    (24,873)    (413,105)
  Long-Term Debt Issuance and Redemption Costs                                       --        (38,319)
  Redemption of Preferred Stock                                                   (18,869)        --
  Issuance of Preferred Securities of Subsidiaries                                 95,000         --
  Cash Dividends Paid                                                            (130,672)    (137,726)
  Other                                                                            (3,538)        --
                                                                                ---------    ---------
       Net cash used in financing activities                                     (233,299)     (62,502)
                                                                                ---------    ---------
Net increase in Cash and Cash Equivalents                                         203,738      475,846
Cash and Cash Equivalents at Beginning of Period                                   47,639       32,373
                                                                                ---------    ---------
Cash and Cash Equivalents at End of Period                                      $ 251,377    $ 508,219
                                                                                =========    =========
Income Taxes Paid                                                               $   4,149    $   9,049
Interest Paid                                                                   $  71,276    $ 101,605

See Notes to Consolidated Financial Statements.
</TABLE>


<PAGE>

                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                             (Thousands of Dollars)


                                         For the Three Months Ended March 31,
                                         ------------------------------------
                                                   1997            1996
                                                -----------    -----------

Balance at Beginning of Period                  $ 1,365,003    $ 1,365,915
Add:
  Net Income                                        140,023        183,650
                                                -----------    -----------

           Total                                  1,505,026      1,549,565
                                                -----------    -----------

Deduct Cash Dividends:
  Preferred Stock, at required rates                  3,872          7,526
  Common Stock                                      126,800        130,200
  Preferred Securities Issuance Expenses              3,161           --
                                                -----------    -----------

           Total Deductions                         133,833        137,726
                                                -----------    -----------

Net Loss on Preferred Stock Redemptions                (377)          --
                                                -----------    -----------

Balance at End of Period                        $ 1,370,816    $ 1,411,839
                                                ===========    ===========



See Notes to Consolidated Financial Statements.

<PAGE>
                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1.  Basis of Presentation

     The financial statements included herein have been prepared pursuant to the
rules and regulations of the Securities and Exchange  Commission (SEC).  Certain
information  and note  disclosures  normally  included in  financial  statements
prepared in accordance with generally accepted  accounting  principles have been
condensed or omitted  pursuant to such rules and  regulations.  However,  in the
opinion of  management,  the  disclosures  are adequate to make the  information
presented not misleading.  These financial  statements and Notes to Consolidated
Financial  Statements  (Notes)  thereto should be read in  conjunction  with the
respective  Registrant's Notes contained in the 1996 Annual Report on Form 10-K.
The Notes contained herein update and supplement  matters  discussed in the 1996
Annual Report on Form 10-K.

     The  unaudited  financial   information  furnished  herewith  reflects  all
adjustments  which  are,  in the  opinion  of  management,  necessary  to a fair
statement of the results for the interim periods presented.

Note 2.  Rate Matters

     Competitive Transition Charge (CTC)

     On April 24,  1997,  the Board of Public  Utilities  (BPU) issued a generic
order  regarding CTC filings by electric  utilities in New Jersey.  The BPU will
conduct a generic  review of CTC issues  since these  issues are integral to the
restructuring of the electric utility  industry.  As a result,  PSE&G's petition
and the motions concerning PSE&G's CTC filing will be placed in abeyance pending
the  conclusion of the generic  proceeding.  The BPU will hold a public  hearing
under the generic  proceeding to receive  written and oral testimony on June 19,
1997.  Written comments  regarding the generic proceeding are to be submitted to
the BPU by June 27, 1997 and the BPU expects to resolve CTC issues by the end of
July 1997. PSE&G cannot predict the outcome of this proceeding.

     Levelized Gas Adjustment Charge (LGAC)

     On April 2, 1997, the BPU approved  PSE&G's LGAC  stipulation.  The interim
residential  LGAC charge,  approved on November 22, 1996, will continue  through
October 31, 1997.

     Demand Side Adjustment Factor (DSAF)

     On February 24, 1997,  PSE&G filed a motion with the BPU  requesting a $151
million increase for its DSAF to reflect  increases in the costs associated with
PSE&G's Demand Side  Management  (DSM)  Programs.  The increase was requested to
become effective on May 1, 1997 and continue through December 31, 1998. On March
26, 1997,  this matter was transferred to the Office of  Administrative  Law for
hearing. PSE&G cannot predict the outcome of this proceeding.

Note 3.  Commitments and Contingent Liabilities

     Hazardous Waste

     Certain Federal and State laws authorize the U.S. Environmental  Protection
Agency (EPA) and the New Jersey Department of Environmental  Protection (NJDEP),
among other agencies,  to issue orders and bring  enforcement  actions to compel
responsible parties to investigate and take remedial actions at any site that is
determined  to present an imminent and  substantial  danger to the public or the
environment  because of an actual or threatened release of one or more hazardous
substances.  Because of the nature of PSE&G's business, including the production
of electricity,  the distribution of gas and, formerly,  the manufacture of gas,
various by-products and substances are or were produced or handled which contain
constituents classified as hazardous.  PSE&G generally provides for the disposal
or processing  of such  substances  through  licensed  independent  contractors.
However,  these  statutory  provisions  impose joint and several  responsibility
without regard to fault on all responsible parties,  including the generators of
the hazardous  substances,  for certain  investigative  and remediation costs at
sites where these  substances  were  disposed  of or  processed.  PSE&G has been
notified  with  respect to a number of such sites and the  remediation  of these
potentially  hazardous sites is receiving attention from the government agencies
involved.  Generally,  actions directed at funding such site  investigations and
remediation  include  all  suspected  or known  responsible  parties.  Except as
discussed below with respect to its Manufactured Gas Plant  Remediation  Program
(Remediation Program), Enterprise and PSE&G do not expect their expenditures for
any such site to have a material effect on their financial condition, results of
operations and net cash flows.

     PSE&G Manufactured Gas Plant Remediation Program

     In 1988,  NJDEP  notified  PSE&G that it had identified the need for PSE&G,
pursuant  to  a  formal  arrangement,  to  systematically  investigate  and,  if
necessary,  resolve environmental concerns extant at PSE&G's former manufactured
gas plant sites. To date,  NJDEP and PSE&G have identified 38 such sites.  PSE&G
is currently  working with NJDEP under a program to assess,  investigate and, if
necessary,  remediate  environmental  concerns at these sites.  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  cost  of  the  Remediation  Program  cannot  be  reasonably
estimated,  but  experience to date indicates that costs of at least $20 million
per year  could be  incurred  over a period  of more  than 30 years and that the
overall cost could be material to Enterprise  and PSE&G's  financial  condition,
results of operations and net cash flows.

     Settlement of Salem Litigation

     On May 12,  1997,  PSE&G  settled  the lawsuit  brought  against it by PECO
Energy Company (PECO) and Delmarva Power & Light Company  (DP&L),  two co-owners
of the Salem Nuclear  Generating  Station  (Salem),  relating to alleged damages
resulting  from the  current  outage  of the  facility.  Under  the terms of the
settlement,  PSE&G will pay an aggregate of $82.0 million to PECO and DP&L. This
resulted in an after-tax  charge to earnings of $53.3 million or $0.23 per share
of Enterprise Common Stock. PSE&G is also obligated to pay $1.4 million for each
reactor month that the outage continues beyond an aggregate outage of 64 reactor
months,  up to a maximum payment under this provision of $17 million.  Salem has
presently been out of service for  approximately 47 reactor months through April
30, 1997,  and PSE&G does not expect to be required to make any  payments  under
this provision.

     PECO, DP&L and PSE&G have also agreed to an operating  performance standard
through  December  31, 2011 for Salem and December 31, 2007 for the Peach Bottom
Atomic Power Station (Peach Bottom) operated by PECO.  Under this standard,  the
operator would be required to make payments to the non-operating  parties if the
three-year capacity factor,  determined annually,  of either station falls below
40 percent, subject to a maximum of $25 million per year. The initial three-year
period  begins for Peach Bottom on January 1, 1998 and for Salem on the date the
later of the two Salem units returns to service. The parties have further agreed
to forego  litigation  in the  future,  except  for  limited  cases in which the
operator would be responsible for damages of no more than $5 million per year.

     As previously  reported,  PSE&G and Atlantic  City  Electric  Company (ACE)
entered into an operating agreement which resulted in the dismissal of a similar
lawsuit by ACE. Under the agreement,  ACE pays a portion of its 1997  operation
and maintenance  (O&M)  requirements  based on the generation at Salem.  Current
expectations of the return to service of the Salem units (see Nuclear Operations
of MD&A),  is likely to result in PSE&G  absorbing  $7 to $10  million  of ACE's
share of 1997 O&M. As of April 30, 1997, PSE&G has realized $4.5 million of such
costs.

Note 4.  Financial Instruments and Risk Management

     Enterprise's  operations give rise to exposure to market risks from changes
in fossil fuel  prices,  interest  rates,  foreign  exchange  rates and security
prices  of  investments.  Enterprise's  policy  is to use  derivative  financial
instruments for the purpose of managing market risk consistent with its business
plans  and  prudent  practices.  Enterprise  does  not  currently  hold or issue
financial instruments for trading purposes.

     Natural Gas Hedging

     Through March 31, 1997, Energis Resources  Incorporated (Energis Resources)
entered  into  futures  contracts  to buy  7,960,000  mmbtu of natural gas at an
average price of $2.04 per mmbtu related to fixed-price sales commitments.  Such
contracts,  together with physical purchase contracts,  hedged approximately 93%
of its fixed-price sales commitments at March 31, 1997.  Energis Resources had a
deferred unrealized hedge loss of $0.3 million at March 31, 1997.


<PAGE>


Note 5.  Discontinued Operations

     Prior year operating  results of Energy  Development  Corporation (EDC) are
summarized below:

                                             Quarter Ended
                                            March 31, 1996

     Revenues                                   $68,537
     Operating income                            19,486
     Earnings before income taxes                12,700
     Income taxes                                 4,050
     Net income                                   8,650



                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

         Note 1.    Basis of Presentation
         Note 2.    Rate Matters
         Note 3.    Commitments and Contingent Liabilities


<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  (Enterprise) 1996
Annual Report on Form 10-K affecting the  consolidated  financial  condition and
the results of operations of Enterprise and its  subsidiaries.  This  discussion
refers to the Consolidated  Financial Statements  (Statements) and related Notes
of Enterprise and should be read in conjunction with such Statements and Notes.

Results of Operations

     Earnings  per share of  Enterprise  common stock were $0.60 for the quarter
ended March 31,  1997,  a decrease  of $0.19 per share of common  stock from the
comparable 1996 period.

     The earnings per share  decrease was primarily  due to the  settlement of a
lawsuit filed by two of the co-owners of the Salem  Nuclear  Generating  Station
(Salem)  (see Note 3 --  Commitments  and  Contingent  Liabilities).  Under this
settlement,  PSE&G will pay an aggregate of $82.0 million to PECO Energy Company
(PECO) and Delmarva  Power and Light Company  (DP&L),  resulting in an after tax
charge to  earnings  of $53.3  million or $0.23 per share.  Another  factor that
decreased  earnings  per  share  was weak  electric  and gas  sales  due to mild
weather,  partially  offset by lower operation and maintenance  expenses at Hope
Creek Nuclear  Generating  Station (Hope Creek) and Salem. In 1996,  expenses at
these  stations were higher than in 1997 due to the extended 1996  refueling and
maintenance outage at Hope Creek and restart activities at Salem.

     Enterprise  Diversified  Holdings  Incorporated's  (EDHI)  contribution  to
earnings decreased. This decrease was primarily due to the contribution of $0.04
per share in the first quarter of 1996 by EDHI's oil and gas subsidiary,  Energy
Development  Corporation (EDC),  which was sold on July 31, 1996.  Approximately
$350  million  of the  proceeds  was used to buy back  12.7  million  shares  of
Enterprise  common  stock.  The  resulting  lower  number of shares  outstanding
offset,  on an earnings per share basis,  the absence of an EDC  contribution in
the first quarter of 1997.

PSE&G - Revenues

     Electric
                                               Increase or (Decrease)
                                              --------------------------
                                                    Quarter Ended
                                                      March 31,
                                                    1997 vs. 1996
                                              --------------------------
                                                (Millions of Dollars)
        Kilowatt-hour sales                              $      (23)
        Recovery of energy costs                                 30
        Non-margin revenues (A)                                 ( 9)
        Other operating revenues                                  3
                                                         -----------
                Total Electric Revenues                  $        1
                                                         ===========

     Revenues  increased $1 million or 0.1% for the quarter ended March 31, 1997
from the comparable  period of 1996  primarily due to higher  recovery of energy
costs.  This increase was partially offset by lower  kilowatt-hour  sales due to
milder weather.

     Gas
                                                Increase or (Decrease)
                                               --------------------------
                                                     Quarter Ended
                                                       March 31,
                                                     1997 vs. 1996
                                               --------------------------
                                                 (Millions of Dollars)
        Therm sales                                         $    (13)
        Recovery of fuel costs                                   (31)
        Non-margin revenues (A)                                  (17)
        Other operating revenues                                  (2)
                                                           ----------
                Total Gas Revenues                          $    (63)
                                                           ==========

     Revenues decreased $63 million or 7.9% for the quarter ended March 31, 1997
over the comparable period of 1996 primarily due to lower recovery of fuel costs
and decreased therm sales due to milder weather.  Lower other operating revenues
due to weak off-system sales also contributed to the overall revenue decrease.

     (A)   Non-margin  revenues  primarily  reflect  recoveries  for Demand Side
           Management (DSM) Program costs,  uncollectibles and NJ Gross Receipts
           and Franchise Taxes (NJGRT).

PSE&G - Expenses

     Other Operation and Maintenance Expenses

     Other operation and maintenance expenses decreased $49 million or 14.5% for
the quarter ended March 31, 1997 from the comparable  1996 period.  The decrease
was primarily due to Hope Creek's  extended  refueling  and  maintenance  outage
during the first quarter of 1996.  Also  contributing to the decrease were lower
1997 restart activity expenses at Salem.

     Federal Income Taxes

     Federal  income taxes  increased  $7 million or 7.7% for the quarter  ended
March 31, 1997 from the comparable  1996 period.  The increase was primarily due
to the increase in 1997 pre-tax income.

     Interest on Long-Term Debt

     Interest on  long-term  debt  decreased  $8 million or 8.4% for the quarter
ended March 31, 1997 from the  comparable  1996  period.  In 1996, interest  was
higher due to a premium  payment in  connection  with open market  purchases  of
certain outstanding First and Refunding Mortgage Bonds.

     Fuel for Electric Generation and Interchanged Power

     Fuel for Electric  Generation and Interchanged  Power increased $32 million
or 14.9% due to an increase in fuel recovery  revenues.  Due to the operation of
the Electric  Levelized Energy Adjustment Clause (LEAC) mechanism,  variances in
fuel revenues and expenses offset, with no direct effect on earnings.

EDHI - Net Income


                                      Increase or (Decrease)
                            ---------------------------------------------
                                           Quarter Ended
                                             March 31,
                                           1997 vs. 1996
                            ---------------------------------------------
                                   Amount                      Per
                            (Millions of Dollars)             Share
                            ----------------------- ---- ----------------
PSRC                            $        (6)               $       (.02)
CEA                                       3                         .01
Energis Resources                        (3)                       (.01)
EGDC                                      1                          --
                             ----- ----------           ----- -----------
Continuing Operations                    (5)                       (.02)
Discontinued Operations-EDC              (9)                       (.04)
                             ===== ==========           ==== ============
         Total                  $       (14)              $        (.06)
                             ===== ==========           ==== ============

     Continuing Operations

     EDHI's  income from  continuing  operations  was $4 million for the quarter
ended March 31, 1997, a $5 million decrease from the comparable 1996 period. The
decrease  was  primarily  due  to  lower  gains  on  Public  Service   Resources
Corporation's (PSRC) security investments held in limited partnerships. The loss
for  Energis  Resources  increased  due to  higher  administrative  and  general
expenditures while income for Community Energy Alternatives Inc. (CEA) increased
due to the improved operations of several projects.


<PAGE>


     Discontinued Operations

     EDC was sold on July 31, 1996.

Liquidity and Capital Resources

     Enterprise

     Cash generated from  operations  will provide the major source of funds for
growth of the business.  Cash and cash equivalents totaled $351 million at March
31, 1997.

     As of March 31, 1997,  Enterprise's  capital  structure  consisted of 49.8%
common equity, 42.9% long-term debt and 7.3% preferred stock and other preferred
securities.

     Dividend  payments on Common  Stock were $0.54 per share and  totaled  $125
million  for the quarter  ended March 31,  1997.  The ability of  Enterprise  to
declare and pay  dividends is contingent  upon its receipt of dividend  payments
from its subsidiaries.  Since 1992, Enterprise has maintained a constant rate of
dividend on its common stock.
A key Enterprise objective is to keep its common stock dividend secure.

     PSE&G

     For the quarter ended March 31, 1997,  PSE&G had utility  plant  additions,
including AFDC, of $111 million,  an $11 million increase from the corresponding
1996 period.  The increase was primarily due to the cost of the  replacement  of
the Salem Unit 1 steam generators.

     PSE&G  expects  that it will be  able  to  internally  generate  all of its
construction  and capital  requirements  over the next five years and reduce its
debt  outstanding  by  approximately  $1 billion,  assuming  adequate and timely
recovery of costs including any costs stranded as a result of changes in federal
and state regulations,  as to which no assurances can be given. (See Competitive
Environment  below;  Note 2, Rate Matters;  Note 3,  Commitments  and Contingent
Liabilities of Notes and Federal Regulations (Electric) of Item 5.)

     EDHI

     During the next five years, EDHI's capital  requirements are expected to be
provided  from  additional  debt  financing,  operational  cash flows and equity
capital.  CEA and Energis  Resources are expected to be the primary vehicles for
EDHI's  business  growth.  A significant  portion of CEA's growth is expected to
occur in the  international  arena due to the current and anticipated  growth in
electric capacity required in certain regions of the world. Energis Resources is
expected to expand upon the current  energy  related  services being provided to
industrial and commercial customers. PSRC will continue to limit new investments
to those  related  to energy  businesses,  while  Enterprise  Group  Development
Corporation  (EGDC) will continue to exit the real estate  business in a prudent
manner.

     In the first  quarter of 1997,  PSRC  entered  into a leveraged  lease of a
coal-fired steam generating  station located in the Netherlands.  In April 1997,
PSRC entered into two additional  leveraged leases of power plants:  one located
in the United  Kingdom;  the other in the  Netherlands.  The  aggregate of these
investments amounted to approximately $107 million.

     In the first  quarter  of 1997,  CEA  acquired a 50%  interest  in a 200 MW
natural   gas-fired   plant  located  in  Columbia  which  is  currently   under
construction.  In April 1997,  CEA and a partner won a bid to acquire,  for $565
million,  90% of two Argentinean  electric  distribution  companies  serving the
Buenos Aires  province.  CEA's  indirect  ownership of the two companies is 33%.
Financial  closing is expected to occur in June 1997. Each of these  investments
is considered an exempt  foreign  utility  company.  Also in April  1997,  CEA
acquired a 49% interest in an  operating  180 MW  oil-fired  cogeneration  plant
located on the island of Oahu in Hawaii.  The aggregate  equity  investment  for
these and other projects will amount to approximately $225 million by year end.

     EDHI,  PSRC and CEA are  subject  to  restrictive  business  and  financial
covenants contained in existing debt agreements.  EDHI is required to maintain a
debt to equity ratio of no more than 2.00:1 and a twelve-months  earnings before
interest and taxes (EBIT)  coverage  ratio of at least  1.50:1.  As of March 31,
1997,  EDHI had a  consolidated  debt to equity ratio of 1.00:1.  For the twelve
months ended March 31, 1997, the EBIT coverage  ratio, as defined to exclude the
effects  of EGDC and the 1996 gain on the sale of EDC,  was  2.25:1.  Compliance
with applicable  financial  covenants will depend upon future financial position
and levels of earnings, as to which no assurance can be given.

     Over the next several years,  EDHI and its subsidiaries will be required to
refinance  a  portion  of their  maturing  debt in order to meet  their  capital
requirements.  Any inability to extend or replace  maturing debt and/or existing
agreements at current levels and interest  rates may affect future  earnings and
result in an increase in EDHI's cost of capital.

External Financings - PSE&G

     PSE&G has New Jersey  Board of Public  Utilities  (BPU)  authority to issue
approximately $4.336 billion aggregate amount of additional Bonds/MTNs/Preferred
Stock/Preferred  Securities  through  1997 for  refunding  purposes.  Under  its
Mortgage, PSE&G may issue new First and Refunding Mortgage Bonds (Bonds) against
previous additions and improvements and/or retired Bonds provided that its ratio
of earnings to fixed  charges is at least 2:1. At March 31, 1997,  this Mortgage
ratio was 3.34:1.  As of March 31, 1997,  the Mortgage would permit up to $3.047
billion  aggregate  principal  amount of new bonds to be issued against previous
additions and improvements.

     In February  1997,  PSE&G  Capital  Trust II, a special  purpose  statutory
business  trust  controlled  by PSE&G,  issued $95  million of 8.125%  Quarterly
Income Preferred Securities  (Quarterly Guaranteed Preferred Beneficial Interest
in  PSE&G's  Subordinated  Debentures).  PSE&G  used  the  proceeds  to fund the
redemption of the remaining  188,684 shares  outstanding of its 6.80% Cumulative
Preferred Stock $100 par value at $102 per share in January 1997 and will redeem
all 750,000  shares of its 7.44%  Cumulative  Preferred  Stock $100 par value at
$103.72 per share in June 1997.

     The BPU has authorized  PSE&G to issue and have outstanding at any one time
not more than $1.3 billion of short-term  obligations,  consisting of commercial
paper and other  unsecured  borrowings  from  banks  and other  lenders  through
January 2, 1999. On March 31, 1997,  PSE&G had $467 million of  short-term  debt
outstanding.

     To provide  liquidity for its commercial  paper  program,  PSE&G has a $500
million one-year  revolving credit agreement  expiring in August 1997 and a $500
million  five-year  revolving  credit  agreement  expiring in August 2000 with a
group of commercial  banks,  which provide for  borrowings of up to one year. On
March  31,  1997,  there  were no  borrowings  outstanding  under  these  credit
agreements.  PSE&G expects to be able to renew the credit agreement  expiring in
1997.

     PSE&G Fuel Corporation (Fuelco) has a $125 million commercial paper program
to finance a 42.49% share of Peach Bottom  Atomic Power  Station  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 March 31, 1997,  Fuelco had
commercial paper of $74 million outstanding under such program.

External Financings - EDHI

     PSEG Capital  Corporation's  (Capital)  Medium-Term  Note (MTN)  program is
expected to provide for an aggregate  principal amount of up to $650 million and
its total debt  outstanding  at any time,  including  MTNs,  is not  expected to
exceed such amount.  At March 31, 1997,  Capital had total debt  outstanding  of
$398 million, including $335 million of MTN's.

Nuclear Operations

     PSE&G's Salem Units 1 and 2 were taken out of service in the second quarter
of 1995.  Salem Unit 2 is in the final stage of  preparation  for restart and is
expected to return to service  early in the third  quarter of 1997.  In a May 5,
1997 letter to the Nuclear Regulatory Commission (NRC), PSE&G requested that the
NRC commence its Readiness  Assessment  Team  Inspection (a requirement for unit
restart)  in early June  1997.  PSE&G  expects  that the NRC will  complete  its
inspection  in June.  Installation  of Salem Unit 1 steam  generators is nearing
completion,  and the unit is expected to return to service in late 1997. Restart
of each Salem Unit is subject to NRC approval.  The cost of the  replacement  of
Unit 1 steam generators, including installation, and the cost of disposal of the
four old steam  generators  is estimated at $180 million  (PSE&G's  share is $77
million),  of which  approximately  $150  million  has already  been spent.  The
inability to successfully return these units to continuous, safe operation could
have a material adverse effect on the financial condition, results of operations
and net cash flows of Enterprise and PSE&G.


<PAGE>


Impact of New Accounting Pronouncement

     In March 1997,  the  Financial  Accounting  Standards  Board (FASB)  issued
Statement of Financial  Accounting Standards No. 128, "Earnings per Share" (SFAS
128) which is effective for financial statements issued after December 15, 1997.
SFAS 128  supersedes  Accounting  Principles  Board  Opinion No. 15 (APB 15) and
replaces the  presentation  of Primary EPS with a presentation  of Basic EPS. It
also requires  presentation of Basic and Diluted EPS on the income statement for
all entities with complex  capital  structures.  The adoption of SFAS 128 is not
expected  to have a  material  impact on the  financial  condition,  results  of
operations and net cash flows of Enterprise and PSE&G.

Competitive Environment

     Energy Master Plan

     On January 16, 1997, the BPU issued its draft report  regarding Phase II of
the New Jersey Energy Master Plan (draft Phase II report)  addressing  wholesale
and retail electric competition in New Jersey. PSE&G assessed the draft Phase II
report's  proposed  findings and  recommendations  and, in  accordance  with the
proceeding requirements,  filed formal written comments with the BPU on February
28, 1997.

     The comments stated that PSE&G will voluntarily commit to provide access to
its  transmission  system for retail  customers in order to facilitate  electric
industry  restructuring to open the market to competition.  PSE&G further stated
that it is committed to working toward rate  reductions in a manner that assures
the reliability of electric  service,  safeguards the environment,  protects the
New Jersey labor force and treats investors  fairly.  PSE&G urged the BPU not to
allow  prudently  incurred  costs to be stranded in the industry  transition  to
competition. PSE&G also recommended that, as long as the BPU's policy objectives
are met and the utility meets its burden of proof,  there should be  flexibility
in the  guidelines  for the form and  content  of the  various  utility  filings
required to be made by July 15, 1997. In addition,  PSE&G recommended that, at a
minimum, the BPU should require certain environmental protection standards.

     On April 30, 1997,  the BPU issued its final report  regarding  Phase II of
the New Jersey Energy  Master Plan (final Phase II report).  The majority of the
final  Phase II  report  mirrors  the  draft  Phase II  report,  except  that it
accelerates  the  phase-in  period  of  customer  choice  of  providers  for all
customers  to include 10% in October  1998,  20% by January  1999,  35% by April
1999,  50% by October 1999,  75% by April 2000 and 100% by July 2000.  The final
Phase II report also calls for: (1) near term rate reductions in retail electric
rates of 5-10%;  (2) utilities to have the  opportunity,  but no  guarantee,  to
recover  stranded  costs  associated  with  generating  capacity  investment and
independent  power  contract  costs;  (3)  a  market  transition  charge  to  be
established  for a limited  time of 4-8 years to  provide  for the  recovery  of
non-mitigated  stranded costs; (4) the issue of securitization of stranded costs
to be explored;  (5) functional separation of utility generating assets, subject
to BPU detailed  analyses of potential market power issues and (6) the filing of
a rate unbundling plan,  stranded cost status report and  restructuring  plan by
July 15, 1997. The final Phase II report  endorses  environmental  disclosure by
power  suppliers  to provide  consumers  with  information  necessary  to choose
cleaner sources of power  available in the  marketplace.  The  information  will
enable  verification  of claimed  emission  rates,  which will be  explored by a
Consumer  Protection Task Force. The final Phase II report is to be submitted to
New  Jersey's   Governor  and  Legislature  in  May  1997,  with   restructuring
legislation  expected to be introduced in the Legislature  before year-end 1997.
BPU action on the July 15, 1997 utility  filings  pursuant to the final Phase II
report is expected to be completed during the fourth quarter of 1998.

     Stranded Costs

     Recoverability  of stranded  costs is largely  dependent on the  transition
rules  established  by  regulators,  including  the  Federal  Energy  Regulatory
Commission  (FERC)  and the BPU.  The  final  Phase II report  concluded  that a
utility's  stranded  costs  should  be  limited  to costs  associated  with past
financial commitments made for the purpose of procuring a utility's power supply
and that the utility should be given the  opportunity  but that there should not
be a guarantee provided for 100% recovery of all eligible stranded costs. Due to
uncertainties  regarding future market prices of electricity and the duration of
the transition period,  PSE&G has not yet determined the level of stranded costs
related to its  generating  facilities  and thus  cannot  currently  predict the
amount of its potential  stranded costs. PSE&G plans to file, no later than July
15, 1997, a stranded cost status report with the BPU. The  opportunity  for full
recovery of such eligible costs would be contingent upon, and may be constrained
by, the utility  meeting a number of  conditions,  including  achievement of the
goal of delivering a near term rate reduction to customers of 5 to 10%.

     A mechanism that is currently being explored to mitigate stranded costs for
utilities is securitization. With the adoption of appropriate state legislation,
this mechanism  offers a means  to reduce the cost of stranded asset recovery by
refinancing  stranded capital,  formerly financed with a combination of debt and
equity,  with all debt.  The  final  Phase II report  recognizes  the  potential
benefits of this valuable  mechanism.  However,  the report  expresses the BPU's
view that  securitization is not the sole solution for solving the stranded cost
problems  but must be used with other  reasonably  available  mitigation  steps.
Recognizing that stranded costs have not yet been quantified,  that the issue of
asset securitization and the extent of its application have not been determined,
as well as the need for enabling legislation, PSE&G cannot predict the extent to
which regulators may allow recovery of its potentially stranded costs. Inability
to adequately recover stranded costs could have a material adverse affect on the
financial condition,  results of operations and net cash flows of Enterprise and
PSE&G.

     New Jersey Gross Receipts and Franchise Tax (NJGRT)

     On March 10, 1997, legislation was introduced in the New Jersey Legislature
to repeal the NJGRT  collected by utilities from their  customers and replace it
with a  combination  of corporate  business  tax,  state sales and use tax and a
transitional  assessment  which would be phased out over five years. The new tax
structure would improve the competitive position of PSE&G vis-a-vis  non-utility
energy  providers in New Jersey who are currently not subject to NJGRT.  If this
legislation  is approved,  the new tax  structure  would take effect  January 1,
1998. PSE&G cannot predict when or if this legislation will be approved.

     PSE&G SelectGas Pilot Program


     On March 12, 1997, the BPU approved  PSE&G's  SelectGas Pilot Program which
gives residential  customers in four  municipalities  the option to purchase gas
from a supplier other than PSE&G  beginning May 1, 1997.  This  residential  gas
unbundling  pilot program will extend through June 1998, but customers can elect
to return to the  PSE&G  system  during  the pilot or stay with  their  selected
supplier,  assuming the  customer's  supplier  also  provides for such a change.
Unbundling in the gas industry began in PSE&G's  service area in 1994 when PSE&G
opened the gas market to its commercial and industrial customers.

PSE&G

     The information  required by this item is incorporated  herein by reference
to the following portions of Enterprise's  Management's  Discussion and Analysis
of  Financial  Condition  and Results of  Operations,  insofar as they relate to
PSE&G  and its  subsidiaries:  Results  of  Operations;  Liquidity  and  Capital
Resources; External Financings; Nuclear Operations and Competitive Environment.

Forward Looking Statements

     The Private  Securities  Litigation Reform Act of 1995 (the Act) provides a
new "safe harbor" for  forward-looking  statements to encourage such disclosures
without the threat of litigation  providing  those  statements are identified as
forward-looking  and  are  accompanied  by  meaningful,   cautionary  statements
identifying  important  factors  that could  cause the actual  results to differ
materially  from those  projected in the statement.  Forward-looking  statements
have been made in this report. 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",  "estimate",
"expect",   "objective"  and  similar   expressions  are  intended  to  identify
forward-looking  statements.  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;  an
increasingly   competitive  energy  marketplace;   sales  retention  and  growth
potential in a mature service territory and a need to contain costs;  ability to
obtain adequate and timely rate relief,  cost recovery,  including the potential
impact of stranded costs, and other necessary regulatory approvals;  federal and
state  regulatory  actions;  costs  of  construction;   operating  restrictions,
increased  cost  and   construction   delays   attributable   to   environmental
regulations;  nuclear  decommissioning  and the availability of reprocessing and
storage  facilities for spent nuclear fuel;  licensing and  regulatory  approval
necessary for nuclear and other operating stations;  and credit market concerns.
Enterprise  and PSE&G  undertake no obligation to publicly  update or revise any
forward-looking  statements,  whether  as a result  of new  information,  future
events or otherwise.  The foregoing review of factors pursuant to the Act should
not be construed as  exhaustive  or as any  admission  regarding the adequacy of
disclosures made by Enterprise and PSE&G prior to the effective date of the Act.


<PAGE>


                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                           PART II. OTHER INFORMATION


Item 1.  Legal Proceedings

     Certain  information  reported under Item 3 of Part I of  Enterprise's  and
PSE&G's 1996 Annual Report to the SEC on Form 10-K is updated below.  References
are to the related page of the Form 10-K.

     Page 24. PSE&G settled the lawsuit brought against it by PECO and DP&L, two
co-owners  of Salem,  relating  to alleged  damages  resulting  from the current
outage of the  facility.  Under the terms of the  settlement,  PSE&G will pay an
aggregate  of $82.0  million to PECO and DP&L.  PSE&G would also be obligated to
pay $1.4  million for each  reactor  month that the outage  continues  beyond an
aggregate  outage of 64  reactor  months,  up to a maximum  payment  under  this
provision  of  $17  million.  Salem  has  presently  been  out  of  service  for
approximately 47 reactor months and PSE&G does not expect to be required to make
any payments under this provision.  The parties have also agreed to an operating
performance  standard  through  December 31, 2007 for Peach Bottom  (operated by
PECO) and December 31, 2011 for Salem.  Under this standard,  the operator would
be  required  to make  payments  to the  non-operating  owners if the three year
capacity factor,  determined annually,  of either station falls below 40 percent
subject to a maximum  of up to $25  million  per year.  The  initial  three-year
period  begins for Peach Bottom on January 1, 1998 and for Salem on the date the
later of the two Salem units returns to service. The parties have further agreed
to forego  litigation  in the  future,  except  for  limited  cases in which the
operator would be  responsible  for damages of no more than $5 million per year.
(See Results of  Operations  of MD&A and Note 3 --  Commitments  and  Contingent
Liabilities for more information.)

     Page 24. In the shareholder derivative  litigation,  the Appellate Division
     sustained the trial court's  denial of  defendants'  motions to dismiss the
     complaints. Defendants' appeal of this denial was recently dismissed by the
     New Jersey Supreme  Court.  The  litigation  will now enter  the  discovery
     phase.

     In addition, see the following at the pages indicated:

     (1) Page 14.  Generic  proceeding  before the BPU  relating to  Competitive
     Transition Charges, Docket No. ET96090669. Form 10-K, Page 55.

     (2) Page 14.  Proceedings  before the BPU  relating to PSE&G's  Demand Side
     Adjustment Factor, Docket No. ER97020101.

New Matter

     On March  18,  1997,  Public  Service  Conservation  Resources  Corporation
(PSCRC),  an  indirect  wholly-owned  subsidiary  of  Enterprise  and  a  direct
wholly-owned  subsidiary  of PSE&G,  filed a  collection  action  against  SYCOM
Enterprises Limited Partnership (SYCOM) in connection with PSCRC's DSM business.
PSCRC  alleged  that SYCOM has breached a number of  different  loan  agreements
under which PSCRC is owed approximately $13.4 million in principal and interest.
On May 7, 1997,  SYCOM  filed a  counterclaim  against  PSCRC and a  third-party
complaint against an officer and certain consultants of PSCRC,  alleging damages
of $750 million and asserting  claims that pursuant to statute,  if  successful,
would  permit  treble  damages.   PSCRC  believes  that  the   counterclaim  and
third-party  complaint are spurious and without merit and PSCRC will  vigorously
contest  such  claims.  At March 31, 1997,  Enterprise  and PSE&G had  aggregate
investments in PSCRC of $54.9 million.  Public  Service  Conservation  Resources
Corporation  v. Sycom  Enterprises  Limited  Partnership,  Docket No.  L-2744-97
Superior Court of New Jersey, Law Division, Middlesex County.

Item 4.  Submission of Matters to a Vote of Security Holders

     Enterprise's  Annual  Meeting of  Stockholders  was held on April 15, 1997.
Proxies for the meeting  were  solicited  pursuant to  Regulation  14A under the
Securities  Exchange  Act of 1934.  There  was no  solicitation  of  proxies  in
opposition to management's  nominees as listed in the proxy statement and all of
management's  nominees  were elected to the Board of  Directors.  Details of the
voting are provided below:


<PAGE>
                                       Votes         Votes
                                        For         Withheld
                                     -----------   ----------
Proposal 1 - Election of Directors

  Class I - Term expiring 2000

  Lawrence R. Codey                  188,131,745   4,415,553
  Ernest H. Drew                     188,383,436   4,365,974
  Forrest J. Remick                  188,411,539   4,328,727


                                       Votes         Votes        Votes
                                        For          Against     Abstaining
                                     -----------   ------------  ----------

Proposal 2 - Appointment of
             Deloitte & Touche
             LLP as Independent
             Auditors for 1997       190,203,448   1,117,328     1,265,980

     There were no broker non-votes with respect to either item.

Item 5.  Other Information

     Certain  information  reported under  Enterprise's  and PSE&G's 1996 Annual
Report to the SEC is updated  below.  References are to the related pages of the
Form 10-K as printed and distributed.

Nuclear Operations

     Form 10-K, Page 9

     In 1990,  General  Electric  (GE)  reported  that  crack  indications  were
discovered near the seam welds of the core shroud assembly in a GE Boiling Water
Reactor (BWR) located outside the United States. As a result, GE issued a letter
requesting  that the owners of GE BWR plants take  interim  corrective  actions.
PSE&G (Hope  Creek) and PECO  (Peach  Bottom)  participated  in a GE BWR Owners'
Group to evaluate this issue and develop long-term  corrective  actions.  During
its  1994  refueling  outage,  PSE&G  inspected  the  shroud  of Hope  Creek  in
accordance  with GE's  recommendations  and found no cracks.  In June  1994,  an
industry  group was  formed  and  subsequently  established  generic  inspection
guidelines  which were approved by the NRC.  Hope Creek was initially  placed in
the lowest susceptibility  category under these guidelines.  Due to Hope Creek's
operating time, it now falls into the intermediate susceptibility category. Hope
Creek will perform another shroud inspection during its next refueling outage in
September 1997.

     Form 10-K, Page 10

     In a separate matter, as a result of several BWRs experiencing  clogging of
some emergency core cooling  system suction  strainers,  which supply water from
the suppression pool for emergency  cooling of the core and related  structures,
the NRC issued a  Bulletin  in May 1996 to  operators  of BWRs  requesting  that
measures be taken to minimize the potential  for clogging.  The NRC has proposed
three  resolution  options and requires  that actions be completed by the end of
the unit's first refueling outage after January 1, 1997.  Alternative resolution
options  will be  subject  to NRC  approval.  PSE&G  has  responded  to the NRC,
indicating its intention to comply with the Bulletin.  The Bulletin requires all
BWRs to resolve  this issue at their first  refueling  outage  after  January 1,
1997.  Therefore,  PSE&G will be installing  large  capacity  passive  strainers
during Hope Creek's next  refueling in September  1997.  PECO has advised  PSE&G
that large  capacity  passive  strainers  will also be installed at Peach Bottom
Units 2 and 3  during  their  next  refueling  outages  in  September  1997  and
September 1998,  respectively.  PSE&G cannot predict what other actions, if any,
the NRC may take in this matter.

     Form 10-K, Page 12

     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 2006,  again prior to losing an operational
full core  discharge  reserve.  PECO has advised  PSE&G that spent fuel racks at
Peach  Bottom have storage  capacity  until 2000 for Unit 2 and 2001 for Unit 3,
prior to losing full core discharge  reserve  capability.  PECO has also advised
PSE&G that it is  exploring  the  feasibility  of  constructing  an on-site  dry
storage  facility  which would be  operational  in the year 2000 and designed to
provide adequate storage capacity through 2014.


     Form 10-K, Page 16

     New Jersey  Department of Environmental  Protection  (NJDEP) issued a final
renewal permit for Hope Creek Station effective April 1, 1997.

Federal Regulation (Electric)

     Form 10-K, Page 2

     Federal  Energy  Regulatory  Commission  (FERC)  Order No. 888 requires all
public utilities  owning,  controlling or operating  transmission  lines to file
nondiscriminatory  open  access  tariffs  that offer  others the same  wholesale
transmission service utilities provide to themselves. On February 28, 1997, FERC
issued an order  accepting for filing  nondiscriminatory  pool-wide  open access
transmission tariffs for existing power pools.  Transmission services covered by
Order No. 888 include network and point-to-point  services, as well as ancillary
services and a pro forma tariff setting  minimum terms and conditions of service
for  nondiscriminatory  open access transmission  service.  Public utilities are
required  both to offer  service to others under the pro forma tariff and to use
the pro forma tariff for their own wholesale  energy sales and  purchases.  This
Order also provides public  utilities with the opportunity to seek full recovery
of prudently  incurred,  legitimate and verifiable stranded costs resulting from
the transfer of open access wholesale  transmission service customers to another
supplier.  To be eligible for recovery,  stranded costs must be associated  with
wholesale  requirement  contracts  signed before July 11, 1994. After that date,
recovery must be specifically provided for in the contract.  FERC has ruled that
stranded  costs  should  be  recovered  from  a  utility's  departing  wholesale
customers.  FERC has also stated that if costs are stranded by retail  wheeling,
utilities  should  first look to the states to recover  those  costs.  FERC will
become  involved  only if state  regulators  lack  authority  under state law to
provide for stranded cost recovery.

     Numerous parties, including PSE&G, had filed requests seeking rehearing and
clarification  of various  aspects of Order No. 888. On February 26, 1997,  FERC
responded to rehearing  requests by  reaffirming  its findings in Order No. 888,
making minor adjustments to ease implementation and providing  clarifications to
issues raised on rehearing.

Pennsylvania - New Jersey - Maryland Interconnection (PJM)

     Form 10-K, Page 6

     On April 1, 1997,  PJM,  as agent for the PJM  transmission  owners,  began
providing  transmission  service under the PJM Open Access Transmission  Tariff.
The PJM Open Access Transmission  Tariff superseded all individual  transmission
open access tariffs of the PJM transmission  owners. In the order, FERC directed
PJM to use the  PECO  proposal  for  interim  implementation  due to  unresolved
questions  regarding the other PJM  companies'  proposal on pricing.  FERC had a
technical  conference on May 9, 1997 to facilitate  the resolution of issues not
fully  addressed in the other PJM  companies'  proposal on  congestion  pricing.
PSE&G cannot  predict what actions,  if any, FERC may take in this matter.  With
respect to the other tariff options contained in PJM's December 31, 1996 filing,
FERC  ordered  implementation  of the other PJM  companies  proposal.  Action on
interventions and requests for relief filed in response to the December 31, 1996
filing were deferred.


<PAGE>


Item 6.  Exhibits and Reports on Form 8-K

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

Exhibit Number             Document

     12                    Computation  of  Ratios  of  Earnings  to Fixed
                           Charges  plus  Preferred  Securities  Dividend
                           Requirements (Enterprise).

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

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

     27(A)                 Financial Data Schedule (Enterprise)

     27(B)                 Financial Data Schedule (PSE&G)

(b)  Reports on Form 8-K.

Registrant                          Date of Report            Item Reported

Enterprise and PSE&G                January 24, 1997          Item 5

Enterprise and PSE&G                January 29, 1997          Item 5
Item 5



<PAGE>


                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED



                                   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:  May 15, 1997



<PAGE>
<TABLE>
<CAPTION>

                                                                                                                     EXHIBIT 12
                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

               COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
                 PLUS PREFERRED SECURITIES DIVIDEND REQUIREMENTS


                                                                                                                  12 Months
                                                                                                                    Ended
                                                            YEARS ENDED DECEMBER 31,                              March 31,
                                    ------------   ------------   ------------   -------------  -------------
                                       1992           1993           1994            1995           1996            1997
                                    ------------   ------------   ------------   -------------  ------------- ------------------
                                                                      (Thousands of Dollars)
<S>                                     <C>            <C>            <C>             <C>           <C>                 <C>    
Earnings as Defined in 
  Regulation S-K:

Net Income (A)                          475,150        549,178        666,521         627,287       587,358             557,005
Federal Income Taxes (B)                238,270        296,223        320,218         348,324       297,277             302,717
Fixed Charges                           537,455        538,556        534,859         548,579       527,974             522,054
                                    ------------  -------------  -------------   -------------  ------------    ---------------
Earnings                              1,250,875      1,383,957      1,521,598       1,524,190     1,412,609           1,381,776
                                    ============   ============   ============   =============  ============    ===============


Fixed Charges as Defined in 
  Regulation S-K (C):

Total Interest Expense (D)              481,116        470,585        462,189         464,207       453,111             447,144
Interest Factor in Rentals                9,591         11,090         12,120          11,956        11,490              11,404
Subsidiaries' Preferred Securities
  Dividend Requirements                     --             --           1,680          15,664        27,741              33,495
Preferred Stock Dividends                31,907         38,114         40,467          33,762        23,161              19,507
Adjustment to Preferred and
  Preference Stock Dividends to
  state on a pre-income tax basis        14,841         18,767         18,403         22,990         12,471              10,504
                                    ------------  -------------  -------------   -------------  -----------    ----------------
Total Fixed Charges                     537,455        538,556        534,859         548,579       527,974             522,054
                                    ============   ============   ============   =============  ===========    ================

Ratio of Earnings to Fixed Charges         2.33           2.57           2.84            2.78          2.68                2.65
                                    ============   ============   ============   =============  ============   ================
</TABLE>

(A)   Excludes 1993 cumulative effect of $5.4 million credit to income 
      reflecting a change in income taxes.

(B)   Includes state income taxes and federal income taxes for other incomes.

(C)   Fixed Charges represent (a) interest, whether expensed or capitalized,
      (b)  amortization  of  debt  discount,  premium  and  expense,  (c) an
      estimate of interest  implicit in rentals,  (d)  Preferred  Securities
      Dividend  Requirements  of  subsidiaries,   and  (e)  Preferred  Stock
      Dividend  Requirements, increased  to  reflect  the  pre-tax  earnings
      requirement for Public Service Enterprise Group Incorporated.

(D)   Excludes  1992  interest  expense  on  decommissioning  costs  of  $5,208.
      Effective January 1, 1992, accounting was changed to follow Federal Energy
      Regulatory Commission guidelines.





<PAGE>
<TABLE>
<CAPTION>
                                                                                                                 EXHIBIT 12 (A)
                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY

               COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES


                                                                                                                   12 Months
                                                                                                                     Ended
                                                           YEARS ENDED DECEMBER 31,                                 March 31,
                                    ------------  -------------  -------------   -------------  -------------
                                       1992           1993           1994            1995           1996             1997
                                    ------------  -------------  -------------   -------------  -------------   ----------------
                                                                      (Thousands of Dollars)
<S>                                     <C>            <C>            <C>             <C>           <C>                 <C>   
Earnings as Defined in
  Regulation S-K:

Net Income                              475,936        614,868        659,406        616,964         535,071            491,444
Federal Income Taxes (A)                223,782        307,414        301,447        325,737         267,619            275,412
Fixed Charges                           411,493        401,046        408,045        418,825         437,812            436,662
                                    ------------  -------------  -------------   -------------  -------------   ----------------
Earnings                              1,111,211      1,323,328      1,368,898      1,361,526       1,240,502          1,203,518
                                    ============  =============  =============   ============   =============   ================


Fixed Charges as Defined in
Regulation S-K (B)

Total Interest Expense (C)              401,902        389,956        395,925        406,869         398,581            391,763
Interest Factor in Rentals                9,591         11,090         12,120         11,956          11,490             11,404
Subsidiaries' Preferred Securities
  Dividend Requirements                      --             --             --             --          27,741             33,495
                                    ------------  -------------  -------------   -------------  -------------   ----------------
Total Fixed Charges                     411,493        401,046        408,045        418,825         437,812            436,662
                                    ============  =============  =============   ============   =============   ================

Ratio of Earnings to Fixed Charges         2.70           3.30           3.35           3.25            2.83               2.76
                                    ============  =============  =============   ============   =============   ================

</TABLE>

(A)   Includes state income taxes and federal income taxes for other income.

(B)   Fixed Charges represent (a) interest, whether expensed or capitalized, (b)
      amortization  of debt  discount,  premium and expense,  (c) an estimate of
      interest  implicit  in  rentals,  and (d)  Preferred  Securities  Dividend
      Requirements of subsidiaries.

(C)   Excludes  1992  interest  expense  on  decommissioning  costs  of  $5,208.
      Effective January 1, 1992, accounting was changed to follow Federal Energy
      Regulatory Commission guidelines.




<PAGE>
<TABLE>
<CAPTION>
                                                                                                                 EXHIBIT 12 (B)
                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY

               COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
                 PLUS PREFERRED SECURITIES DIVIDEND REQUIREMENTS


                                                                                                                  12 Months
                                                                                                                    Ended
                                                             YEARS ENDED DECEMBER 31,                             March 31,
                                    ------------  -------------  -------------   -------------  -------------
                                       1992           1993           1994            1995           1996             1997
                                    ------------  -------------  -------------   -------------  -------------  -----------------
                                                                      (Thousands of Dollars)
<S>                                     <C>            <C>            <C>             <C>           <C>                 <C>   
Earnings as Defined in
  Regulation S-K:

Net Income                              475,936        614,868        659,406         616,964        535,071            491,444
Federal Income Taxes (A)                223,782        307,414        301,447         325,737        267,619            275,412
Fixed Charges                           411,493        401,046        408,045         418,825        437,812            436,662
                                    ------------  -------------  -------------   -------------  -------------   ----------------
Earnings                              1,111,211      1,323,328      1,368,898       1,361,526      1,240,502          1,203,518
                                    ============  =============  =============   =============  =============  =================

Fixed Charges as Defined in
  Regulation S-K (B):

Total Interest Expense (C)              401,902        389,956        395,925         406,869        398,581            391,763
Interest Factor in Rentals                9,591         11,090         12,120          11,956         11,490             11,404
Subsidiaries' Preferred Securities
  Dividend Requirements                      --             --             --              --         27,741             33,495
Preferred Stock Dividends                31,907         38,114         42,147          49,426         23,161             19,507
Adjustment to Preferred and
  Preference Stock Dividends to
  state on a pre-income tax basis        14,768         18,843         18,763          23,428         12,043             10,504
                                    ------------  -------------  -------------   -------------  -------------   ----------------
Total Fixed Charges                     458,168        458,003        468,955         491,679        473,016            466,673
                                    ============  =============  =============   =============  =============  =================

Ratio of Earnings to Fixed Charges         2.43           2.89           2.92            2.77           2.62               2.58
                                    ============  =============  =============   =============  =============  =================
</TABLE>


(A)  Includes state income taxes and federal income taxes for other income.

(B)  Fixed Charges represent (a) interest, whether expensed or capitalized,
     (b)  amortization  of  debt  discount,  premium  and  expense,  (c) an
     estimate of interest  implicit in rentals,  (d)  Preferred  Securities
     Dividend  Requirements  of  subsidiaries,   and  (e)  Preferred  Stock
     Dividend   Requirements increased   to  reflect  the  pre-tax  earnings
     requirement for Public Service Electric and Gas Company.

(C)  Excludes  1992  interest  expense  on  decommissioning   costs  of  $5,208.
     Effective January 1, 1992,  accounting was changed to follow Federal Energy
     Regulatory Commission guidelines.