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                                  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 September 30, 1996

                                       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


  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 October 31, 1996:  238,441,989

As of October 31, 1996,  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.

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<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, Nine and
    Twelve Months Ended September 30, 1996 and 1995..................         1

    Consolidated Balance Sheets as of September 30, 1996, 1995
    and December 31, 1995............................................         2

    Consolidated Statements of Cash Flows for the Nine and
    Twelve Months Ended September 30, 1996 and 1995..................         4

    Consolidated Statements of Retained Earnings for the Three,
    Nine and Twelve Months Ended September 30, 1996 and 1995.........         5

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

    Consolidated Statements of Income for the Three, Nine and
    Twelve Months Ended September 30, 1996 and 1995..................         6

    Consolidated Balance Sheets as of September 30, 1996, 1995
    and December 31, 1995............................................         7

    Consolidated Statements of Cash Flows for the Nine and
    Twelve Months Ended September 30, 1996 and 1995..................         9

    Consolidated Statements of Retained Earnings for the Three,
    Nine and Twelve Months Ended September 30, 1996 and 1995.........         10

  Notes to Consolidated Financial Statements - Enterprise............         11

  Notes to Consolidated Financial Statements - PSE&G.................         17

Item 2. Management's Discussion and Analysis of Financial
           Condition and Results of Operations
     Enterprise......................................................         18
     PSE&G  .........................................................         25

PART II.  OTHER INFORMATION

   Item 1.  Legal Proceedings........................................         26

   Item 5.  Other Information........................................         27

   Item 6.  Exhibits and Reports on Form 8-K.........................         29

   Signatures - Public Service Enterprise Group Incorporated.........         29

   Signatures - Public Service Electric and Gas Company..............         29

                                       ii
<PAGE>
<TABLE>
<CAPTION>
                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                          PART I. FINANCIAL INFORMATION

                    ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
                        CONSOLIDATED STATEMENTS OF INCOME
                             (Thousands of Dollars)


                                                      Three Months Ended         Nine Months Ended        Twelve Months Ended
                                                         September 30,              September 30,            September 30,
                                                   ----------------------------------------------------------------------------
                                                       1996         1995         1996         1995         1996         1995
                                                   -----------  -----------  -----------  -----------  -----------  -----------
<S>                                                <C>          <C>          <C>          <C>          <C>          <C>
OPERATING REVENUES:
  Electric .....................................   $ 1,054,599  $ 1,179,373  $ 3,000,895  $ 3,090,656  $ 3,931,081  $ 3,961,985
  Gas ..........................................       214,848      201,631    1,309,438    1,105,299    1,890,542    1,594,157
  Nonutility Activities ........................        64,510       51,844      156,761      141,095      202,083      200,912
                                                   -----------  -----------  -----------  -----------  -----------  -----------
       Total Operating Revenues ................     1,333,957    1,432,848    4,467,094    4,337,050    6,023,706    5,757,054

OPERATING EXPENSES:
Operation:
  Fuel for Electric Generation and
    Interchanged Power .........................       253,880      264,599      685,927      682,923      894,786      863,851
  Gas Purchased and Materials for Gas
    Produced ...................................       140,085      115,336      783,321      625,540    1,119,320      900,231
  Other ........................................       238,969      249,309      748,741      722,547    1,033,928    1,045,418
Maintenance ....................................        62,450       76,205      245,106      208,288      349,428      293,809
Depreciation and Amortization ..................       150,861      147,896      454,374      442,185      609,155      583,957
Taxes:
  Federal Income Taxes .........................        69,846      112,010      224,041      276,645      285,362      304,174
  New Jersey Gross Receipts Taxes ..............       132,922      139,363      452,337      455,426      609,872      585,454
  Other ........................................        21,921       20,793       67,808       64,015       80,706       82,112
                                                   -----------  -----------  -----------  -----------  -----------  -----------

       Total Operating Expenses ................     1,070,934    1,125,511    3,661,655    3,477,569    4,982,557    4,659,006
                                                   -----------  -----------  -----------  -----------  -----------  -----------

OPERATING INCOME ...............................       263,023      307,337      805,439      859,481    1,041,149    1,098,048

OTHER INCOME:
  Allowance for Funds Used During
    Construction - Equity ......................          --          1,329         --          4,598          726       11,901
  Miscellaneous - net ..........................        (1,922)       3,047          570        6,603        2,007        8,356
                                                   -----------  -----------  -----------  -----------  -----------  -----------

       Total Other Income ......................        (1,922)       4,376          570       11,201        2,733       20,257
                                                   -----------  -----------  -----------  -----------  -----------  -----------

INCOME BEFORE INTEREST CHARGES AND DIVIDENDS
ON PREFERRED SECURITIES ........................       261,101      311,713      806,009      870,682    1,043,882    1,118,305

INTEREST CHARGES:
  Long-Term Debt ...............................        95,653       98,610      288,180      304,229      386,165      410,552
  Short-Term Debt ..............................         8,661       10,814       27,181       23,233       36,770       30,208
  Other ........................................         8,540        8,825       24,054       22,658       30,568       27,713
                                                   -----------  -----------  -----------  -----------  -----------  -----------

       Total Interest Charges ..................       112,854      118,249      339,415      350,120      453,503      468,473

  Allowance for Funds Used During Construction -
    Debt and Capitalized Interest ..............        (4,331)      (7,726)     (12,799)     (27,924)     (17,715)     (37,945)
                                                   -----------  -----------  -----------  -----------  -----------  -----------


       Net Interest Charges ....................       108,523      110,523      326,616      322,196      435,788      430,528

Preferred Securities Dividend Requirements .....        13,229       12,233       37,649       36,627       50,448       48,206
Preferred Stock Redemption Premium .............          --           --         18,493         --         18,019         --
                                                   -----------  -----------  -----------  -----------  -----------  -----------

INCOME FROM CONTINUING OPERATIONS ..............       139,349      188,957      460,237      511,859      575,665      639,571

Discontinued Operations: (See Note 2)
  Income (Loss) From Operations - Net of
    Taxes ......................................         2,992       (2,175)      10,746       (1,818)      47,600        2,313
  Gain on Disposal of EDC - Net of Taxes
    (of $36,610) ...............................        13,492         --         13,492         --         13,492         --
                                                   -----------  -----------  -----------  -----------  -----------  -----------


       NET INCOME ..............................   $   155,833  $   186,782  $   484,475  $   510,041  $   636,757  $   641,884
                                                   ===========  ===========  ===========  ===========  ===========  ===========


SHARES OF COMMON STOCK OUTSTANDING:
  End of Period ................................   240,834,130  244,697,930  240,834,130  244,697,930  240,834,130  244,697,930
  Average for Period ...........................   243,114,349  244,697,930  244,166,217  244,697,930  244,299,871  244,697,930


EARNINGS PER AVERAGE SHARE:
  Income From Continuing Operations ............   $      0.57  $      0.77  $      1.88  $      2.09  $      2.36  $      2.61
  Income (Loss) From Discontinued Operations ...          0.01        (0.01)        0.04        (0.01)        0.19         0.01
  Gain on Disposal of Discontinued Operations ..          0.06          --          0.06         --           0.06          --
                                                   -----------  -----------  -----------  -----------  -----------  -----------

       NET INCOME ..............................   $      0.64  $      0.76  $      1.98  $      2.08  $      2.61  $      2.62
                                                   ===========  ===========  ===========  ===========  ===========  ===========

DIVIDENDS PAID PER SHARE OF COMMON STOCK .......   $      0.54  $      0.54  $      1.62  $      1.62  $      2.16  $      2.16
                                                   ===========  ===========  ===========  ===========  ===========  ===========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                           CONSOLIDATED BALANCE SHEETS
                             (Thousands of Dollars)


                                                                          September 30,      September 30,      December 31,
ASSETS                                                                        1996               1995              1995
                                                                        ----------------   ----------------  ----------------
<S>                                                                         <C>            <C>               <C>
UTILITY PLANT - Original cost:
  Electric .....................................................        $     13,291,672   $     12,983,167  $     13,095,103
  Gas ..........................................................               2,520,555          2,413,673         2,442,572
  Common .......................................................                 532,763            531,024           517,104
                                                                        ----------------   ----------------  ----------------
       Total ...................................................              16,344,990         15,927,864        16,054,779
  Less: Accumulated Depreciation and Amortization ..............               5,823,881          5,324,903         5,440,414
                                                                        ----------------   ----------------  ----------------
       Net .....................................................              10,521,109         10,602,961        10,614,365
  Nuclear Fuel in Service, net of accumulated amortization -
   $289,198, $345,412 and $297,435, respectively ..............                  189,735            162,776           180,018
                                                                        ----------------   ----------------  ----------------
       Net Utility Plant in Service ............................              10,710,844         10,765,737        10,794,383
  Construction Work in Progress, including Nuclear Fuel in
    Process - $85,290, $122,368 and $104,743, respectively .....                 433,133            367,566           369,082
  Plant Held for Future Use ....................................                  23,966             23,966            23,966
                                                                        ----------------   ----------------  ----------------
       Net Utility Plant .......................................              11,167,943         11,157,269        11,187,431
                                                                        ----------------   ----------------  ----------------
INVESTMENTS AND OTHER NONCURRENT ASSETS:
 Long-Term Investments, net of accumulated amortization -
   $11,275, $4,585 and $6,009, respectively .....................              1,889,840          1,757,811         1,808,368
 Real Estate Property and Equipment, net of accumulated
  depreciation - $5,897, $5,151 and $6,267, respectively .......                  66,266             90,372            89,350
 Other Plant, net of accumulated depreciation and amortization
  - $7,348, $6,128 and $6,531, respectively ....................                  39,086             28,202            27,997
 Nuclear Decommissioning and Other Special Funds ...............                 342,956            292,405           313,178
 Other Assets - net ............................................                   7,501              8,777             3,241
                                                                        ----------------   ----------------  ----------------
       Total Investments and Other Noncurrent Assets ...........               2,345,649          2,177,567         2,242,134
                                                                        ----------------   ----------------  ----------------
CURRENT ASSETS:
  Cash and Cash Equivalents ....................................                 454,216             64,821            61,964
  Accounts Receivable:
    Customer Accounts Receivable ...............................                 437,187            405,555           525,404
    Other Accounts Receivable ..................................                 160,565            156,529           200,693
    Less: Allowance for Doubtful Accounts                                         37,427             38,578            37,641
  Unbilled Revenues ............................................                 159,871            127,590           246,876
  Fuel, at average cost ........................................                 305,600            311,776           253,360
  Materials and Supplies, net of inventory valuation reserves -
    $17,761, $18,200 and $20,100, respectively .................                 148,245            143,689           143,741
  Prepaid Gross Receipts Taxes - net ...........................                 146,406            165,342              --
  Deferred Income Taxes ........................................                  25,952             27,489            27,571
  Miscellaneous Current Assets .................................                  48,036             46,800            40,464
  Net Assets of Discontinued Operations ........................                    --              341,284           365,905
                                                                        ----------------   ----------------  ----------------
       Total Current Assets ....................................               1,848,651          1,752,297         1,828,337
                                                                        ----------------   ----------------  ----------------
DEFERRED DEBITS:
  Property Abandonments - net ..................................                  56,279             74,742            70,120
  Oil and Gas Property Write-Down ..............................                  32,213             37,367            36,078
  Unamortized Debt Expense .....................................                 141,893            126,275           123,833
  Deferred OPEB Costs ..........................................                 233,159            174,706           167,189
  Underrecovered Electric Energy and Gas Costs - net ...........                 203,306            173,270           170,565
  Unrecovered Environmental Costs (Note 4) .....................                 122,358            132,634           130,070
  Unrecovered Plant and Regulatory Study Costs .................                  34,357             35,285            35,150
  Unrecovered SFAS 109 Deferred Income Taxes ...................                 763,243            778,642           769,136
  Deferred Decontamination and Decommissioning Costs ...........                  46,554             49,742            49,872
  Other ........................................................                  42,755              9,313             5,826
                                                                        ----------------   ----------------  ----------------
       Total Deferred Debits ...................................               1,676,117          1,591,976         1,557,839
                                                                        ----------------   ----------------  ----------------      
                               Total ...........................        $     17,038,360   $     16,679,109  $     16,815,741
                                                                        ================   ================  ================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                           CONSOLIDATED BALANCE SHEETS
                             (Thousands of Dollars)



                                                                            September 30,       September 30,      December 31,
CAPITALIZATION AND LIABILITIES                                                  1996                1995              1995
                                                                           ----------------   ---------------   ---------------
<S>                                                                        <C>                <C>               <C>
CAPITALIZATION:
  Common Equity:
    Common Stock ......................................................    $      3,741,152   $     3,801,157   $     3,801,157
    Retained Earnings .................................................           1,674,690         1,616,077         1,636,222
                                                                           ----------------   ---------------   ---------------
       Total Common Equity ............................................           5,415,842         5,417,234         5,437,379
  Subsidiaries' Preferred Securities:
    Preferred Stock Without Mandatory Redemption ......................             113,392           384,994           324,994
    Preferred Stock With Mandatory Redemption .........................             150,000           150,000           150,000
    Company-Obligated Mandatorily Redeemable Preferred Securities of
       a Partnership holding solely PSE&G Debentures ..................             210,000           210,000           210,000
    Company-Obligated Mandatorily Redeemable Preferred Securities of
      of a Subsidiary Trust holding solely PSE&G Debentures (QUIPS) ...             208,000              --                --
  Long-Term Debt ......................................................           4,796,539         5,182,453         5,189,791
                                                                           ----------------   ---------------   ---------------
       Total Capitalization ...........................................          10,893,773        11,344,681        11,312,164
                                                                           ----------------   ---------------   ---------------
OTHER LONG-TERM LIABILITIES:
  Decontamination, Decommissioning, and Low Level Radwaste
    Costs .............................................................              46,631            55,630            50,449
  Environmental Costs (Note 4).........................................              87,269           103,412            96,272
  Capital Lease Obligations ...........................................              52,564            53,283            53,111
                                                                           ----------------   ---------------   ---------------
       Total Other Long-Term Liabilities ..............................             186,464           212,325           199,832
                                                                           ----------------   ---------------   ---------------
CURRENT LIABILITIES:
  Long-Term Debt due within one year ..................................             389,475             2,000            61,060
  Commercial Paper and Loans ..........................................             643,691           633,283           567,316
  Book Overdrafts .....................................................             135,445            61,655            70,014
  Accounts Payable ....................................................             445,589           381,863           549,593
  Other Taxes Accrued .................................................              78,493            59,995            30,816
  Interest Accrued ....................................................             104,012           119,736           108,245
  Provision for Rate Refunds .....................................                  101,210            18,310            13,810
  Estimated Liability for Vacation Pay ................................              28,168            32,235            17,089
  Customer Deposits ...................................................              32,276            32,810            32,785
  Liability for Injuries and Damages ..................................              32,304            36,090            38,141
  Miscellaneous Environmental Liabilities .............................              17,602            16,652            16,954
  Other ...............................................................              37,752            27,006            42,203
                                                                           ----------------   ---------------   ---------------
       Total Current Liabilities ......................................           2,046,017         1,421,635         1,548,026
                                                                           ----------------   ---------------   ---------------
DEFERRED CREDITS:
  Accumulated Deferred Income Taxes ...................................           3,191,290         3,029,739         3,083,433
  Accumulated Deferred Investment Tax Credits .........................             377,315           397,429           392,317
  Deferred OPEB Costs .................................................             233,159           174,706           167,189
  Other ...............................................................             110,342            98,594           112,780
                                                                           ----------------   ---------------   ---------------
       Total Deferred Credits .........................................           3,912,106         3,700,468         3,755,719
                                                                           ----------------   ---------------   ---------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 4)                                        --                --                --
                                                                           ----------------   ---------------   ---------------
       Total ..........................................................    $     17,038,360   $    16,679,109   $    16,815,741
                                                                           ================   ===============   ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                         PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                                             CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                    (Thousands of Dollars)


                                                                          Nine Months Ended                Twelve Months Ended
                                                                            September 30,                     September 30,
                                                                    -------------------------------------------------------------
                                                                         1996             1995           1996            1995
                                                                    --------------   -------------   ------------    ------------
<S>                                                                 <C>              <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income ....................................................   $      484,475   $     510,041   $    636,757    $    641,884
  Adjustments to reconcile net income to net cash flows from
  operating activities:
    Depreciation and Amortization ...............................          454,374         442,185        609,155         583,957
    Amortization of Nuclear Fuel ................................           42,821          62,878         54,971          86,159
    (Deferral) Recovery of Electric Energy and Gas Costs - net ..          (32,741)           (707)       (30,036)         38,513
    Unrealized Gains on Investments - net .......................          (19,368)        (32,117)       (33,919)        (46,958)
    Provision for Deferred Income Taxes - net ...................           25,064         109,472         49,497          37,986
    Investment Tax Credits - net ................................          (15,002)        (15,037)       (20,114)        (20,198)
    Allowance for Funds Used During Construction - Debt and
      Equity and Capitalized Interest ...........................          (12,799)        (32,522)       (18,441)        (49,846)
    Proceeds from Leasing Activities ............................           57,916           9,859         85,709          28,177
    Changes in certain current assets and liabilities:
    Net decrease (increase) in Accounts Receivable and Unbilled
      Revenues ..................................................          215,136         115,808        (69,849)        (74,053)
    Net (increase) decrease in Inventory - Fuel and Materials and
      Supplies ..................................................          (56,744)        (39,775)         1,620           9,463
    Net (decrease) increase in Accounts Payable .................         (104,004)        (40,693)        63,726          57,207
    Net change in Prepaid/Accrued Taxes .........................          (98,729)       (145,847)        37,434         (18,228)
    Net change in Other Current Assets and Liabilities ..........           78,144              41         70,786          53,016
    Other .......................................................          (24,984)         88,151         (7,988)        137,919
    Net cash provided by operating activities - Discontinued
      Operations ................................................           53,622          91,305         65,924          99,065
                                                                     -------------   -------------   ------------   -------------
       Net Cash provided by operating activities ................        1,047,181       1,123,042      1,495,232       1,564,063
                                                                     -------------   -------------   ------------   -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to Utility Plant, excluding AFDC ....................        (428,198)       (475,088)       (602,993)       (773,545)
  Net (increase) decrease in Long-Term Investments and Real
    Estate ......................................................         (14,322)        (51,105)        (29,591)         34,421
  Increase in  Decommissioning Funds and Other Special Funds,
   excluding interest                                                     (17,699)        (50,604)        (33,542)        (57,992)
  Cost of Plant Removal - net ...................................         (19,840)        (21,528)        (27,986)        (33,624)
  Other .........................................................         (15,196)        (32,787)        (26,011)        (21,184)
  Change in Net Assets - Discontinued Operations ..                      (395,134)       (116,801)       (432,057)       (137,010)
  Net Proceeds from the Sale of Discontinued Operations                   707,417            --           707,417            --
                                                                    -------------   -------------    ------------   -------------
       Net cash used in investing activities ....................        (182,972)       (747,913)       (444,763)       (988,934)
                                                                    -------------   -------------    ------------   -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net increase in Short-Term Debt ...............................          76,375         231,524         10,408          70,618
  Increase (decrease) in Book Overdrafts ........................          65,431         (24,921)        73,790          10,955
  Issuance of Long-Term Debt ....................................         370,005         100,000        426,325         197,555
  Redemption of Long-Term Debt ..................................        (434,842)       (335,769)      (424,764)       (426,002)
  Long-Term Debt Issuance and Redemption Costs ..................         (39,312)         (8,406)       (45,082)        (24,012)
  Redemption of Preferred Stock .................................        (211,602)           --         (271,602)        (75,000)
  Issuance of Preferred Securities ...............                        208,000          60,000        208,000         210,000
  Retirement of Common Stock                                             (104,536)           --         (104,536)           --
  Cash Dividends Paid on Common Stock ...........................        (394,944)       (396,411)      (527,081)       (528,548)
  Other .........................................................          (6,532)         (1,814)        (6,532)         (7,564)
                                                                    -------------   -------------    -----------   -------------
       Net cash used in financing activities ....................        (471,957)       (375,797)      (661,074)       (571,998)
                                                                    -------------   -------------    -----------   -------------

Net  increase (decrease) in Cash and Cash Equivalents ...........         392,252            (668)       389,395           3,131
Cash and Cash Equivalents at Beginning of Period ................          61,964          65,489         64,821          61,690
                                                                    -------------   -------------    -----------   -------------
Cash and Cash Equivalents at End of Period ......................   $     454,216   $      64,821    $   454,216   $      64,821
                                                                    =============   =============    ===========   =============

Income Taxes Paid ...............................................   $     111,927   $     154,228    $   143,075   $     182,963
Interest Paid ...................................................   $     353,368   $     323,701    $   510,931   $     450,120

<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                       PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                                       CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                                                  (Thousands of Dollars)



                                            Three Months Ended                 Nine Months Ended              Twelve Months Ended
                                               September 30,                     September 30,                    September 30,
                                         --------------------------      ----------------------------     -------------------------
                                              1996         1995               1996           1995              1996         1995
                                         ------------   -----------      -------------   ------------     ------------  -----------
<S>                                      <C>            <C>              <C>             <C>              <C>           <C>
Balance at Beginning of Period ......    $  1,694,058   $  1,563,246     $   1,636,222   $  1,504,261     $  1,616,077  $ 1,510,305
Add:
Net Income ..........................         155,833        186,782           484,475        510,041          636,757      641,884
                                          -----------   ------------      ------------   ------------     ------------  -----------

Total                                       1,849,891      1,750,028         2,120,697      2,014,302        2,252,834    2,152,189
                                          -----------   ------------      ------------   ------------     ------------  -----------


Deduct:
  Cash Dividends on Common Stock ....         130,670        132,137           394,944        396,411          527,081      528,548
  Retirement of Common Stock ........          44,531           --              44,531           --             44,531         --
  Capital Securities Expenses .......            --            1,814             6,532          1,814            6,532        7,564
                                          -----------    -----------      ------------   ------------     ------------  -----------
       Total Deductions .............         175,201        133,951           446,007        398,225          578,144      536,112
                                          -----------   ------------      ------------   ------------     ------------  -----------

Balance at End of Period ............     $ 1,674,690   $  1,616,077      $  1,674,690   $  1,616,077     $  1,674,690  $ 1,616,077
                                          ===========   ============      ============   ============     ============  ===========

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

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



                                             Three Months Ended               Nine Months Ended               Twelve Months Ended
                                                September 30,                   September 30,                    September 30,
                                         -------------------------------------------------------------------------------------------
                                            1996           1995              1996          1995             1996             1995
                                         -----------    -----------     -----------     -----------     -----------     ------------
<S>                                      <C>            <C>             <C>             <C>             <C>             <C>
OPERATING REVENUES:
  Electric ............................  $ 1,054,599    $ 1,179,373     $ 3,000,895     $ 3,090,656     $ 3,931,081     $ 3,961,985
  Gas .................................      214,848        201,631       1,309,438       1,105,299       1,890,542       1,594,157
                                         -----------    -----------     -----------     -----------     -----------     -----------

       Total Operating Revenues .......    1,269,447      1,381,004       4,310,333       4,195,955       5,821,623       5,556,142

OPERATING EXPENSES:
Operation:
  Fuel for Electric Generation and
    Net Interchanged Power ............      253,880        264,599         685,927         682,923         894,786         863,851
  Gas Purchased and Materials for
    Gas Produced ......................      140,085        115,336         783,321         625,540       1,119,320         900,318
  Other ...............................      221,453        232,051         702,442         678,652         973,190         982,347
Maintenance ...........................       62,450         76,205         245,106         208,288         349,428         293,809
Depreciation and Amortization .........      150,180        146,019         452,094         437,887         605,321         578,593
Taxes:
  Federal Income Taxes ................       59,926        107,677         203,540         263,537         261,436         284,373
  New Jersey Gross Receipts Taxes .....      132,922        139,363         452,337         455,426         609,872         585,454
  Other ...............................       20,586         19,229          63,404          60,139          74,170          77,184
                                         -----------    -----------     -----------     -----------     -----------     -----------

       Total Operating Expenses .......    1,041,482      1,100,479       3,588,171       3,412,392       4,887,523       4,565,929
                                         -----------    -----------     -----------     -----------     -----------     -----------

OPERATING INCOME ......................      227,965        280,525         722,162         783,563         934,100         990,213

OTHER INCOME:
  Allowance for Funds Used During
    Construction - Equity .............         --            1,329            --             4,598             726          11,901
  Miscellaneous - net .................       (1,928)         2,946             553           6,296           1,985           7,929
                                         -----------    -----------     -----------     -----------     -----------      ----------

       Total Other Income .............       (1,928)         4,275             553          10,894           2,711          19,830
                                         -----------    -----------     -----------     -----------     -----------      ----------

INCOME BEFORE INTEREST CHARGES AND
DIVIDENDS ON PREFERRED SECURITIES .....      226,037        284,800         722,715         794,457         936,811       1,010,043

INTEREST CHARGES:
  Long-Term Debt ......................       83,884         87,844         259,505         270,946         346,143         364,002
  Short-Term Debt .....................        7,433          7,600          19,799          14,383          26,156          19,716
  Other ...............................        7,954          8,652          22,559          22,195          28,909          27,113

       Total Interest Charges .........       99,271        104,096         301,863         307,524         401,208         410,831

  Allowance for Funds Used During
    Construction - Debt ...............       (4,117)        (7,725)        (11,879)        (26,724)        (16,099)        (35,601)
                                         -----------    -----------     -----------     -----------     -----------      ----------

       Net Interest Charges ...........       95,154         96,371         289,984         280,800         385,109         375,230

    Preferred Securities Dividend
       Requirement ....................        9,144          3,551          18,575          10,583          23,656          12,263
                                         -----------    -----------     -----------     -----------     -----------      ----------

       NET INCOME .....................      121,739        184,878         414,156         503,074         528,046         622,550
                                         -----------    -----------     -----------     -----------     -----------      ----------
    Preferred Stock Dividend
      Requirements ....................        4,085          8,682          19,074          26,044          26,792          35,943

  Preferred Stock Redemption Premium ..         --             --            18,493            --            18,019            --
                                         -----------    -----------     -----------     -----------     -----------      ----------

EARNINGS AVAILABLE TO PUBLIC SERVICE
ENTERPRISE GROUP INCORPORATED .........  $   117,654    $   176,196     $   413,575     $   477,030     $   519,273     $   586,607
                                         ===========    ===========     ===========     ===========     ===========     ===========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
                           CONSOLIDATED BALANCE SHEETS
                             (Thousands of Dollars)

                                                                     September 30,        September 30,        December 31,
ASSETS                                                                   1996                 1995                1995
                                                                   -----------------    -----------------   -----------------
<S>                                                                <C>                  <C>                  <C>
UTILITY PLANT - Original cost:
  Electric .....................................................   $      13,291,672    $      12,983,167   $      13,095,103
  Gas ..........................................................           2,520,555            2,413,673           2,442,572
  Common .......................................................             532,763              531,024             517,104
                                                                   -----------------    -----------------   -----------------
       Total ...................................................          16,344,990           15,927,864          16,054,779
  Less: Accumulated Depreciation and Amortization ..............           5,823,881            5,324,903           5,440,414
                                                                   -----------------    -----------------   -----------------
       Net .....................................................          10,521,109           10,602,961          10,614,365
  Nuclear Fuel in Service, net of accumulated amortization -
    $289,198, $345,412 and $297,435, respectively ..............             189,735              162,776             180,018
                                                                   -----------------    -----------------   -----------------
       Net Utility Plant in Service ............................          10,710,844           10,765,737          10,794,383
  Construction Work in Progress, including Nuclear Fuel in
    Process - $85,290, $122,368 and $104,743, respectively .....             433,133              367,566             369,082
  Plant Held for Future Use ....................................              23,966               23,966              23,966
                                                                   -----------------    -----------------   -----------------
       Net Utility Plant .......................................          11,167,943           11,157,269          11,187,431
                                                                   -----------------    -----------------   -----------------
INVESTMENTS AND OTHER NONCURRENT ASSETS:
  Long-Term Investments, net of accumulated amortization -
    $11,275, $4,585 and $6,009, respectively ...................             151,540               98,260             119,474
  Nuclear Decommissioning and Other Special Funds ..............             342,956              292,405             313,178
  Other Plant, net of accumulated depreciation and
    amortization - $1,991, $1,882 and $1,905, respectively .....              25,116               24,970              24,976
                                                                   -----------------    -----------------   -----------------
       Total Investments and Other Noncurrent Assets ...........             519,612              415,635             457,628
                                                                   -----------------    -----------------   -----------------
CURRENT ASSETS:
  Cash and Cash Equivalents ....................................              23,136               30,247              32,373
  Accounts Receivable:
    Customer Accounts Receivable ...............................             437,187              405,555             525,404
    Other Accounts Receivable ..................................             108,763              118,198             156,413
    Less: Allowance for Doubtful Accounts ......................              37,427               38,578              37,641
  Accounts Receivable - Associated Companies ...................                --                    151                --
  Unbilled Revenues ............................................             159,871              127,590             246,876
  Fuel, at average cost ........................................             305,600              311,776             253,360
  Materials and supplies, net of inventory valuation
    reserves - $17,761, $18,200 and $20,100, respectively ......             148,245              143,689             143,741
  Prepaid Gross Receipts Taxes - net ...........................             146,406              165,342                --
  Deferred Income Taxes ........................................              25,952               27,489              27,571
  Miscellaneous Current Assets .................................              44,301               45,109              37,130
                                                                   -----------------    -----------------   -----------------
       Total Current Assets ....................................           1,362,034            1,336,568           1,385,227
                                                                   -----------------    -----------------   -----------------
DEFERRED DEBITS:
  Property Abandonments - net ..................................              56,279               74,742              70,120
  Oil and Gas Property Write-Down ..............................              32,213               37,367              36,078
  Unamortized Debt Expense .....................................             140,307              124,308             122,049
  Deferred OPEB Costs ..........................................             233,159              174,706             167,189
  Underrecovered Electric Energy and Gas Costs - net ...........             203,306              173,270             170,565
  Unrecovered Environmental Costs (Note 4)......................             122,358              132,634             130,070
  Unrecovered Plant and Regulatory Study Costs .................              34,357               35,285              35,150
  Deferred Decontamination and Decommissioning Costs............              46,554               49,742              49,872
  Unrecovered SFAS 109 Deferred Income Taxes ...................             763,243              778,642             769,136
  Other ........................................................              37,244                9,313               5,700
                                                                   -----------------    -----------------   -----------------
       Total Deferred Debits ...................................           1,669,020            1,590,009           1,555,929
                                                                   -----------------    -----------------   -----------------
Total ..........................................................   $      14,718,609    $      14,499,481   $      14,586,215
                                                                   =================    =================   =================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
                           CONSOLIDATED BALANCE SHEETS
                             (Thousands of Dollars)

<CAPTION>
                                                                            September 30,      September 30,       December 31,
CAPITALIZATION AND LIABILITIES                                                  1996               1995               1995
                                                                          ---------------    ---------------    --------------
<S>                                                                       <C>                <C>                <C>
CAPITALIZATION
  Common Equity:
    Common Stock ......................................................   $     2,563,003    $     2,563,003    $    2,563,003
    Contributed Capital from Enterprise ...............................           594,395            534,395           594,395
    Retained Earnings .................................................         1,387,609          1,380,368         1,365,166
                                                                          ---------------    ---------------    --------------
       Total Common Equity ............................................         4,545,007          4,477,766         4,522,564
 
 Subsidiaries' Preferred Securities:
    Preferred Stock without mandatory redemption ......................           113,392            384,994           324,994
    Preferred Stock with mandatory redemption .........................           150,000            150,000           150,000
    Company-Obligated Mandatorily Redeemable Preferred Securities of
       a Partnership holding solely PSE&G Debentures ..................           210,000            210,000           210,000
    Company-Obligated Mandatorily Redeemable Preferred Securities
      of a Subsidiary Trust holding solely PSE&G Debentures (QUIPS) ...           208,000               --                --
  Long-Term Debt ......................................................         4,293,202          4,585,543         4,586,268
                                                                          ---------------    ---------------    --------------
       Total Capitalization ...........................................         9,519,601          9,808,303         9,793,826
                                                                          ---------------    ---------------    --------------
OTHER LONG-TERM LIABILITIES:
  Decontamination, Decommissioning, and Low Level Radwaste
    Costs .............................................................            46,631             55,630            50,449
  Environmental Costs (Note 4).........................................            87,269            103,412            96,272
  Capital Lease Obligations ...........................................            52,564             53,283            53,111
                                                                          ---------------     --------------    --------------
       Total Other Long-Term Liabilities ..............................           186,464            212,325           199,832
                                                                          ---------------     --------------    --------------
CURRENT LIABILITIES:
  Long-Term Debt due within one year ..................................           250,000              2,000              --
  Commercial Paper and Loans ..........................................           643,691            633,283           567,316
  Book Overdrafts .....................................................           135,445             61,655            70,014
  Accounts Payable ....................................................           364,880            320,212           481,632
  Accounts Payable - Associated Companies .............................            22,662               --               8,011
  Other Taxes Accrued .................................................            36,011             38,235            32,767
  Interest Accrued ....................................................            84,073             93,709            95,811
  Provision for Rate Refunds ..........................................           101,210             18,310            13,810
  Estimated Liability for Vacation Pay ................................            28,168             32,235            17,089
  Customer Deposits ...................................................            32,276             32,810            32,785
  Liability for Injuries and Damages ..................................            32,304             36,090            38,141
  Miscellaneous Environmental Liabilities .............................            17,602             16,652            16,954
  Other ...............................................................            33,160             23,826            36,941
                                                                          ---------------     --------------     -------------
       Total Current Liabilities ......................................         1,781,482          1,309,017         1,411,271
                                                                          ---------------     --------------     -------------
DEFERRED CREDITS:
  Accumulated Deferred Income Taxes ...................................         2,535,867          2,526,135         2,535,603
  Accumulated Deferred Investment Tax Credits .........................           356,381            375,458           370,610
  Deferred OPEB Costs .................................................           233,159            174,706           167,189
  Other ...............................................................           105,655             93,537           107,884
                                                                          ---------------     --------------     -------------
       Total Deferred Credits .........................................         3,231,062          3,169,836         3,181,286
                                                                          ---------------     --------------     -------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 4)                                      --                 --                --
                                                                          ---------------     --------------     -------------
       Total ..........................................................   $    14,718,609     $   14,499,481     $  14,586,215
                                                                          ===============     ==============     =============
                                                                              

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

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


                                                                           Nine Months Ended                Twelve Months Ended
                                                                              September 30,                     September 30,
                                                                       -----------------------------------------------------------
                                                                           1996           1995           1996            1995
                                                                       ------------  -------------   ------------   -------------
<S>                                                                    <C>           <C>             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Income ....................................................      $    414,156  $     503,074    $   528,046    $    622,550
  Adjustments to reconcile net income to net cash flows from
  operating activities:
    Depreciation and Amortization ...............................           452,094        437,887        605,321         578,593
    Amortization of Nuclear Fuel ................................            42,821         62,878         54,971          86,159
    (Deferral) Recovery of Electric Energy and Gas Costs - net ..           (32,741)          (707)       (30,036)         38,513
    Provision for Deferred Income Taxes - net ...................             6,157         60,347         25,131          49,310
    Investment Tax Credits - net ................................           (14,229)       (14,263)       (19,077)        (19,165)
    Allowance for Funds Used During Construction - Debt and
      Equity ....................................................           (11,879)       (31,322)       (16,825)        (47,502)
  Changes in certain current assets and liabilities:
    Net decrease (increase) in Accounts Receivable and Unbilled
      Revenues ..................................................           222,659        136,116        (56,226)        (62,348)
    Net (increase) decrease in Inventory - Fuel and Materials
      and Supplies ..............................................           (56,744)       (39,775)         1,620           9,463
    Net (decrease) increase in Accounts Payable .................          (102,101)       (66,470)        67,330          17,892
    Net change in Prepaid/Accrued Taxes .........................          (143,162)      (163,137)         8,904         (31,975)
    Net change in Other Current Assets and Liabilities ..........            71,710        (15,704)        85,314          41,167
  Other .........................................................           (19,964)        79,507         (5,482)        110,993
                                                                       ------------   ------------   ------------   -------------
       Net cash provided by operating activities ................           828,777        948,431      1,248,991       1,393,650
                                                                       ------------  -------------   ------------   -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to Utility Plant, excluding AFDC ....................          (428,198)      (475,088)      (602,993)       (773,545)
  Net (increase) decrease in Long-Term Investments ..............           (36,719)       (39,595)       (62,313)         45,385
  Increase in Nuclear Decommissioning and Other Special Funds,
    excluding interest ..........................................           (17,699)       (50,604)       (33,542)        (57,992)
  Cost of Plant Removal - net ...................................           (19,840)       (21,528)       (27,986)        (33,624)
  Other .........................................................              (140)           865           (146)          2,647
                                                                       ------------  -------------   ------------   -------------
       Net cash used in investing activities ....................          (502,596)      (585,950)      (726,980)       (817,129)
                                                                       ------------  -------------   ------------   -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net increase in Short-Term Debt ...............................            76,375        231,524         10,408          70,618
  Increase (decrease) in Book Overdrafts ........................            65,431        (24,921)        73,790          (1,132)
  Issuance of Long-Term Debt ....................................           370,005        100,000        426,325         197,555
  Redemption of Long-Term Debt ..................................          (413,072)      (309,444)      (470,667)       (406,583)
  Long-Term Debt Issuance and Redemption Costs ..................           (38,842)        (7,733)       (44,571)        (22,364)
  Redemption of Preferred Stock .................................          (211,602)          --         (271,602)        (75,000)
  Net Gain on Preferred Stock Redemptions .......................            18,493           --           18,019            --
  Issuance of Preferred Securities ...............                          208,000         60,000        208,000         210,000
  Contributed Capital                                                          --             --           60,000            --
  Cash Dividends Paid ...........................................          (403,674)      (407,344)      (532,292)       (543,943)
  Other .........................................................            (6,532)        (1,814)        (6,532)         (7,564)
                                                                       ------------  -------------   ------------   -------------
       Net cash used in financing activities ....................          (335,418)      (359,732)      (529,122)       (578,413)
                                                                       ------------  -------------   ------------   -------------

  Net (decrease) increase in Cash and Cash Equivalents ..........            (9,237)         2,749         (7,111)         (1,892)
  Cash and Cash Equivalents at Beginning of Period ..............            32,373         27,498         30,247          32,139
                                                                       ------------  -------------   ------------   -------------
  Cash and Cash Equivalents at End of Period ....................      $     23,136  $      30,247   $     23,136   $      30,247
                                                                       ============  =============   ============   =============

  Income Taxes Paid .............................................      $    163,179  $     242,365   $    200,687   $     272,977
  Interest Paid .................................................      $    295,207  $     275,210   $    419,507   $     365,727

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

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

                                                                       

                                            Three Months Ended                Nine Months Ended              Twelve Months Ended
                                               September 30,                    September 30,                   September 30,
                                         -------------------------      -----------------------------    -------------------------- 
                                            1996           1995             1996             1995            1996           1995
                                         -----------   -----------      ------------     ------------    ------------   -----------
<S>                                      <C>           <C>              <C>              <C>             <C>            <C>
Balance at Beginning of
  Period ...........................     $ 1,398,155   $ 1,331,535      $  1,365,166     $  1,286,452    $  1,380,368   $ 1,309,325
Add:
  Net Income .......................         121,739       184,878           414,156          503,074         528,046       622,550
                                         -----------   -----------      ------------     ------------    ------------   -----------

     Total .........................       1,519,894     1,516,413         1,779,322        1,789,526       1,908,414     1,931,875
                                         -----------   -----------      ------------     ------------    ------------   -----------
 
Deduct Cash Dividends:
  Preferred Stock, at
  required rates ...................           4,085         8,682            19,074           26,044          26,792        35,943
  Common Stock .....................         128,200       125,549           384,600          381,300         505,500       508,000
Capital Securities Expenses ........            --           1,814             6,532            1,814           6,532         7,564
                                         -----------   -----------      ------------     ------------    ------------   -----------

            Total Deductions .......         132,285       136,045           410,206          409,158         538,824       551,507
                                         -----------   -----------      ------------     ------------    ------------   -----------

Net Gain on Preferred Stock
 Redemptions .......................            --            --              18,493             --            18,019          --
                                         -----------   -----------      ------------     ------------    ------------   ----------- 

Balance at End of Period ...........     $ 1,387,609   $ 1,380,368      $  1,387,609     $  1,380,368    $  1,387,609   $ 1,380,368
                                         ===========   ===========      ============     ============    ============   ===========


<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<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
thereto should be read in conjunction  with the  respective  Registrant's  Notes
contained in the Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996 and June 30,  1996 and the 1995  Annual  Report  on Form  10-K.  The  Notes
contained  herein  update and  supplement  matters  discussed in such  Quarterly
Reports and the 1995 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.  Discontinued Operations

         On July 1, 1996, Enterprise Diversified Holdings Incorporated (EDHI), a
subsidiary of Public Service Enterprise Group Incorporated (Enterprise), entered
into a contract for the sale of Energy Development  Corporation (EDC) to Samedan
Oil  Corporation,  a  subsidiary  of Noble  Affiliates,  Inc.,  for an aggregate
purchase price of $779 million subject to various purchase price adjustments. As
a result,  certain  financial  information  previously  issued has been restated
herein to give effect to the  classification of EDC as discontinued  operations.
The sale, which was completed on July 31, 1996, resulted in an after-tax gain of
approximately $13.5 million.

         Operating results of EDC for the three, nine and twelve months ended
September 30, 1996 and 1995 are summarized in the following table:
<TABLE>
<CAPTION>


                                 Three Months Ended           Nine Months Ended             Twelve Months Ended
                                   September 30,                September 30,                  September 30,
(Thousands)                       1996          1995           1996           1995            1996           1995
                                ----------    ----------    -----------    -----------     -----------    -----------
<S>                             <C>           <C>           <C>            <C>             <C>            <C>         
Revenues ....................   $     --      $ 49,719      $ 126,259      $ 152,613       $ 221,647      $ 203,723
Operating income ............         --          (803)        22,457         10,519          70,591         18,176
Earnings (losses) before
    income taxes ............         --        (2,438)         9,062         (3,401)         65,762           (834)
Income taxes ................     (2,992)         (263)        (1,684)        (1,583)         18,162         (3,147)
Net income (loss) ...........      2,992        (2,175)        10,746         (1,818)         47,600          2,313
</TABLE>

         The net assets of EDC included in Enterprise's Consolidated Balance
Sheets at September 30 and December 31, 1995 are summarized in the following
table:

                                             September 30,      December 31,
(Thousands)                                     1995               1995
                                          ---------------     --------------
Property ...............................  $       588,237     $      608,015
Current assets, primarily receivables ..           49,464             90,986
Other assets ...........................           64,466             56,836
Current liabilities ....................           50,906             62,204
Debt ...................................          305,121            311,821
Deferred credits and other liabilities .            4,856             15,907
Net assets .............................  $       341,284     $      365,905


<PAGE>


Note 3.  Rate Matters

Alternative Rate Plan

         On August 26,  1996,  in response to the  important  electric  industry
restructuring  issues and policy decisions  currently being addressed within the
Phase  II  proceeding  of the  New  Jersey  Energy  Master  Plan  (Master  Plan)
proceedings,  PSE&G petitioned the New Jersey Board of Public Utilities (BPU) to
place its "New Jersey  Partners in Power" Plan (Plan) on inactive status pending
completion  of the Phase II  proceeding.  The BPU is  expected  to issue a final
decision on Phase II of the Master  Plan early in 1997.  PSE&G  recognized  that
many of the issues  being  decided in the Master Plan  parallel  the issues that
have been  raised in  PSE&G's  Plan,  as well as the  importance  of having  the
elements of the Plan in line with the  direction of the Master Plan,  which will
define the structure of New Jersey's energy  marketplace.  On September 5, 1996,
the BPU approved  PSE&G's  request and placed the Plan on inactive  status for a
period of six  months.  PSE&G must  advise the BPU of its intent to go  forward,
withdraw, or modify the Plan on or before February 5, 1997.

Proposed Settlement of Certain Regulatory Issues

         On October 23,  1996,  PSE&G,  the staff of the BPU (Staff) and the New
Jersey  Division of  Ratepayer  Advocate  (Ratepayer  Advocate)  agreed upon the
resolution  of three  regulatory  issues which had been  pending in  proceedings
before the BPU, including the "used and usefulness" of Salem Nuclear Units 1 and
2. Under the proposed Settlement Agreements (Agreements), which require approval
of the BPU, PSE&G would provide  electric  customers with bill credits  totaling
$83.9  million in January and  February  1997 and would  forego  recovery of $12
million  associated  with energy costs that have been  deferred.  The Agreements
resulted  in an  earnings  loss of  $62.3  million  or 26  cents  per  share  of
Enterprise common stock. Of the total, $3.3 million or 1 cent per share had been
previously  recorded,  and the remaining $59.0 million or 25 cents per share was
recorded in the third quarter of 1996. The Agreements would be effective through
December 31, 1998. In addition to the settlement of the regulatory issues, PSE&G
agreed to create a $30 million  economic  development  fund and support  certain
customer assistance programs.

         Under the first of the three  Agreements,  Salem  Nuclear Units 1 and 2
would  continue  in base rates  without  being  subject to  further  refund.  In
addition,  PSE&G  would  assume  all  nuclear  and  fossil  generating  fuel and
performance risks,  including replacement power costs associated with the Salem,
Hope Creek and Peach  Bottom  Nuclear  Stations  from  January  1, 1996  through
December 31, 1998. As a result of PSE&G's  assumption of these risks,  the BPU's
Nuclear  Performance  Standard  (NPS) (see Note 4,  Commitments  and  Contingent
Liabilities)  would not apply  during  the  period of  January  1, 1996  through
December 31, 1998. In addition, the energy component of PSE&G's levelized energy
adjustment charge (LEAC) would be fixed at its existing level,  assuring PSE&G's
customers of no increase in this rate until at least January 1999.

         The  Agreement  resolving  the  "used and  useful"  issue has seven key
elements.  First,  during  January and February  1997,  PSE&G would provide bill
credits to electric customers of $77.5 million.  Second, the energy component of
PSE&G's LEAC, which recovers all LEAC costs except gas plant remediation, demand
side  management  and  nuclear  decommissioning,  would be fixed at its  current
level.  From  January 1, 1997 through  December 31, 1998,  any revenue and costs
related to the  energy  component  of the LEAC  would be treated as revenue  and
expense.  In addition,  from January 1, 1997  through  December 31, 1998,  PSE&G
would have the  opportunity  to reduce its  deferred  LEAC energy  balance as of
December 31, 1996.  Any  underrecovered  or  overrecovered  balance  existing on
December 31, 1998 would not be considered in any LEAC review  subsequent to that
date. Third, there would be no further regulatory action regarding the "used and
useful"  issue  through  December 31, 1998.  Fourth,  the NPS would not apply to
PSE&G from January 1, 1996 through  December  31,  1998.  Fifth,  PSE&G would be
permitted to defer costs associated with the buy-out or buy-down of cogeneration
contracts  during the  Agreement  period which would be reviewed in a future BPU
proceeding. Sixth, the parties to the Agreement reserved the right to review, in
PSE&G's next base rate  proceeding,  Salem-related  capitalized  costs  incurred
since  base  rates  were last  reviewed  in 1992 as part of a rate case that was
effective January 1, 1993.  Finally,  a new LEAC rate would be established after
the  settlement  period,  with PSE&G  making a filing no later than  November 1,
1998.

         In addition to the resolution of the Salem "used and useful" issue, the
two other Agreements address separate  long-standing  issues that PSE&G has been
litigating  before  the BPU.  The first  pertains  to the  recovery  of  certain
replacement power costs associated with a 58-day outage at Salem Unit 1 in 1994.
Under that Agreement,  PSE&G would reduce its underrecovered  LEAC balance by $7
million.  The second pertains to the recovery of capacity costs  associated with
electric utility power purchases from  cogeneration  producers  through December
31, 1998.  Under that  Agreement,  PSE&G would  provide bill credits to electric
customers  totaling $6.4 million  during January and February 1997. In addition,
it will reduce its underrecovered LEAC balance by $5 million.

         In addition to the above-referenced Agreements, PSE&G and the Ratepayer
Advocate agreed on a commitment by PSE&G to provide financial  assistance toward
economic  growth and  development  in New Jersey.  This  commitment,  which runs
through December 31, 1999, has four key elements. First, PSE&G will create a $30
million  revolving  economic  development fund with emphasis on stimulating jobs
and  developing  high  technology  projects in urban areas.  Second,  PSE&G will
provide  incentives to encourage local public housing  authorities to replace up
to 4,000  refrigerators a year. Third, PSE&G will commit $1 million to develop a
fund to provide  innovative  assistance to  low-income  residents who are having
difficulty paying energy bills. Finally, PSE&G will develop a computer system to
assist low-income residents in identifying government and community programs for
which they would be eligible to receive benefits.

         The "used and useful" Agreement will be the subject of a public hearing
before the BPU on November 25, 1996. The three Agreements  require BPU approval,
as to which no assurance can be given.

Levelized Gas Adjustment Charge (LGAC)

         On July 30, 1996,  PSE&G filed its 1996/97 LGAC  petition  with the BPU
requesting that it be effective October 1, 1996 through December 31, 1997. PSE&G
has  requested the LGAC be modified so as to more closely track the market price
of gas and avoid the distortions and dislocations  resulting from the reflection
of over and underrecoveries. The 1996/97 LGAC proposal requests that residential
and certain other customer  billings be converted from a levelized charge to one
derived on a monthly basis. The requested change in the LGAC pricing is the same
as the change in pricing  for Large  Volume Gas (LVG) and  General  Service  Gas
(GSG) customers which was approved by the BPU in PSE&G's 1995/96 LGAC filing. In
addition,  there  would be a cap of five  cents  per therm in the month to month
change  in the  1996/97  LGAC  rate for all  customer  classes.  PSE&G  has also
requested that the 1996/97 LGAC reflect a refund of approximately $14 million to
LVG  and  GSG  customers  in the  form  of  bill  credits,  stemming  from  over
collections which occurred during the 1995/96 LGAC.

         On  November  6,  1996,  the  BPU,  in an oral  decision,  approved  an
approximate $80 million  increase based upon a modified  Interim  Stipulation in
the LGAC  proceeding.  The BPU did not approve  PSE&G's  1996/1997 LGAC proposal
that residential and certain other customer billings be converted from an annual
levelized  charge  to one  derived  on a  monthly  basis.  The  monthly  pricing
methodology for LVG and GSG customers, with minor modifications,  will continue.
During the months of December 1996 and January 1997,  approximately  $14 million
will be refunded  through a bill credit to customers  that  purchased LVG or GSG
service  (excluding  off-peak service) during the period January 1, 1996 through
October 31,  1996.  The refund is based on an  overcollection  of gas costs from
those customer  classes and will be apportioned  based on those  customers usage
during that period.  PSE&G,  Staff and the Ratepayer  Advocate have the right to
revisit all issues in a Phase II proceeding. PSE&G cannot predict the outcome of
such proceedings.

Remediation Adjustment Clause (RAC)

         On  July  30,  1996,  PSE&G  petitioned  the BPU  for  recovery  of its
Manufactured Gas Plant Remediation  Program  (Remediation  Program) costs during
the period  August 1, 1995 through July 31,  1996.  In 1993,  the BPU approved a
mechanism for such costs incurred  since October 1, 1992,  allowing the recovery
of actual costs plus carrying charges,  net of insurance recoveries over a seven
year period through PSE&G's LGAC and LEAC, with 60% charged to gas customers and
40%  charged  to  electric  customers.  In  accordance  with  the  Interim  LGAC
Stipulation  dated  October 11, 1996,  PSE&G is expected to recover $2.7 million
from gas customers and $1.8 million from  electric  customers  during the period
November  1,  1996  through  October  31,  1997  (See  Note 4,  Commitments  and
Contingent Liabilities).

Other Rate Matters

         On February 16, 1996,  PSE&G filed for approval of its first Off Tariff
Rate Agreement (OTRA). The OTRA is designed to consider prices,  confidentially,
contract duration,  regulatory filing requirements and other standards as may be
necessary for compliance with the law. On May 9, 1996, PSE&G filed a motion with
the BPU to resolve issues regarding the  confidentiality of certain terms of the
OTRA.  On June 19, 1996,  the BPU issued an order  denying  PSE&G's  request for
confidential  treatment and directed  PSE&G to file,  and thus make public,  the
information  within five days.  On June 21, 1996,  PSE&G was granted a temporary
order from the Appellate  Division of the New Jersey  Superior Court staying the
June 19, 1996 BPU order  requiring  public  disclosure  of the  information.  On
September 6, 1996, the BPU issued an order allowing this OTRA to go into effect,
thus allowing the customer to receive the negotiated  rate,  pending the outcome
of the Court decision on the  confidentiality  issue. By Order dated October 31,
1996, the Court affirmed the BPU's  decision.  PSE&G cannot predict what impact,
if any, the OTRA may have on its financial position,  results of operations, and
net cash flows.


<PAGE>


         On August 1, 1996, the BPU issued an Order of Inquiry which initiated a
generic  proceeding to resolve the  regulatory and rate issues  associated  with
Statement of Financial Accounting  Standards (SFAS) 106, "Employers'  Accounting
for Postretirement  Benefits Other Than Pensions".  In this proceeding,  the BPU
will determine the appropriate level of recovery, necessary rate changes and the
proper funding mechanism for these costs. On August 16, 1996, in accordance with
the BPU's Order in this matter,  PSE&G filed  testimony  responding to questions
contained  in the BPU's  Generic  Order.  The Staff and the  Ratepayer  Advocate
issued  requests for  information  and have held  several  group  discovery  and
settlement-type   conferences  with  PSE&G  and  other  affected  utilities.  In
accordance  with the BPU's  Generic  Order,  upon the  completion of the initial
phase of this proceeding, the BPU will determine whether hearings in this matter
are necessary. PSE&G cannot predict what action, if any, may be taken by the BPU
on this matter or when final action may be completed.

         On September 19, 1996, PSE&G filed a petition with the BPU to establish
an interim  Competition  Transition Charge (CTC). The CTC is designed to recover
stranded costs which may result from a customer leaving PSE&G's system as a full
requirements  customer. If approved by the BPU as filed, this charge would apply
to customers who,  after  September 19, 1996,  commit to an alternate  source of
electric power while remaining  physically located in PSE&G's electric franchise
area.  Further,  this interim  charge would be limited to customers with present
billing demands in excess of 500KW. The proposed charge would be interim pending
BPU  resolution  of the Master Plan Phase II  proceeding  which will address the
stranded cost issue on a generic basis. PSE&G cannot predict what action the BPU
may take with respect to the CTC petition.

Note 4.  Commitments and Contingent Liabilities

Nuclear Performance Standard

         The BPU has  established an NPS for nuclear  generating  units owned by
New Jersey electric  utilities,  including the five nuclear units in which PSE&G
has an ownership  interest:  Salem Units 1 and 2 - 42.59%; Hope Creek - 95%; and
Peach Bottom Units 2 and 3 - 42.49%.  PSE&G operates Salem and Hope Creek, while
Peach Bottom is operated by PECO Energy, Inc. (PECO).

         The  penalty/reward  under the NPS is a percentage of replacement power
costs (see table below).

Capacity Factor Range                                   Reward       Penalty
----------------------------------------------------    -------      -------

Equal to or greater than 75% .......................      30%          --
Equal to or greater than 65% and less than 75% .....     None         None
Equal to or greater than 55% and less than 65% .....      --           30%
Equal to or greater than 45% and less than 55% .....      --           40%
Equal to or greater than 40% and less than 45% .....      --           50%
Below 40% ..........................................      BPU Intervenes


         Under the NPS, the composite  capacity  factor is  calculated  annually
using  maximum  dependable  capability  of the five nuclear units in which PSE&G
owns an interest.  This method takes into account actual operating conditions of
the  units.  While  the  NPS  does  not  specifically  have a  gross  negligence
provision,  the BPU has indicated  that it would  consider  allegations of gross
negligence  brought  upon  a  sufficient  factual  basis.  A  finding  of  gross
negligence  could result in penalties other than those prescribed under the NPS.
Based upon current  projections and assumptions  regarding  PSE&G's five nuclear
units during 1996,  including the continued outage of Salem Unit 1 and 2 for the
remainder of the year, the 1996 aggregate capacity factor would be approximately
53%, which would result in a penalty of approximately $17 million.  However,  if
the October 23, 1996 Agreement  resolving the "used and useful" issue related to
PSE&G's  Salem Units is  approved  by the BPU,  the NPS would not apply to PSE&G
during the period of January 1, 1996 through December 31, 1998 (see Note 3, Rate
Matters).


<PAGE>


Nuclear Insurance Coverages and Assessments

         PSE&G's insurance coverages and maximum  retrospective  assessments for
its nuclear operations are as follows:
<TABLE>
<CAPTION>

                                                                                         PSE&G Maximum
                                                            Total Site                  Assessments For A
Type and Source of Coverages                                Coverages                    Single Incident
---------------------------------------------------     --------------------         ----------------------
<S>                                                      <C>                         <C>          
(Millions)
Public Liability:
    American Nuclear Insurers                            $             200.0         $                   --
    Indemnity(A)...................................                  8,720.3                            210.2
                                                            -----------------           ----------------------
                                                         $           8,920.3   (B)   $                  210.2
                                                            -----------------           ----------------------
Nuclear Worker Liability:
    American Nuclear Insurers (C) .................      $             200.0         $                    8.0
                                                            -----------------           ----------------------
Property Damage:
    Nuclear Mutual Limited ........................      $             500.0                              9.2
    Nuclear Electric Insurance Ltd. (NEIL II) .....                  1,400.0                              8.3    (D)
    Nuclear Electric Insurance Ltd. (NEIL III) ....                    850.0                              9.2
                                                            -----------------           ----------------------
                                                         $           2,750.0          $                  26.7
                                                            -----------------           ----------------------
Replacement Power:
    Nuclear Electric Insurance Ltd. (NEIL I) ......      $               3.5   (E)    $                  11.4
</TABLE>


(A)      Retrospective  premium  program  under  the  Price-Anderson   liability
         provisions   of  the   Atomic   Energy   Act  of   1954,   as   amended
         (Price-Anderson).  Subject to retrospective  assessment with respect to
         loss from an incident  at any  licensed  nuclear  reactor in the United
         States. Assessment adjusted for inflation effective August 20, 1993.

(B)      Limit of liability for each nuclear incident under Price-Anderson.

(C)      Industry  aggregate  limit  representing  the potential  liability from
         workers  claiming  exposure  to the hazard of nuclear  radiation.  This
         policy  includes  automatic  reinstatements  up to an aggregate of $200
         million,  thereby providing total coverage of $400 million. This policy
         does not increase PSE&G's obligation under Price-Anderson.

(D)      In the event of a second  industry loss  triggering NEIL II - coverage,
         the maximum  retrospective  premium  assessment  can  increase to $18.5
         million.

(E)      Represents  limit of coverage  available to co-owners of Salem and Hope
         Creek, for each plant. Each co-owner purchases its own policy. PSE&G is
         currently covered for its percent ownership  interest in each plant for
         this limit.

         Price-Anderson  sets the "limit of  liability"  for  claims  that could
arise from an incident  involving any licensed  nuclear  facility in the nation.
The "limit of liability" is based on the number of licensed nuclear reactors and
is adjusted at least every five years based on the  Consumer  Price  Index.  The
current  "limit of liability" is $8.9  billion.  All utilities  owning a nuclear
reactor,  including PSE&G, have provided for this exposure through a combination
of private insurance and mandatory  participation in a financial protection pool
as  established  by  Price-Anderson.  Under  Price-Anderson,  each party with an
ownership  interest  in a nuclear  reactor  can be  assessed  its share of $79.3
million  per  reactor  per  incident,  payable at $10  million  per  reactor per
incident per year. If the damages exceed the "limit of liability," the President
is to submit to Congress a plan for  providing  additional  compensation  to the
injured  parties.  Congress could impose further revenue raising measures on the
nuclear  industry  to pay  claims.  PSE&G's  maximum  aggregate  assessment  per
incident is $210.2 million (based on PSE&G's ownership  interests in Hope Creek,
Peach Bottom and Salem) and its maximum aggregate annual assessment per incident
is $26.5 million.

         Further,  a recent  decision by the U.S.  Supreme Court,  not involving
PSE&G, held that the  Price-Anderson  Act did not preclude awards based on state
law claims for punitive damages.


<PAGE>


         PSE&G is a member of two industry mutual insurance  companies:  Nuclear
Mutual Limited (NML) and Nuclear Electric Insurance Limited (NEIL). NML provides
the primary  property  insurance at Salem and Hope Creek.  NEIL provides  excess
property  insurance  through its NEIL II and NEIL III policies  and  replacement
power coverage through its NEIL I policy.  Both companies may make retrospective
premium  assessments  in  case  of  adverse  loss  experience.  PSE&G's  maximum
potential  liabilities  under these  assessments  are  included in the table and
notes above.  Certain of the policies  also provide that the insurer may suspend
coverage with respect to all nuclear  units on a site without  notice if the NRC
suspends  or revokes  the  operating  license  for any unit on a site,  issues a
shutdown order with respect to such unit or issues a confirmatory  order keeping
such unit  down.  While the NRC has  issued  confirmatory  action  letters  with
respect to the Salem  shutdown,  PSE&G does not expect any action to be taken by
any insurer as a result of these NRC letters.

Construction and Fuel Supplies

         PSE&G has substantial  commitments as part of its ongoing  construction
program,   which  include  capital   requirements  for  nuclear  fuel.   PSE&G's
construction  program is  continuously  reviewed and  periodically  revised as a
result of changes in economic conditions, revised load forecasts, changes in the
scheduled  retirement  dates  of  existing   facilities,   changes  in  business
strategies,   site  changes,  cost  escalations  under  construction  contracts,
requirements  of regulatory  authorities  and laws,  the timing of and amount of
electric  and gas rate  changes  and the  ability  of  PSE&G to raise  necessary
capital.  Pursuant  to  its  electric  Integrated  Resource  Plan  (IRP),  PSE&G
periodically  reevaluates  its  forecasts  of  future  customers,  load and peak
growth, sources of electric generating capacity and demand side management (DSM)
to meet such  projected  growth,  including  the need to construct  new electric
generating  capacity.  The IRP takes into account assumptions  concerning future
demands  of  customers,   effectiveness  of  conservation  and  load  management
activities,  the long-term condition of PSE&G's plants,  capacity available from
electric  utilities  and other  suppliers and the amounts of  co-generation  and
other non-utility capacity projected to be available.

         Based on PSE&G's construction  program,  construction  expenditures are
expected to aggregate  approximately  $2.8 billion during the years 1996 through
2000, which includes $428 million for nuclear fuel, $84 million of Allowance for
Funds used During  Construction  (AFDC) and the replacement  steam generators at
Salem Unit 1. The  estimate of  construction  requirements  is based on expected
project completion dates and includes anticipated escalation due to inflation of
approximately 3% annually.  Therefore,  construction  delays or higher inflation
levels could cause  significant  increases in these  amounts.  PSE&G  expects to
internally generate the funds necessary to satisfy its construction expenditures
over this period, assuming adequate and timely recovery of costs, as to which no
assurances can be given.  In addition,  PSE&G does not presently  anticipate any
difficulties in obtaining  sufficient sources of fuel for electric generation or
adequate gas supplies during the years 1996 through 2000.

Hazardous Waste

         Certain   Federal   and  State  laws   authorize   the  United   States
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 take investigative
and 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 greater attention from the government  agencies  involved.  Generally,
actions directed at funding such site investigations and remediation include all
suspected or known responsible  parties.  PSE&G does not expect its expenditures
for any such site to have a material  adverse effect on its financial  position,
results of operations or 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 at PSE&G's former  manufactured gas
plant sites. To date, NJDEP and PSE&G have identified 38 former gas plant sites.
PSE&G is currently  working with NJDEP under its Remediation  Program to assess,
investigate  and, if  necessary,  remediate  environmental  conditions  at these
sites.

<PAGE>


The Remediation  Program is periodically  reviewed and revised by PSE&G based on
regulatory  requirements,  experience with the Remediation Program and available
technologies.  The overall 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  PSE&G's  financial  position,  results of
operations or net cash flows (see Note 3, Rate Matters).

Note 5.  Financial Instruments and Risk Management

Natural Gas Hedging

         Through  September 30, 1996 and 1995, U.S. Energy Partners  (USEP),  an
indirect gas marketing subsidiary of Enterprise,  entered into futures contracts
and swaps to buy 8,360,000  mmbtu and 5,700,000  mmbtu of natural gas at average
prices  of $2.09  per  mmbtu and  $1.81  per  mmbtu,  respectively,  related  to
fixed-price sales commitments.  Such contracts,  together with physical purchase
contracts, hedged approximately 86% and 91% of its fixed-price sales commitments
at September 30, 1996 and 1995, respectively. USEP had deferred unrealized hedge
gains of $337 thousand and $39 thousand at those respective dates.

Note 6.  Federal Income Taxes

         In August  1996,  Enterprise  reached an  agreement  with the  Internal
Revenue  Service (IRS) covering most of the disputed issues raised by the IRS in
its audit of PSE&G's tax return for 1985 and  Enterprise's  tax returns for 1986
and 1987.  The partial  agreement  included  resolution  of all disputed  issues
related  to Hope  Creek  and did not have a  material  impact  on the  financial
position, results of operations and net cash flows of PSE&G or Enterprise. While
no assurances  can be given  regarding  the outcome of the remaining  unresolved
issues,  an unfavorable  resolution  would not have a material adverse impact on
the financial  position,  results of  operations  and net cash flows of PSE&G or
Enterprise.


                     Public Service Electric and Gas Company
                   Notes To Consolidated Financial Statements

         Except  as  modified  below,   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 3.    Rate Matters
              Note 4.    Commitments and Contingent Liabilities
              Note 6.    Federal Income Taxes



<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)
Quarterly  Report on Form 10-Q for the  quarters  ending March 31, 1996 and June
30,  1996 and  1995  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.

Recent Developments

         On July 1, 1996, Enterprise Diversified Holdings Incorporated (EDHI), a
subsidiary of Enterprise,  entered into a contract with Samedan Oil  Corporation
(Samedan),  a  subsidiary  of Noble  Affiliates,  Inc.,  for the sale of  Energy
Development Corporation (EDC), a subsidiary of EDHI, to Samedan for an aggregate
purchase price of $779 million  subject to various  purchase price  adjustments.
The sale was completed on July 31, 1996.  Enterprise  recorded an after-tax gain
of approximately $13.5 million, or 6 cents per share, in the third quarter.

         The proceeds from the sale are being used to repay  approximately  $350
million  of EDHI  debt  related  to EDC and to  fund an open  market  repurchase
program of up to $350  million of  Enterprise  common  stock.  As of October 31,
1996, 6.3 million shares of common stock had been  repurchased  for an aggregate
cost of $169 million.

         On October 23, 1996, PSE&G, the staff of the New Jersey Board of Public
Utilities  (BPU), and the New Jersey Division of Ratepayer  Advocate  (Ratepayer
Advocate) agreed upon the resolution of three regulatory  issues,  including the
"used  and  usefulness"  of Salem  Nuclear  Units 1 and 2.  Under  the  proposed
Settlement Agreements (Agreements), which require the approval of the BPU, PSE&G
would provide  electric  customers  with bill credits  totaling $83.9 million in
January and February  1997 and would  forego  recovery of another $12 million in
energy costs that have been  deferred.  The total  benefit to PSE&G's  customers
would amount to $95.9 million.  The  Agreements  resulted in an earnings loss of
$62.3  million or 26 cents per share of Enterprise  common stock.  Of the total,
$3.3 million or 1 cent per share had been previously recorded, and the remaining
$59.0  million or 25 cents per share was  recorded in the third  quarter of 1996
(see Note 3, Rate Matters, of Notes).

Competition

         The BPU is  conducting a Phase II  proceeding  of the New Jersey Energy
Master Plan (Master  Plan) to address  wholesale and retail  competition  in New
Jersey.  On May 23, 1996, the BPU voted to release the Phase II Proceeding Staff
Status Report:  Restructuring  the Electric Power Industry in New Jersey (Status
Report).  The BPU also voted to adopt the  recommended  procedures  cited in the
Status Report to reach a resolution  and render its final  decisions  concerning
electric power industry  restructuring by  approximately  year-end 1996. The BPU
also  agreed  to  follow a  concurrent,  two  pronged  process  to  address  the
outstanding  issues and render final decisions.  As a result,  the BPU conducted
formal  public and  legislative-type  hearings  and  received  testimony  on the
outstanding  issues.  The BPU also accepted advance written comments in order to
develop a formal  record in this  matter and  established  a  negotiating  group
comprised of representatives of the various interest groups in this proceeding.

         The negotiating group discussions concluded on October 29, 1996 without
reaching consensus.  In accordance with the BPU's established procedures in this
matter, since the negotiating group did not reach a consensus on issues, the BPU
Staff will  advise the BPU on the  proposed  findings  anticipated  to be issued
before  year end.  Once the BPU  issues its  findings,  it will  conduct  public
hearings  and provide an  opportunity  for written  comments  prior to issuing a
final decision in 1997.

         The  recoverability  of stranded  costs,  electric rate  unbundling and
other issues related to  restructuring  will be largely  dependent on the Master
Plan Phase II findings.  Stranded  costs that could result as the industry moves
to  a  more  competitive  environment  may  include  investments  in  generating
facilities,  regulatory assets, purchased power agreements where the price being
paid under such an agreement  exceeds the market price for electricity and other
costs. At this time,  management  cannot predict the level of stranded costs for
PSE&G, if any, or the extent to which the BPU will allow recovery of such costs.


<PAGE>


         A joint task force of the BPU and the New  Jersey  Treasury  Department
has proposed  replacing the current New Jersey Gross  Receipts and Franchise Tax
(NJGRT) with a combination of existing  corporate  business tax,  existing state
sales  and use tax and a  transitional  tax which  would be  phased  out over an
expected  five or six year time frame.  After the  phase-out is  completed,  the
proposal is expected to improve the competitive  position of New Jersey electric
and gas  utilities  vis-a-vis  non-utility  energy  providers  in New Jersey and
energy providers in other states.  PSE&G cannot predict when or if this proposal
will be adopted.

         On August 23, 1996, in accordance  with the BPU's 1994 order  approving
PSE&G's gas unbundling  program,  PSE&G filed its Gas Unbundling  Status Report.
The filing also  contained  PSE&G's  proposal for a residential  gas  unbundling
pilot  program to be known as  SelectGas.  If approved,  this pilot program will
allow certain  residential natural gas customers to participate in a competitive
marketplace.  The SelectGas  pilot  program  would  involve four  municipalities
representing approximately 65,000 residential customers. The review of the pilot
program,  including formal discovery, has been initiated. The review is expected
to be completed by year-end 1996.  PSE&G cannot predict when or if this proposal
will be adopted.

Nuclear Operations

         Both of PSE&G's  Salem  Nuclear  Generating  Units are currently out of
service and their return dates are subject to completion of the  requirements of
their  respective  restart plans to the satisfaction of PSE&G and the NRC, which
encompasses  a substantial  review and  improvement  of  personnel,  process and
equipment  issues.  On May 23, 1996,  PSE&G and the co-owners of Salem signed an
agreement  to purchase  the steam  generators  from the owner of the  unfinished
Seabrook Nuclear Unit 2 for installation in Salem Unit 1. Transport of the steam
generators  to  Salem  was  completed  on  October  14,  1996.  By  using  these
replacement  steam  generators,  PSE&G  expects to return  Salem 1 to service in
mid-1997. The cost of replacement, including installation, will be approximately
$150 to $170 million  (PSE&G's share would be $64 to $72 million).  In addition,
the cost of  disposal of the four old steam  generators  could be as much as $20
million  (PSE&G's share would be $9 million).  PSE&G has entered into a contract
with the facility  operator to dispose of the four old steam  generators  at the
low level waste facility in Barnwell, South Carolina.

         On July 22, 1996,  PSE&G announced that although  substantial  progress
has been made in upgrading Salem Unit 2's major systems,  some of the originally
scheduled  work,  along with  additional  work that had since  been  identified,
remained  to be  completed.  Salem  Unit 2 is  currently  expected  to return to
service  early in the first  quarter of 1997 and is not  expected  to impact the
restart of Salem Unit 1. A meeting with the NRC to discuss restart of Salem Unit
2 is scheduled for November 18, 1996. The inability to successfully return these
units to continuous,  safe operation could have a material adverse effect on the
financial  position,  results of operations and net cash flows of Enterprise and
PSE&G. Restart of the units requires NRC approval,  which cannot be assured (see
Note 3, Rate Matters, of Notes).

         Given the  additional  scope of work  associated  with the Salem Unit 2
restart  effort,  Unit 1  restart  activities  (excluding  the  steam  generator
replacement)  and various cost saving  initiatives  in progress,  it is expected
that PSE&G's share of Salem operation and maintenance expenditures will increase
approximately $18 million from original plans developed in late 1995, to a total
of $136 million for 1996.

Results of Operations

         Earnings  per  share of  Enterprise  common  stock  were  $0.64 for the
three-month  period ended  September  30, 1996, a decrease of $0.12 per share of
common stock from the comparable  1995 period.  Earnings per share of Enterprise
common stock were $1.98 for the  nine-month  period ended  September 30, 1996, a
decrease of $0.10 per share of common  stock from the  comparable  1995  period.
Earnings per share of  Enterprise  common stock were $2.61 for the  twelve-month
period ended  September  30, 1996, a decrease of $0.01 per share of common stock
from the comparable 1995 period.

         Earnings per share for the three,  nine and twelve-month  periods ended
September  30, 1996  decreased  primarily  due to the  Agreements  regarding the
resolution of three regulatory  issues before the BPU,  increased  operation and
maintenance  expenses related to the outages at Salem and Hope Creek, a decrease
in the Allowance for Funds Used During  Construction (AFDC) that resulted from a
lower AFDC rate, increased depreciation expense due to more plant in service and
weak  electric  sales in the  summer  due to cooler  than  normal  weather.  The
earnings per share  decrease  was  partially  offset by higher  electric and gas
sales by PSE&G in early 1996 due to favorable  weather  conditions,  the gain on
the repurchase of certain of PSE&G's outstanding  cumulative  preferred stock at
discounts to par,  increased  investment  income from Public  Service  Resources
Corporation   (PSRC),   relatively   strong   performance  by  Community  Energy
Alternatives  Incorporated  (CEA) in the third  quarter,  increased  income from
Discontinued  Operations - EDC and a one-time  gain on the July 31, 1996 sale of
EDC.

PSE&G

Earnings Available to Enterprise
<TABLE>
<CAPTION>


                                                                      Increase or (Decrease)
                                           -----------------------------------------------------------------------------
                                             Three Months Ended         Nine Months Ended        Twelve Months Ended
                                               September 30,              September 30,             September 30,
                                               1996 vs. 1995              1996 vs. 1995             1996 vs. 1995
                                           -----------------------    -----------------------    -----------------------
                                                           Per                        Per                        Per
                                             Amount        Share        Amount        Share        Amount        Share
                                           ----------    ---------    ----------    ---------    ----------    ---------
<S>                                        <C>           <C>          <C>           <C>          <C>           <C>   
(Millions, except Per Share Data)
PSE&G
Revenues (net of fuel costs and     
  gross receipt taxes) ...............     $    (119)    $   (.49)    $     (43)    $   (.18)    $      (9)    $   (.04)
Operation and maintenance 
  expenses ...........................            24          .10           (61)        (.25)          (46)        (.19)
Depreciation and amortization
  expenses ...........................            (4)        (.02)          (14)        (.06)          (27)        (.11)
Federal income taxes .................            48          .20            60          .25            23          .10
Interest charges .....................             5          .02             6          .02            10          .04
Allowance for Funds used During
  Construction .......................            (5)        (.02)          (19)        (.08)          (31)        (.13)
Preferred securities dividend
  requirements .......................            (1)          --            (1)          --            (2)          --
Other income and expenses ............            (6)        (.03)            9          .04            15          .06
                                           ==========    =========    ==========    =========    ==========    =========
Earnings Available to Enterprise ..        $     (58)  $     (.24)    $     (63)    $   (.26)    $     (67)    $   (.27)
                                           ==========    =========    ==========    =========    ==========    =========
</TABLE>


Revenues

Electric

         Revenues  decreased  $125  million  or 11%,  $90  million or 3% and $31
million or 1% for the three,  nine and twelve-month  periods ended September 30,
1996  from  the  comparable  periods  of  1995.  Kilowatt-hour  sales  decreased
primarily due to the  Agreements  regarding the  resolution of three  regulatory
issues before the BPU,  decreased  industrial sales  attributable to the general
declining  trend in this sector,  new  cogeneration  operations at the site of a
large  customer,  equipment  outages  experienced at the site of two other large
customers  and strike  related  activity  in the  automotive  sector.  Decreased
industrial sales were slightly offset by higher residential and commercial sales
for the first six months of 1996 that resulted from favorable weather conditions
and continued  moderate  growth in the economy.  The  significant  components of
these changes follow:

<TABLE>
<CAPTION>


                                                                     Increase or (Decrease)
                                          ----------------------- -- ---------------------- -- ------------------------
                                            Three Months Ended         Nine Months Ended         Twelve Months Ended
                                              September 30,              September 30,              September 30,
                                              1996 vs. 1995              1996 vs. 1995              1996 vs. 1995
                                          -----------------------    ----------------------    ------------------------
                                                  Amount                    Amount                     Amount
                                          -----------------------    ----------------------    ------------------------
<S>                                       <C>                        <C>                       <C> 
(Millions) 
Kilowatt-hour sales .................     $                 (114)     $              (107)     $                  (97)
Recovery of energy costs ............                        (9)                        7                          36
NJGRT ...............................                        (6)                       (2)                          3
Other operating revenues ............                        --                         4                          16
PSCRC ...............................                         4                         8                          11
                                          -----------------------    ----------------------    ------------------------
Total Electric Revenues .............     $                (125)      $               (90)     $                  (31)

                                          =======================    ======================    ========================
</TABLE>


<PAGE>


Gas

         Revenues  increased  $13  million or 7%,  $204  million or 18% and $296
million or 19% for the three, nine and twelve-month  periods ended September 30,
1996 over the comparable  periods of 1995 primarily due to a higher  recovery of
fuel costs and increased residential sales due to colder weather during the most
recent heating season.  Other operating revenues reflect increases in off-system
sales,  which are sales of excess gas to brokers and other utilities who are not
part of PSE&G's firm customer base. The effects of those gains on total revenues
for the nine and  twelve-month  periods  were  depressed  by  approximately  $13
million due to a favorable special rate adjustment in 1995.
The significant components of these changes follow:

<TABLE>
<CAPTION>


                                                                       Increase or (Decrease)
                                            ------------------------------------------------------------------------------
                                              Three Months Ended         Nine Months Ended          Twelve Months Ended
                                                September 30,              September 30,               September 30,
                                                1996 vs. 1995              1996 vs. 1995               1996 vs. 1995
                                            -----------------------    -----------------------    ------------------------
                                                    Amount                     Amount                     Amount
                                            -----------------------    -----------------------    ------------------------
<S>                                         <C>                        <C>                         <C>  
(Millions)   
Therm sales .........................       $                  (8)     $                  32       $                  37
Recovery of fuel costs ..............                          25                        166                         225
NJGRT ...............................                          --                         --                          22
Other operating revenues ............                          (4)                         6                          12
                                            -----------------------    -----------------------    ------------------------
Total Gas Revenues ..................       $                  13       $                204      $                  296
                                            =======================    =======================    ========================
</TABLE>

Expense

Fuel Expenses

         Variances in fuel expenses do not directly affect  earnings  because of
fuel  adjustment  clauses  which  are part of  PSE&G's  rates.  However,  if the
Agreement regarding the resolution of three regulatory issues is approved by the
BPU as filed,  future changes in electric fuel and replacement power costs could
impact earnings (see Note 3, Rate Matters, of Notes).

Operation and Maintenance Expenses

         Operation and maintenance  expenses decreased $24 million or 8% for the
three-month  period ended  September 30, 1996 from the  comparable  1995 period.
There was an  increase  of $61  million or 7% and $46 million or 4% for the nine
and twelve-month periods ended September 30, 1996 when compared to the same 1995
periods.  The decrease during the three-month  period was primarily due to lower
outside  contractor  usage  for  restart  activities  at  Salem.  The  nine  and
twelve-month increases were primarily due to overall higher refueling outage and
restart activity expenses at Salem and Hope Creek.

Depreciation and Amortization Expenses

         Depreciation and amortization  expenses increased $4 million or 3%, $14
million or 3% and $27 million or 5% for the three, nine and twelve-month periods
ended  September 30, 1996 over the comparable  1995 periods.  The increases were
due  primarily to the  completion  of the  repowering  of the Bergen  Generating
Station in September 1995.

Federal Income Taxes

         Federal  income taxes  decreased $48 million or 44%, $60 million or 23%
and $23  million  or 8% for the  three,  nine  and  twelve-month  periods  ended
September  30,  1996  from the  comparable  1995  periods.  The  decreases  were
primarily due to the decrease in 1996 pre-tax income. The twelve-month  decrease
was not as  significant as the other two periods due to the offset caused by the
receipt of a non-taxable insurance benefit in 1994.

Allowance for Funds Used During Construction

         AFDC decreased $5 million or 55%, $19 million or 62% and $31 million or
65% during the three,  nine and  twelve-month  periods ended  September 30, 1996
from the comparable  1995 periods.  The decreases were primarily the result of a
lower AFDC rate and the  completion of the  repowering of the Bergen  Generating
Station in September 1995.

<PAGE>


Other Income

         Other  income  decreased $6 million or 38% for the  three-month  period
ended September 30, 1996 from the comparable 1995 period.  There was an increase
of $9 million or 18% and $15 million or 22% for the nine and twelve-month period
ended  September 30, 1996 when  compared to the same 1995  periods.  The primary
reason for the nine and  twelve-month  period  increases  is the $18 million net
gain on the repurchase of certain of PSE&G's  outstanding  cumulative  preferred
stock at discounts to par that occurred in the second quarter of 1996.

EDHI

Net Income

<TABLE>
<CAPTION>


                                                                      Increase or (Decrease)
                                          --------------------------------------------------------------------------------
                                            Three Months Ended         Nine Months Ended         Twelve Months Ended
                                              September 30,              September 30,              September 30,
                                              1996 vs. 1995              1996 vs. 1995              1996 vs. 1995
                                          -----------------------    -----------------------   ---------------------------
                                                          Per                        Per                          Per
                                           Amount        Share        Amount        Share        Amount          Share
                                          ---------     ---------    ----------    ---------    ----------    ------------
<S>                                       <C>           <C>          <C>           <C>          <C>           <C> 
(Millions, except Per Share Data)     
PSRC .................................    $     5       $   .02      $     13      $   .05      $      8      $      .03
CEA ..................................          3           .01            (1)          --            (5)           (.02)
EGDC .................................          1           .01            --           --            --              --
                                          ---------     ---------    ----------    ---------    ----------    ------------
Continuing Operations ...............           9           .04            12          .05             3             .01
Discontinued Operations - EDC .......          19           .07            26          .11            59             .24
                                          =========     =========    ==========    =========    ==========    ============
Total ...............................     $    28       $   .11      $     38      $   .16      $     62      $      .25
                                          =========     =========    ==========    =========    ==========    ============
</TABLE>

Continuing Operations

         EDHI's  income  from  continuing  operations  was $22  million  for the
quarter  ended  September  30, 1996, a $9 million  increase over the same period
ended  September 30, 1995.  EDHI's  income from  continuing  operations  was $47
million for the nine months ended  September  30,  1996, a $12 million  increase
over the same period ended  September 30, 1995.  EDHI's  income from  continuing
operations was $56 million for the twelve months ended  September 30, 1996, a $3
million increase over the same period ended September 30, 1995.

         Income from continuing  operations for the three, nine and twelve-month
periods  increased  primarily due to PSRC's  increased income from its Kohlberg,
Kravis,  Roberts,  and Co.  LBO  fund,  decreased  interest  expense  and  CEA's
increased  operating  income from  partnership  investments  for the three-month
period.  The increase for the twelve month period was partially  offset by CEA's
decreased  income caused by start-up  costs related to the  commencement  of two
projects as well as higher administrative and general expenses.

Discontinued Operations

         EDHI's income from discontinued operations was $16 million, $24 million
and $61 million for the three, nine and twelve-month periods ended September 30,
1996,  respectively.  The income from discontinued  operations  includes a $13.5
million  gain on the  sale of EDC  recorded  in July  1996.  EDC's  income  from
operations  was $3 million,  $11 million and $48 million for the  aforementioned
periods which increased by $5 million, $13 million and $45 million over the same
periods  ended  September  30, 1995.  Such  increases  were caused by higher gas
prices as well as higher oil prices and volumes in  addition to the  realization
of a settlement related to a take-or-pay sales contract in November 1995.

Liquidity and Capital Resources

         Enterprise's  liquidity is affected by maturing  debt,  investment  and
acquisition   activities,   the  capital  requirements  of  PSE&G's  and  EDHI's
construction and investment  programs,  permitted and timely regulatory recovery
of PSE&G expenses and  collection of revenues.  Capital  resources  available to
meet such  requirements  depend upon general and regional  economic  conditions,
PSE&G's  customer  retention  and growth,  the ability of PSE&G and EDHI to meet
competitive  pressures and to contain costs, the adequacy and timeliness of rate
relief,  cost  recovery  and  necessary  regulatory  approvals,  the  ability to
continue to operate and maintain its nuclear  plants in accordance  with NRC and
BPU requirements,  the impact of environmental regulations,  continued access to
the capital markets and continued favorable regulatory treatment of consolidated
tax benefits.  For  additional  information,  see the  discussion of Competition
above and Note 4, Commitments and Contingent Liabilities, of Notes.

PSE&G

         For the nine-month  period ended September 30, 1996,  PSE&G had utility
plant additions, including AFDC, of $440 million, a decrease of $66 million from
the corresponding 1995 period.  For the twelve-month  period ended September 30,
1996,  PSE&G had utility plant  additions,  including  AFDC, of $620 million,  a
decrease  of $201  million  from the  corresponding  1995  period.  The nine and
twelve-month  decreases  were  primarily  due to the  completion  of the  Bergen
Generating Station repowering project in September 1995.

         PSE&G  expects that it will be able to  internally  generate all of its
capital requirements,  including construction  expenditures,  over the next five
years and reduce its debt  outstanding  by  approximately  $1 billion,  assuming
adequate and timely  recovery of costs,  as to which no assurances  can be given
(see Note 3, Rate Matters,  and Note 4, Commitments and Contingent  Liabilities,
of Notes).

EDHI

         During the next five years, a majority of EDHI's  capital  requirements
are expected to be provided from additional debt financing and operational  cash
flows.  CEA is expected to be the primary vehicle 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.  EDHI may pursue  various other  business  growth
opportunities, including a domestic energy services corporation.

         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.  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.  At September 30, 1996, EDHI had
approximately $170 million of cash and cash equivalents on hand.

         PSRC is a  limited  partner  in  various  limited  partnerships  and is
committed  to make  investments  from  time to  time,  upon the  request  of the
respective  general  partners.  At September 30, 1996,  $33 million  remained as
PSRC's unfunded commitment related to these investments subject to call.

         EDHI and each of its subsidiaries  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-month
earnings before interest and taxes (EBIT) coverage ratio of at least 1.50:1.  As
of September 30, 1996,  EDHI had a consolidated  debt to equity ratio of 1.13:1.
For the twelve  months ended  September  30, 1996,  excluding  the  discontinued
operations of EDC, the EBIT coverage ratio, as defined to exclude the effects of
EGDC, was 2.73:1.  Compliance  with applicable  financial  covenants will depend
upon future financial position and levels of earnings,  as to which no assurance
can be given.

Internal Generation of Cash From Continuing Operations

Enterprise

         Enterprise's cash provided by operations for the nine months ended
September 30, 1996 decreased $38 million to $994 million from the  corresponding
1995 period.

         Enterprise's cash provided by operations for the twelve months ended
September 30, 1996 decreased $36 million to $1,429 million from the 
corresponding 1995 period.

External Financings

Enterprise

         Enterprise has a $25 million bank line of credit. At September 30, 
1996, Enterprise had no borrowings under this line of credit.


<PAGE>


PSE&G

         PSE&G has BPU authority to issue approximately $4.852 billion aggregate
amount of additional  Bonds/MTNs/Preferred  Stock/Preferred  Securities  through
2000 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. As of  September  30,  1996,  the  Mortgage  would permit up to $2.92
billion  aggregate  principal  amount of new bonds to be issued against previous
additions  and  improvements.  At September 30, 1996,  this  Mortgage  ratio was
3.26:1.

         In January  1996,  PSE&G  issued  $350  million  of its Bonds.  The net
proceeds  from the sale were  deposited in an escrow  account for the purpose of
refunding  the 8 3/4%  Series EE due 2021  ("Series  EE  Bonds")  and the 8 3/4%
Series HH due 2022 ("Series HH Bonds") Bonds at their  respective first optional
redemption  dates (November 1, 1996 for the Series EE Bonds and February 1, 1997
for the  Series HH  Bonds).  On  November  1,  1996,  the  Series EE Bonds  were
redeemed.

         The BPU has authorized  PSE&G to issue and have  outstanding at any one
time through January 1, 1997 not more than $1 billion of short-term obligations,
consisting  of  commercial  paper  and  other  borrowings  from  banks and other
lenders.  PSE&G  filed a petition  with the BPU on  October  24,  1996 that,  if
approved,  would increase this  authorization  amount to $1.3 billion and extend
the  authorization  period to January 2, 1999. On September 30, 1996,  PSE&G had
$524 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
September 30, 1996, there were no borrowings  outstanding  under either of these
credit agreements.

         Public Service  Conservation  Resources  Corporation  (PSCRC) has a $30
million revolving credit facility supported by a PSE&G subscription agreement in
an aggregate amount of $30 million which terminates on March 6, 1997.
As of September 30, 1996, PSCRC had $30 million outstanding under this facility.

         In March  1996,  PSCRC  entered  into a $40 million  secured  term loan
facility for loans maturing in three to five years. The agreement  terminates in
March 1998. As of September 30, 1996,  there was $20 million  outstanding  under
this facility.

         PSE&G Fuel  Corporation  (Fuelco) has a $125 million  commercial  paper
program to finance PSE&G's 42.49% share of Peach Bottom nuclear fuel,  supported
by a $125 million  revolving  credit facility with a group of banks.  The credit
facility expires in 2001. PSE&G has guaranteed  repayment of Fuelco's respective
obligations.  As of  September  30,  1996,  Fuelco had  commercial  paper of $90
million outstanding under the program and the facility.

EDHI

         Through July 31, 1996, Enterprise Capital Funding Corporation (Funding)
had a commercial paper program,  supported by a commercial bank letter of credit
and credit facility, in the amount of $225 million. Additionally,  Funding had a
$225 million revolving credit facility. Both facilities were scheduled to expire
in March 1998.  On July 31, 1996,  Funding  amended and restated its  commercial
paper program and revolving credit facility in conjunction with the sale of EDC,
reducing the total amount from $450  million to $300 million and  extending  the
maturity from March 1998 to July 1999. The $225 million commercial paper program
was eliminated and the $225 million  revolving  credit facility was increased to
$300 million.  As of September 30, 1996,  Funding had no borrowings  outstanding
under the amended and restated facility.

         PSE&G  Capital  Corporation's  (Capital)  MTN program  provides  for an
aggregate  principal amount of up to $650 million of MTNs so that its total debt
outstanding  at any time,  including  MTNs,  would not exceed  such  amount.  At
September 30, 1996,  Capital had total debt  outstanding of $461 million,  which
consisted primarily of MTNs.


<PAGE>


                     Public Service Electric and Gas Company

         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: Recent Developments;  Competition; Nuclear
Operations;  Results of Operations;  Liquidity and Capital  Resources;  Internal
Generation of Cash from Operations; and External Financings.

                Information Regarding 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 and will be made in  written  documents  and  oral  presentations  of
Enterprise and PSE&G. Such statements are based on management's  beliefs as well
as assumptions made by and information  currently available to management.  When
used in  Enterprise  and  PSE&G's  documents  or oral  presentations,  the words
"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; controversies regarding electric and magnetic fields;
nuclear  decommissioning  and  the  availability  of  reprocessing  and  storage
facilities for spent nuclear fuel; and credit market concerns with these issues.
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

         Morton International, Inc. and the Velsicol Chemical Corporation
("Plaintiffs")  have instituted  separate suits (Morton  International,  Inc. v.
A.E.  Staley  Manufacturing  Co.,  et al.  Civil  Action No.  96-3609  (NHP) and
Velsicol Chemical  Corporation,  et al. v. A.E. Staley Manufacturing Co., et al.
Civil Action No. 96-3610  (NHP)) in the United States  District Court in Newark,
New Jersey against one hundred and seven (107) defendants,  including PSE&G. The
suits are  contribution  actions  pursuant  to the  Comprehensive  Environmental
Response  Compensation and Liability Act of 1980, as amended, and the New Jersey
Spill and  Compensation  Act seeking  contribution for an equitable share of all
liability  response costs and damages  Plaintiffs  anticipate they will incur in
connection with the investigation and remediation of a forty (40) acre parcel of
land in WoodRidge,  New Jersey and adjoining  water body known as Berry's Creek.
Plaintiffs have not initiated any remedial actions to date either at the site or
the adjacent Creek.  While Plaintiffs  anticipate that the  investigation of the
site will cost  approximately  $4 million,  they have no current estimate of the
costs for  remediation of the site and/or the  investigation  and remediation of
the Creek. PSE&G's alleged nexus to the site is based on shipments of quantities
of mercury  from its Kearny  Generating  Station and other  unnamed  facilities.
Since Plaintiffs have only provided PSE&G with representative nexus information,
PSE&G is not able at the  current  time to  determine  the  precise  nature  and
significance of any nexus to the site.

         As previously  reported,  PSE&G and the three other  co-owners of Salem
filed suit in February 1996 in the United States District Court for the District
of New Jersey against Westinghouse Electric Corporation  (Westinghouse)  seeking
damages to recover the cost of replacing  the steam  generators at Salem Units 1
and 2. The suit  alleges  fraud and breach of  contract by  Westinghouse  in the
sale,   installation   and  maintenance  of  the  generators.   In  April  1996,
Westinghouse  filed an answer and $2.5  million  counterclaim  for  unpaid  work
related  to  services  at Salem.  PSE&G  cannot  predict  the  outcome  of these
proceedings.

         Also  previously  reported,  the co-owners of Salem have filed lawsuits
against Enterprise and PSE&G in the United States District Court for the Eastern
District  of  Pennsylvania  and  in  the  New  Jersey  Superior  Court  alleging
mismanagement  by PSE&G in its  operation  of Salem and are seeking  unspecified
compensatory  and punitive  damages.  PSE&G's answers in these matters have been
filed and  discovery is  proceeding.  While PSE&G cannot  predict the outcome of
these  proceedings,  PSE&G believes it has operated Salem in accordance with the
requirements  of the  owners  agreement  and  applicable  law  and  that  it has
substantial  and valid  defenses to these  claims.  On July 30, 1996,  the Court
issued an Order scheduling discovery and setting a trial for May 1997.

         Certain information reported under Item 3 of Part I of Enterprise's and
PSE&G's  Annual  Report to the SEC on Form 10-K for 1995  (the  "Form  10-K") is
updated herein at the respective pages indicated.  References are to the related
pages and paragraph(s) of this report.

         As previously  reported in the Form 10-K at page 39 and in a prior Form
8-K, four shareholder derivative action civil complaints have been filed against
Enterprise  and  certain  of its  directors  and  officers  seeking  to  recover
unspecified  damages  for  alleged  losses  purportedly  arising  out of PSE&G's
operations of Salem and Hope Creek.  These actions have been  consolidated and a
case  management  order to deal with discovery and motions has been issued.  The
defendants  have filed motions to dismiss these  proceedings,  which motions are
presently pending.

         In addition, see the following at the pages indicated:

(1)      Page 12.  Proceedings  before the BPU  relating  to  PSE&G's  proposed
         Alternative  Rate Plan,  Docket No.  E096010028.  Form 10-K,  Page 73;
         First Quarter Form 10-Q, Page 11; Second Quarter Form 10-Q, Page 12.

(2)      Page 13.  Proceedings  before the BPU  relating to PSE&G's  LGAC filed
         October  2, 1995,  Docket No.  GR9510456.  Form 10-K,  Page 75.  First
         Quarter Form 10-Q, Page 13; Second Quarter Form 10-Q, Page 15.

(3)      Page  13.   Proceedings   before  the  BPU  relating  to  recovery  of
         replacement  power  costs in  connection  with the April  1994 Salem 1
         shutdown,  Docket No.  ER94070293.  Form 10-K,  Page 75; First Quarter
         Form 10-Q, Page 13, Second Quarter Form 10-Q, Page 15.

(4)      Page 12.  Generic  proceeding  before the BPU  relating  to recovery of
         capacity  costs  associated  with power  purchases  from  cogenerators,
         Docket No.  EX93060255.  Form 10-K,  Page 76; First  Quarter Form 10-Q,
         Page 13; Second Quarter Form 10-Q, Page 17.

(5)      Page 14. Generic  proceedings before the BPU relating to standards for
         "off  tariff"   negotiated   rate  agreement   programs,   Docket  No.
         EX95070320.  Form 10-K,  Page 76. First  Quarter  Form 10-Q,  Page 13;
         Second Quarter Form 10-Q, Page 16.

(6)      Page 13.  Proceedings  before the BPU  relating to PSE&G's  LGAC filed
         July 30, 1996, Docket No.  GR96070554.  Second Quarter Form 10-Q, Page
         15.

(7)      Page 13. Proceedings before the BPU relating to PSE&G's RAC filed July
         30, 1996, Docket No. GR96070555. Second Quarter Form 10-Q, Page 15.

(8)      Page 14. Generic  proceeding  before the BPU relating to the matter of
         an inquiry into  methods of  implementation  of  SFAS-106,  Docket No.
         AX96070530.  Second  Quarter Form 10-Q,  Page 17; Second  Quarter Form
         10-Q, Page 17.

(9)      Page 14.  Proceedings  before the BPU relating to PSE&G's proposed CTC
         filed September 19, 1996, Docket No. ET96090669.

(10)     Page 14.  Proceedings  before the BPU  relating  to PSE&G's  first Off
         Tariff Rate Agreement (OTRA), Docket No. OTRA-96-1.

Item 5.  Other Information

         Certain information reported under Enterprise's and PSE&G's 1995 Annual
and 1996 Quarterly Reports to the Securities and Exchange Commissions is updated
below.  References  are to the related  pages of the Form 10-K and the first and
second quarter 10-Q's as printed and distributed.

Nuclear Operations

Second Quarter 10-Q, Page 44

         On October 23, 1996,  PSE&G  received a $150,000 civil penalty from the
NRC for five violations  identified  during inspection  activities  earlier this
year and discussed at an enforcement  conference on June 11, 1996. The first two
violations  involved  a failure  to plan and  perform  appropriate  surveillance
testing, and were assigned an aggregate severity level III violation. The second
two violations concerned failure to provide timely identification and correction
of problems  involving safety related  equipment,  also assigned  severity level
III. An additional  severity level III violation was noted for incorrect service
water throttle valve settings. No civil penalty was assigned for this violation,
since the condition was self-identified and appropriate  corrective actions were
taken. PSE&G will not dispute these violations.

Second Quarter 10-Q, Page 45

         On July 5, 1996, the NRC notified PSE&G of the need for a predecisional
enforcement  conference for apparent violations involving alleged discrimination
against two employees for their engagement in protected activities in accordance
with federal regulations.  The enforcement  conference was held on September 11,
1996. PSE&G cannot predict what actions the NRC may take in this matter.

First Quarter 10-Q, Page 44

         In a separate  matter,  as a result of several  Boiling Water  Reactors
(BWR)  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 dated May 6, 1996 to
operators of BWRs  requesting  measures be taken to minimize the  potential  for
clogging.  The NRC has proposed three  resolution  options,  with a request that
actions be  completed  by the end of the unit's  first  refueling  outage  after
January 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, and expects to submit its planned actions and schedules within 90 days
after the NRC  approves a utility  resolution  guidance  document.  PSE&G cannot
predict what other actions, if any, the NRC may take in this matter.

Form 10-K, Page 7 and Second Quarter 10-Q, Page 42

         In July,  the  member  companies  of  Pennsylvania-New  Jersey-Maryland
Interconnection  (PJM),  except PECO, filed a proposal to reorganize PJM into an
independent  system  operator  (ISO) in response to FERC's open access  proposed
rulemaking.  PECO filed a separate  proposal  with FERC.  On November  13, 1996,
FERC, at its public meeting,  announced that it was rejecting the  restructuring
proposals of both PECO and the other PJM companies due to concerns regarding the
independence  of the proposed ISO, among other things.  The text of FERC's order
has not been received as of the date of this filing. PSE&G cannot yet assess the
impact of FERC's order on the restructuring proposals.

Form 10-K, Page 14

         PECO has advised PSE&G that Peach Bottom 3 was examined during its Fall
1995 refueling outage and the extent of cracking identified was determined to be
within industry-established guidelines. In a letter to the NRC dated November 3,
1995,  PECO  concluded  that there is a substantial  margin for each core shroud
weld to allow for  continued  operations  of Unit 3. PECO has also  advised that
Peach Bottom 2 was reinspected  during its Fall 1996 refueling outage, and while
additional minor flaw  indications  were discovered,  PECO concluded and the NRC
concurred that neither repair nor  modification to the core shroud was necessary
prior to restarting the reactor.

New Matters

         In  August  1996,  the NRC  conducted  an  inspection  of the  Physical
Security  Program  for  Salem  and  Hope  Creek.  Based on the  results  of that
inspection,   six  apparent  violations  have  been  identified  and  are  being
considered  for escalated  enforcement.  These apparent  violations  include the
failure to: 1) control photo badge key cards;  2) properly  search an individual
prior to entrance to the protected area; 3) notify the nuclear shift  supervisor
of a potential  threat event; 4) deactivate  photo badges for individuals who no
longer require site access; 5) complete training for security  supervisors prior
to assignment of duties; and 6) test an intrusion detection system in accordance
with  procedures.  On September 3, 1996, PSE&G met with the NRC to discuss these
issues and provide specific corrective  actions. An enforcement  conference will
be held on November 14, 1996 to address these apparent violations.  PSE&G cannot
predict what other actions the NRC may take on this matter.

         In October 1996, PSE&G, along with other nuclear plant owners, received
a request for  information  regarding  the  adequacy  and  availability  of each
plant's design bases data.  The NRC is requiring  that  information be submitted
under oath and affirmation to provide it added confidence and assurance that all
nuclear  units are  operated  and  maintained  within  the  design  bases of the
facilities and that any  deviations are reconciled in a timely manner.  Although
PSE&G has yet to formulate a response to the NRC's  request,  it is  anticipated
that design bases reviews,  similar to the extensive  efforts already  performed
for Salem Unit 2, will be undertaken for Salem Unit 1 and Hope Creek.  Since the
information  to be  submitted  will be used  by the NRC to  determine  follow-up
inspection activity or potential  enforcement  actions,  PSE&G cannot predict at
this time what impact the NRC's request will have.

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)



<PAGE>


(b)  Reports on Form 8-K.

Registrant                          Date of Report            Item Reported

Enterprise                          7-2-96                    Item 5, Item 7

Enterprise and PSE&G                7-22-96                   Item 5, Item 7

Enterprise                          10-23-96                  Item 5, Item 7







                  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: November 14, 1996


<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,                           September 30,
                                    ------------   ------------   ------------   -------------  -------------
                                     1991 (A)       1992 (A)        1993 (A)         1994           1995             1996
                                    ------------   ------------   ------------   -------------  -------------  -----------------
<S>                                 <C>            <C>            <C>            <C>            <C>            <C> 
(THOUSANDS)
Earnings as Defined in
Regulation S-K:

Net Income                              543,035        504,117        595,519         679,033        662,323            636,757
Federal Income Taxes (B)                274,146        253,276        316,010         322,824        364,355            294,035
Fixed Charges                           530,308        580,364        570,505         568,611        580,432            529,854
                                    ------------   ------------   ------------   -------------  -------------  -----------------
     
Earnings                              1,347,489      1,337,757      1,482,034       1,570,468      1,607,110          1,460,646
                                    ============   ============   ============   =============  =============  =================


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

Total Interest Expense (D)              478,321        524,025        502,534         495,925        496,060            453,503
Interest Factor in Rentals                9,311          9,591         11,090          12,120         11,956             11,164
Subsidiaries' Preferred Stock
  Dividend Requirements                  29,012         31,907         38,114          42,163         49,426             50,448
Adjustment to preferred and
  preference stock dividends
  to state on a pre-income
  tax basis                              13,664         14,841         18,767         18,403          22,990             14,739
                                    ------------   ------------   ------------   ------------   -------------  -----------------
Total Fixed Charges                     530,308        580,364        570,505         568,611        580,432            529,854
                                    ============   ============   ============   =============  =============  =================

Ratio of Earnings to Fixed
  Charges                                  2.54           2.30           2.59            2.76           2.77               2.76
                                    ============   ============   ============   =============  =============  =================
</TABLE>


(A)   Excludes 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,  and (d)  Preferred  Securities  Dividend
      Requirements of  subsidiaries,  increased to reflect the pre-tax  earnings
      requirement for Public Service Enterprise Group Incorporated.

(D)   Excludes 1991 and 1992 interest expense on decommissioning costs of $6,956
      and  $5,208,  respectively.  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,                          September 30,
                                    ------------  -------------  -------------   -------------  -------------
                                       1991           1992           1993            1994           1995             1996
                                    ------------  -------------  -------------   -------------  -------------   ----------------
<S>                                 <C>           <C>            <C>             <C>            <C>             <C>
(THOUSANDS)
Earnings as Defined in
Regulation S-K:

Net Income                              545,479        475,936        614,868         659,406        616,964            528,046
Federal Income Taxes (A)                261,912        223,782        307,414         301,447        325,737            264,591
Fixed Charges                           367,828        411,493        401,046         408,045        418,825            436,028
                                    ------------  -------------  -------------   -------------  -------------   ----------------
      
Earnings                              1,175,219      1,111,211      1,323,328       1,368,898      1,361,526          1,228,665
                                    ============  =============  =============   =============  =============   ================

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

Total Interest Expense (C)              358,517        401,902        389,956         395,925        406,869            401,208
Interest Factor in Rentals                9,311          9,591         11,090          12,120         11,956             11,164
Subsidiaries' Preferred Stock
  Dividend Requirements                    --             --             --              --             --               23,656
                                    ------------  -------------  -------------   -------------  -------------   ----------------
Total Fixed Charges                     367,828        411,493        401,046         408,045        418,825            436,028
                                    ============  =============  =============   =============  =============   ================

Ratio of Earnings to Fixed
  Charges                                  3.20           2.70           3.30            3.35           3.25               2.82
                                    ============  =============  =============   =============  =============   ================
</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 1991 and 1992 interest expense on decommissioning costs of $6,956
      and  $5,208,  respectively.  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,                           September 30,
                                    ------------  -------------  -------------   -------------  -------------
                                       1991           1992           1993            1994           1995             1996
                                    ------------  -------------  -------------   -------------  -------------  -----------------
<S>                                 <C>           <C>            <C>             <C>            <C>            <C>
(THOUSANDS)
Earnings as Defined in
Regulation S-K:

Net Income                              545,479        475,936        614,868         659,406        616,964            528,046
Federal Income Taxes (A)                261,912        223,782        307,414         301,447        325,737            264,591
Fixed Charges                           367,828        411,493        401,046         408,045        418,825            436,028
                                    ------------  -------------  -------------   -------------  -------------  -----------------
Earnings                              1,175,219      1,111,211      1,323,328       1,368,898      1,361,526          1,228,665
                                    ============  =============  =============   =============  =============  =================

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

Total Interest Expense (C)              358,517        401,902        389,956         395,925        406,869            401,208
Interest Factor in Rentals                9,311          9,591         11,090          12,120         11,956             11,164
Subsidiaries' Preferred Stock
  Dividend Requirements                     --             --             --              --             --              23,656
Preferred Stock Dividends                29,012         31,907         38,114          42,147         49,426             26,792
Adjustment to preferred and
  preference stock dividends
  to state on a pre-income
  tax basis                              13,691         14,768         18,843          18,763         23,428             13,931
                                    ------------  -------------  -------------   -------------  -------------  -----------------
Total Fixed Charges                     410,531        458,168        458,003         468,955        491,679            476,751
                                    ============  =============  =============   =============  =============  =================

Ratio of Earnings to Fixed
 Charges                                   2.86           2.43           2.89            2.92           2.77               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,  and  (d)  preferred  securities  dividend
     requirements  of  Subsidiaries,  increased to reflect the pre-tax  earnings
     requirement for Public Service Electric and Gas Company

(C)  Excludes 1991 and 1992 interest expense on decommissioning  costs of $6,956
     and $5,208, respectively. Effective January 1, 1992, accounting was changed
     to follow Federal Energy Regulatory Commission guidelines.