Exhibit 10a(21)

                              EMPLOYMENT AGREEMENT


                  AGREEMENT,  by and between  Public  Service  Enterprise  Group
Incorporated,  a New Jersey Corporation ("Enterprise") and Alfred C. Koeppe (the
"Executive"), dated as of October 17, 2000.


                  WHEREAS,  the Executive is currently  serving as President and
Chief Operating Officer of Public Service Electric and Gas Company, a New Jersey
Corporation,  and a wholly-owned  subsidiary of Enterprise  (Enterprise  and its
subsidiaries and affiliates being  collectively  hereinafter  referred to as the
"Company").

                  WHEREAS,  in consideration  of the substantial  benefits to be
provided by the Company pursuant to this Agreement,  the Executive is willing to
commit himself to be employed by the Company on the terms and conditions  herein
set forth; and


                  WHEREAS,  the  parties  desire to enter  into  this  Agreement
setting forth the terms and conditions for the  employment  relationship  of the
Executive  with  the  Company  during  the  Employment  Period  (as  hereinafter
defined):

                  NOW,  THEREFORE,  IN  CONSIDERATION  of the  mutual  premises,
covenants and agreements set forth below, it is hereby agreed as follows:

                  1.       General.
                           -------

                  (a)  Employment.  The Company  agrees to employ the Executive,
and the Executive  agrees to be employed by the Company,  in accordance with the
terms and provisions of this Agreement during the Employment Period.

                  (b) Term. The term of the  Executive's  employment  under this
Agreement  (the  "Employment  Period") shall commence as of the date hereof (the
"Effective  Date") and shall  continue  until  October 16, 2005.  In the event a
Change  in  Control  occurs  during  the  Employment  Period,  the  term  of the
Executive's  employment shall (unless  terminated  earlier pursuant to Section 4
hereof) automatically continue until the later of the last day of the Employment
Period or the second  anniversary  of the Change in  Control.  In the event this
Agreement  is extended as provided in the  preceding  sentence,  the  Employment
Period shall be the period from the Effective Date to the second  anniversary of
the Change in Control.

                  2.       Position and Attention to Duties.
                           --------------------------------


                  (a)  Position.  During the  Employment  Period,  the Executive
shall serve as President and Chief Operating  Officer of Public Service Electric
and Gas Company or in another  senior  executive  position or positions  for the
Company,  as  determined  by the Chief  Executive  Officer  ("CEO") and Board of
Directors ("Board") of Enterprise.


                  (b) Attention. During the Employment Period, and excluding any
periods of  vacation  and sick leave to which the  Executive  is  entitled,  the
Executive  agrees to devote full attention and time during normal business hours
to the  business  and  affairs of the  Company  and to use his  reasonable  best
efforts to perform such  responsibilities in a professional manner. It shall not
be a violation of this  Agreement  for the  Executive to (i) serve on corporate,
civic or  charitable  boards  or  committees,  (ii)  deliver  lectures,  fulfill
speaking  engagements  or teach at  educational  institutions  and (iii)  manage
personal  investments,  so long as such  activities  do not  interfere  with the
performance of the  Executive's  responsibilities  as an officer and director of
the Company in accordance with this Agreement.

                  3.       Compensation.
                           ------------

                  Except  as  modified  by  this   Agreement,   the  Executive's
compensation  shall  be  provided  in  accordance  with the  Company's  standard
compensation and payroll practices as in effect from time to time. The aggregate
of Base Salary,  Annual  Incentive  Compensation  and  Long-Term  Incentives  in
paragraphs  (a), (b) and (c) below shall be  determined  based upon  competitive
practices for companies of comparable size and standing.

                  (a) Base Salary. The annual rate of base salary payable to the
Executive  during the  Employment  Period (the  "Annual Base  Salary")  shall be
established by the  Organization  and  Compensation  Committee of the Board (the
"Compensation Committee").  During the Employment Period, the Annual Base Salary
shall be reviewed by the Compensation  Committee for possible  increase at least
annually.  Annual Base Salary shall not be reduced,  and after any such increase
and the term  "Annual  Base Salary"  shall  thereafter  refer to the Annual Base
Salary as so increased.

                  (b) Annual Incentive  Compensation.  The Board has established
and intends to continue an annual incentive compensation plan for the benefit of
the officers and other key employees of the Company,  including  the  Executive,
based on  competitive  practices for companies of comparable  size and standing.
The  performance  objectives for the Executive in respect of such incentive will
be determined by the Compensation Committee in accordance with past practices.

                  (c)  Long-Term  Incentives.  The  Board  has  established  and
intends to continue a long-term  incentive  plan for the benefit of the officers
and other key  employees  of the  Company,  including  the  Executive,  based on
competitive  practices for companies of comparable size and standing.  Such plan
may, in the judgment of the Compensation  Committee,  provide for stock options,
stock appreciation rights, restricted stock or stock units, performance stock or
units and/or other type of long-term  incentive  awards.  The type and amount of
equity  and any other  long-term  incentive  grants  will be  determined  by the
Compensation Committee from time to time, and awards thereunder shall be payable
to the Executive in accordance  with the  long-term  incentive  plan or plans in
effect from time to time.

                  (d)      Option Award.
                           ------------

         (i) In  consideration  of the  commitment  he will  assume  during  the
         Employment Period, the Executive shall be granted an award (the "Option
         Award")  of  non-qualified   options  under  the  Enterprise  Long-Term
         Incentive Plan ("LTIP") to purchase  250,000 shares of the Common Stock
         without nominal or par value of Enterprise  ("Stock").  Options granted
         under the Option Award are herein  referred to as "Options".  The grant
         price of the Options  shall be the closing price of the Common Stock on
         the New York Stock  Exchange on the  Effective  Date.  The  Executive's
         right  to the  Option  Award  shall  vest  and  become  exercisable  in
         accordance with the following schedule, provided that the Executive has
         remained  continuously  employed by the Company  during the  Employment
         Period through the dates indicated below:

            Date                 Number of Shares
            ----                 ----------------
         October 17, 2001           50,000
         October 17, 2002           50,000
         October 17, 2003           50,000
         October 17, 2004           50,000
         October 17, 2005           50,000



If, during the  Employment  Period (1) there occurs a Change in Control,  or (2)
Enterprise  enters  into an  agreement  to merge or  consolidate  with any other
corporation  which, if consummated,  would meet the requirements of Section 6(b)
(iii) and the  shareholders  of Enterprise  approve that  agreement,  the entire
Option  Award  shall  vest and become  exercisable.  If,  during the  Employment
Period, the Company  terminates the Executive's  employment without Cause or the
Executive  terminates  his  employment  for  Good  Reason,  or  the  Executive's
Employment terminates by reason of death or Disability, the Executive's right to
the entire  Option  Award  shall vest and become  exercisable  as of the Date of
Termination.  If,  during the  Employment  Period,  the Company  terminates  the
Executive's  employment  for Cause or the Executive  terminates  his  employment
without Good Reason, including Retirement, the Executive shall forfeit all right
to all  shares  of the  Option  Award  that  are not  vested  as of the  Date of
Termination.


         (ii) The  Options shall expire ten (10) years after the Effective Date.


         (iii) Once Options  become  exercisable  hereunder,  the  Executive may
         exercise such Options in any manner  permitted by the LTIP.  All vested
         options  shall be  exercised  or shall be  forfeited  no later than the
         earlier of three  years after  termination  of  employment  or 10 years
         after the Effective Date.

         (iv) Unless  specifically  provided  by this  Agreement,  all terms and
         conditions of the Options  granted  hereunder  shall be governed by the
         LTIP.


         (v) The  Compensation  Committee may make such provisions and take such
         steps as it may deem  necessary or appropriate  for the  withholding of
         any taxes that the  Company is  required  by law or  regulation  of any
         governmental  authority,  whether federal,  state or local, domestic or
         foreign,  to withhold in connection  with the Option Award,  including,
         but not  limited to (1)  withholding  delivery of the  certificate  for
         shares of Stock  until the  Executive  reimburses  the  Company for the
         amount it is required to withhold  with respect to such taxes,  (2) the
         canceling of any number of shares of Stock issuable to the Executive in
         an amount  necessary  to  reimburse  the  Company  for the amount it is
         required to so  withhold,  or (3)  withholding  the amount due from the
         Executive's other compensation.

                  (e) Employee Benefit Programs.  During the Employment  Period,
(i) the Executive shall be eligible to participate in all savings and retirement
plans,  practices,  policies  and  programs to the same  extent as other  senior
executives of the Company and (ii) the Executive and/or the Executive's  family,
as the case may be, shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices,  policies and programs provided
by the Company, other than severance plans, practices, policies and programs but
including, without limitation, medical, prescription, dental, disability, salary
continuance, employee life insurance, group life insurance, accidental death and
travel  accident  insurance  plans  and  programs,  and,  upon  retirement,  all
applicable  retirement  benefit plans to the same extent and subject to the same
terms,  conditions,  cost-sharing  requirements  and the like,  as other  senior
executives of the Company,  as such plans may be amended from time to time,  and
as  supplemented  hereby.  Following  a Change in Control,  no benefit  coverage
available to the Executive  and/or to his family under any such plan,  practice,
policy or program shall be materially  reduced without the prior written consent
of the Executive.


                  (f)  Retirement  Benefit.  During the Employment  Period,  the
Executive  shall   participate  in  Enterprise's   Pension  Plan,  and  also  in
Enterprise's   Limited  Supplemental   Benefits  Plan,   Mid-Career  Hire  Plan,
Reinstatement Plan and such other supplemental executive retirement plans as may
be adopted and amended by Enterprise from time to time ("SERPs"),  such that the
aggregate value of the retirement  benefits that he and his  beneficiaries  will
receive  under all pension  benefit plans of the Company  (whether  qualified or
not) will not be less than the benefits he would have  received had he continued
to participate in such plans,  as in effect  immediately  before the date hereof
through  the  earlier of the end of the  Employment  Period or  Retirement,  and
giving  effect to the service  credits set forth in Section 8 of the  employment
agreement  dated August 23, 1995,  between PSE&G and the  Executive  (the "PSE&G
Employment Agreement"),  the terms of which Section 8 are incorporated herein by
reference, and a copy of which PSE&G Employment Agreement is attached hereto. It
is agreed that the Option  Award and any  dividends  or other  distributions  in
respect of the Option  Award shall not be  included in any pension  calculation.
The Executive's right to retire shall be governed by the Enterprise Pension Plan
("Retirement").


                  (g) Expenses.  The Executive is authorized to incur reasonable
expenses in carrying out his duties and  responsibilities  under this Agreement.
The Company  shall  promptly  reimburse  him for all such expenses in accordance
with the  policies of the Company in effect from time to time for  reimbursement
of expenses for senior executives,  and subject to documentation provided by the
Executive in accordance with such Company policies.

                  (h)  Fringe  Benefits.   During  the  Employment  Period,  the
Executive shall participate in all fringe benefits and perquisites  available to
senior executives of the Company, including provision of an automobile, on terms
and conditions that are commensurate with his positions and  responsibilities at
the Company.

                  (i)  Vacation.  During the  Employment  Period,  the Executive
shall be entitled to paid  vacation in  accordance  with Company  policy for its
most senior  executives as in effect from time to time,  or six weeks  vacation,
whichever is greater.

                  (j) Deferred  Compensation.  The Executive  will retain all of
his rights in any  compensation  deferred prior to the date hereof in accordance
with the Deferred  Compensation Plan,  including earnings thereon, and following
the date hereof the obligations of the Company to pay such deferred compensation
at the times and in the manner specified in the Deferred  Compensation Plan will
continue.

                  4.       Termination of Employment.
                           -------------------------

                  (a) Death or  Disability.  The  Executive's  employment  shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment  Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 4(b) of this  Agreement of its  intention to terminate  the  Executive's
employment.  In such event,  the  Executive's  employment with the Company shall
terminate  effective  on the  30th  day  after  receipt  of such  notice  by the
Executive (the "Disability  Effective Date"),  provided that, within the 30 days
after  such  receipt,  the  Executive  shall  not  have  returned  to  full-time
performance  of  the  Executive's   duties.  For  purposes  of  this  Agreement,
"Disability"  means that (i) the Executive has been unable,  for the period,  if
any, specified in the Company's  disability plan for senior executives,  but not
less than a period of 180 consecutive  days, to perform the  Executive's  duties
under  this  Agreement  and (ii) a  physician  selected  by the  Company  or its
insurers,   and   acceptable   to  the  Executive  or  the   Executive's   legal
representative, has determined that the Executive is disabled within the meaning
of the applicable disability plan for senior executives.

                  (b)      By the Company.
                           --------------

                (i) The Company may terminate the Executive's  employment during
        the Employment  Period for Cause or without Cause.  For purposes of this
        Agreement,  "Cause" shall mean (A) willful and continued  failure by the
        Executive to substantially perform his duties under this Agreement,  (B)
        the  willful  engaging by the  Executive  in gross  misconduct  which is
        materially  and  demonstrably  injurious  to the  Company,  or  (C)  the
        conviction of the Executive of a felony. No act or failure to act on the
        part of the Executive shall be considered  "willful"  unless it is done,
        or  omitted  to be  done,  by the  Executive  in bad  faith  or  without
        reasonable  belief that the  Executive's  action or omission  was in the
        best  interests of the Company.  Any act or failure to act that is based
        upon authority  given pursuant to a resolution duly adopted by the Board
        of Directors  of the Company,  or the advice of counsel for the Company,
        shall be conclusively presumed to be done, or omitted to be done, by the
        Executive in good faith and in the best interests of the Company.

                (ii) A termination of the Executive's employment for Cause shall
        be effected in  accordance  with the following  procedures.  The Company
        shall give the Executive  written  notice  ("Notice of  Termination  for
        Cause") of its intention to terminate  the  Executive's  employment  for
        Cause,  setting forth in reasonable  detail the specific  conduct of the
        Executive  that it  considers  to  constitute  Cause  and  the  specific
        provision(s) of this Agreement on which it relies.  Such notice shall be
        given no later than 60 days  after the act or failure  (or the last in a
        series of acts or  failures)  that the  Company  alleges  to  constitute
        Cause.  The Executive  shall have 30 days after  receiving the Notice of
        Termination  for  Cause  in which to cure  such act or  failure,  to the
        extent such cure is possible. In the case of a termination under Section
        4(b)(i)(A) or Section  4(b)(i)(B),  if the Executive  fails to cure such
        act or  failure  to the  reasonable  satisfaction  of the  Company,  the
        Company shall give the Executive a second written notice stating that in
        the good  faith  opinion of the Board,  the  Executive  is guilty of the
        conduct  described in the Notice of Termination  for Cause and that such
        conduct constitutes Cause under this Agreement.

                  (c)      Good Reason.
                           -----------

                (i) The  Executive  may  terminate  his  employment  during  the
        Employment Period for Good Reason or without Good Reason. For purpose of
        this Agreement, "Good Reason" shall mean:

                        (A)     prior to the  occurrence of a Change in Control,
                                any  reduction  in the  Executive's  Annual Base
                                Salary;

                        (B)     following a Change in Control:

                        (1) any reduction in the Executive's Annual Base Salary,
                target annual bonus,  target  long-term  incentive or Retirement
                benefit;

                        (2)  any  adverse  change  in  the  Executive's   title,
                authority,  duties,  responsibilities and reporting lines or the
                assignment  to the  Executive of any duties or  responsibilities
                inconsistent  in any respect with those  customarily  associated
                with the  position  of the  Executive  immediately  prior to the
                Change in Control;

                        (3)  any  purported   termination  of  the   Executive's
                employment  by the  Company  for a  reason  or in a  manner  not
                expressly permitted by this Agreement;

                        (4) any failure by  Enterprise  to comply  with  Section
                10(c) of this Agreement; or

                        (5) any other  material  breach of this Agreement by the
                Company that either is not taken in good faith or, even if taken
                in good faith,  is not  remedied by the Company  promptly  after
                receipt of notice thereof from the Executive.

                  Following a Change in Control,  the Executive's  determination
                  that an act or failure to act constitutes Good Reason shall be
                  conclusively presumed to be valid unless such determination is
                  decided  to be  unreasonable  by  an  arbitrator  pursuant  to
                  Section 9.

                (ii) A  termination  of  employment  by the  Executive  for Good
        Reason  shall be  effectuated  by  giving  the  Company  written  notice
        ("Notice of Termination  for Good Reason") of the  termination,  setting
        forth in reasonable detail the specific acts or omissions of the Company
        that  constitute  Good  Reason  and the  specific  provision(s)  of this
        Agreement  on which the  Executive  relies.  Unless  the CEO  determines
        otherwise, a Notice of Termination for Good Reason by the Executive must
        be made within 60 days after the Executive first has actual knowledge of
        the act or omission (or the last in a series of acts or omissions)  that
        the Executive  alleges to constitute Good Reason,  and the Company shall
        have 30 days from the  receipt of such  Notice of  Termination  for Good
        Reason to cure the conduct cited therein. A termination of employment by
        the  Executive  for Good Reason  shall be  effective on the final day of
        such 30-day cure period  unless prior to such time the Company has cured
        the specific conduct asserted by the Executive to constitute Good Reason
        to the reasonable satisfaction of the Executive.

                (iii)  A  termination  of  the  Executive's  employment  by  the
        Executive without Good Reason,  including Retirement,  shall be effected
        by giving the Company at least 30 days' written  notice  specifying  the
        effective date of termination.

                  (d) Date of Termination.  The "Date of Termination"  means the
date of the  Executive's  death,  the Disability  Effective Date, or the date on
which the termination of the Executive's  employment by the Company for Cause or
without  Cause or by the  Executive  for Good  Reason or  without  Good  Reason,
including Retirement, is effective, as the case may be.

                  5.       Obligations of the Company upon Termination.
                           -------------------------------------------

                  (a)  Good  Reason;  Other  Than  for  Cause.  If,  during  the
Employment Period, the Company shall terminate the Executive's  employment other
than for Cause,  death or  Disability,  or the  Executive  shall  terminate  his
employment for Good Reason:

                (i) the  Company  shall  pay to the  Executive  in a lump sum in
        cash, within 15 days after the Date of Termination, the aggregate of the
        amounts set forth in clauses A and B below:

                  A.       The sum of:

                           (1) the  Executive's  Annual Base Salary
                               through the Date of Termination;

                           (2) the product of (x) the "target" annual bonus
                               under Section 3(b) (the "Target  Bonus") and
                               (y) a fraction,  the  numerator  of which is
                               the number of days in the  current  calendar
                               year  through the Date of  Termination,  and
                               the denominator of which is 365; and

                           (3) any accrued vacation pay;

                  in each case to the  extent not  theretofore  paid (the sum of
                  the amounts  described  in clauses  (1),  (2) and (3) shall be
                  hereinafter referred to as the "Accrued Obligations"); and

                 B.     the amount  equal to the  product of (1) two and (2) the
                        sum of (x) the  Executive's  Annual  Base Salary and (y)
                        the Target Bonus.


                (ii) the Option  Award  shall vest in  accordance  with  Section
        3(d)(i);

                (iii) any stock  awards,  stock  options,  other than the Option
        Award, stock appreciation  rights or other equity-based awards that were
        outstanding  immediately prior to the Date of Termination ("Prior Equity
        Awards")  shall vest and/or become  exercisable  in accordance  with the
        underlying plan for such Prior Equity Award;

                (iv) for two years after the Executive's  Date of Termination or
        such longer  period as may be  provided by the terms of the  appropriate
        plan,  program,  practice or policy, the Company shall continue benefits
        to the Executive  and/or the Executive's  family at least equal to those
        which would have been  provided to them in  accordance  with the welfare
        plans,  programs,  practices  and policies  described in Section 3(e) of
        this Agreement if the Executive's employment had not been terminated or,
        if more favorable to the Executive,  as in effect  generally at any time
        thereafter  with respect to other peer executives of the Company and its
        affiliated companies and their families,  provided however,  that if the
        Executive  becomes  reemployed with another  employer and is eligible to
        receive medical or dental benefits under another employer provided plan,
        the medical and dental benefits  described  herein shall be secondary to
        those  provided under such other plan during such  applicable  period of
        eligibility;

                (v) any compensation previously deferred (other than pursuant to
        a  tax-qualified  plan) by or on behalf of the Executive  (together with
        any accrued interest or earnings  thereon),  whether or not then vested,
        shall  become  vested  on the Date of  Termination  and shall be paid in
        accordance with the terms of the plan, policy or practice under which it
        was deferred;

                (vi) the Company shall, at its sole expense as incurred, provide
        the Executive with  outplacement  services  suitable to the  Executive's
        position  for a  period  not to  exceed  two  years  with  a  nationally
        recognized outplacement firm; and,

                (vii)  to the  extent  not  theretofore  paid or  provided,  the
        Company  shall pay or  provide  to the  Executive  any other  amounts or
        benefits  required  to be paid or  provided  or which the  Executive  is
        entitled to receive under any plan, program, policy, practice,  contract
        or agreement  of the Company and its  affiliated  companies  (other than
        medical  or  dental  benefits  if the  Executive  is  eligible  for such
        benefits to be provided by a subsequent employer),  including earned but
        unpaid stock and similar  compensation  but excluding any severance plan
        or policy (such other amounts and benefits shall be hereinafter referred
        to as the "Other Benefits").


                  (b) Cause;  Other  than for Good  Reason.  If the  Executive's
employment shall be terminated for Cause during the Employment Period, or if the
Executive  voluntarily  terminates  employment  during  the  Employment  Period,
excluding a  resignation  for Good  Reason,  the  Company  shall have no further
payment  obligations  to the  Executive  other  than for  amounts  described  in
Sections  5(a)(i)(A)(1) and 5(a)(i)(A)(3) and the timely payment or provision of
Other Benefits. In such case, all such amounts shall be paid to the Executive in
a lump sum within 30 days of the Date of  Termination.  Any unvested  portion of
the Option Award shall be forfeited in accordance with Section 3(d)(i).

                  (c) Death. If the Executive's  employment terminates by reason
of the Executive's death during the Employment Period,  all Accrued  Obligations
as of the time of death shall be paid to the Executive's  estate or beneficiary,
as  applicable,  in a lump sum in cash within 30 days of the Date of Termination
and the  Executive's  estate  or  beneficiary  shall be  entitled  to any  Other
Benefits in  accordance  with their terms.  In addition,  the Option Award shall
vest in  accordance  with Section  3(d)(i).  Any Prior Equity  Awards shall vest
and/or become exercisable, as the case may be, as of the Date of Termination and
the Executive's estate or beneficiary,  as the case may be, shall have the right
to exercise any such stock option, stock appreciation right or other exercisable
equity-based  award  until  the  earlier  of (A)  one  year  from  the  Date  of
Termination  (or such longer  period as may be  provided  under the terms of any
such stock option, stock appreciation right or other equity-based award) and (B)
the normal  expiration date of such stock option,  stock  appreciation  right or
other equity-based award.

                  (d) Disability. If the Executive's employment is terminated by
reason of Disability during the Employment Period, all Accrued Obligations shall
be paid to the  Executive  in a lump sum in cash  within  30 days of the Date of
Termination,  and the  Executive  shall be  entitled  to any Other  Benefits  in
accordance  with  their  terms.  In  addition,  the Option  Award  shall vest in
accordance with Section 3(d)(i).  Any Prior Equity Awards shall vest immediately
and/or become exercisable,  as the case may be, and the Executive shall have the
right to  exercise  any such stock  option,  stock  appreciation  right or other
exercisable  equity-based  award until the earlier of (A) one year from the Date
of Termination  (or such longer period as may be provided under the terms of any
such stock option, stock appreciation right or other equity-based award) and (B)
the normal  expiration date of such stock option,  stock  appreciation  right or
other equity-based award.

                  (e) Retirement.  If the Executive's employment terminates as a
result of Retirement,  the Executive shall be paid the Accrued  Obligations in a
lump sum in cash  within 30 days of the Date of  Termination  and the  Executive
shall be entitled to any Other  Benefits in  accordance  with their  terms.  Any
remaining  portion of the Option Award shall vest or be forfeited in  accordance
with Section 3(d)(i).


                  6.       Change in Control.
                           -----------------


                  (a) Benefits Upon a Change in Control.  The Executive's rights
upon a termination of employment that occurs following a Change in Control shall
be as specified in Section 5 generally for termination of employment, except (i)
the amount  payable  under  5(a)(i)(B)  shall be three  times the sum of (x) the
Executive's Annual Base Salary and (y) the Target Bonus; (ii) the benefits under
Section 5(a)(iv) shall be provided for three years after the Date of Termination
and the  Executive's  eligibility  (but  not the  time of  commencement  of such
benefits) for retiree benefits pursuant to such plans,  practices,  programs and
policies  shall be determined as if the  Executive had remained  employed  until
three years after the Date of Termination and to have retired on the last day of
such period; (iii) the Option Award shall have vested in accordance with Section
3(d)(i);  and (iv) the Executive  shall be paid within 15 days after the Date of
Termination, an amount equal to the excess of


                           (A) the actuarial equivalent of the benefit under the
                  Company's applicable qualified defined benefit retirement plan
                  in which the Executive is participating  immediately  prior to
                  his Date of Termination (the "Retirement Plan") (utilizing the
                  rate  used  to   determine   lump  sums  and,  to  the  extent
                  applicable,  other actuarial  assumptions no less favorable to
                  the Executive than those in effect under the  Retirement  Plan
                  immediately prior to the Date of this Agreement), any SERPs in
                  which  the   Executive   participates   and,   to  the  extent
                  applicable,  any other defined benefit retirement  arrangement
                  between  the  Executive  and  the  Company   ("Other   Pension
                  Benefits")   which  the   Executive   would   receive  if  the
                  Executive's  employment  continued for three  additional years
                  beyond the Date of Termination, assuming for this purpose that
                  all accrued benefits are fully vested,  and, assuming that the
                  Executive's compensation for such deemed additional period was
                  the  Executive's  Annual Base Salary as in effect  immediately
                  prior to the Date of Termination  and assuming a bonus in each
                  year during such deemed  additional period equal to the Target
                  Bonus, over

                           (B)  the  actuarial  equivalent  of  the  Executive's
                  actual benefit (paid or payable), if any, under the Retirement
                  Plan,  the SERPs and Other Pension  Benefits as of the Date of
                  Termination  (utilizing  the rate used to determine  lump sums
                  and, to the extent applicable,  other actuarial assumptions no
                  less favorable to the Executive than those in effect under the
                  Retirement  Plan  immediately   prior  to  the  date  of  this
                  Agreement).

                  (b) Definition.  For purposes of  this Agreement, a "Change in
Control" shall mean the occurrence of any of the following events after the date
of this Agreement:

                (i) any  "person"  (within the  meaning of Section  13(d) of the
        Securities  Exchange Act of 1934, as amended (the "Exchange  Act") is or
        becomes the beneficial  owner within the meaning of Rule 13d-3 under the
        Exchange  Act  (a  "Beneficial  Owner"),   directly  or  indirectly,  of
        securities of Enterprise  (not including in the securities  beneficially
        owned by such person any securities acquired directly from Enterprise or
        its affiliates) representing 25% or more of the combined voting power of
        Enterprise's  then  outstanding  securities,  excluding  any  person who
        becomes  such a  Beneficial  Owner  in  connection  with  a  transaction
        described in clause (A) of paragraph (iii) below; or

                (ii)  the  following   individuals   cease  for  any  reason  to
        constitute  a majority of the number of  directors  of  Enterprise  then
        serving: individuals who, on the date of this Agreement,  constitute the
        Board  and  any  new  director  (other  than a  director  whose  initial
        assumption  of office  is in  connection  with an  actual or  threatened
        election contest,  including but not limited to a consent  solicitation,
        relating to the election of directors of Enterprise)  whose  appointment
        or  election by the Board or  nomination  for  election by  Enterprise's
        stockholders  was  approved  or  recommended  by  a  vote  of  at  least
        two-thirds  (2/3) of the directors  then still in office who either were
        directors  on  the  date  hereof  or  whose  appointment,   election  or
        nomination for election was previously so approved or recommended; or

                (iii)  there  is  consummated  a  merger  or   consolidation  of
        Enterprise  or  any  direct  or  indirect  wholly-owned   subsidiary  of
        Enterprise  with any  other  corporation,  other  than  (A) a merger  or
        consolidation  which would result in the voting securities of Enterprise
        outstanding immediately prior to such merger or consolidation continuing
        to represent (either by remaining outstanding or by being converted into
        voting  securities of the surviving  entity or any parent  thereof),  in
        combination with the ownership of any trustee or other fiduciary holding
        securities   under  an  employee  benefit  plan  of  Enterprise  or  any
        subsidiary of Enterprise,  at least 75% of the combined  voting power of
        the  securities  of Enterprise  or such  surviving  entity or any parent
        thereof outstanding  immediately after such merger or consolidation,  or
        (B) a merger or consolidation  effected to implement a  recapitalization
        of Enterprise (or similar  transaction) in which no person is or becomes
        the  Beneficial  Owner,   directly  or  indirectly,   of  securities  of
        Enterprise  representing  25% or more of the  combined  voting  power of
        Enterprise's then outstanding securities; or

                (iv) the  shareholders of Enterprise  approve a plan of complete
        liquidation  or  dissolution  of Enterprise or there is  consummated  an
        agreement  for  the  sale  or   disposition  by  Enterprise  of  all  or
        substantially  all  of  Enterprise's   assets,  other  than  a  sale  or
        disposition by Enterprise of all or  substantially  all of  Enterprise's
        assets to an entity,  at least 75% of the  combined  voting power of the
        voting  securities of which are owned by  stockholders  of Enterprise in
        substantially  the same  proportions  as their  ownership of  Enterprise
        immediately prior to such sale.

Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have
occurred  by  virtue  of  the  consummation  of any  transaction  or  series  of
integrated  transactions  immediately  following which the record holders of the
common stock of Enterprise  immediately  prior to such  transaction or series of
transactions continue to have substantially the same proportionate  ownership in
an entity  which  owns all or  substantially  all of the  assets  of  Enterprise
immediately following such transaction or series of transactions.

                  7.       Confidential Information; No Competition.
                           ----------------------------------------

                  (a) The Executive  shall hold in a fiduciary  capacity for the
benefit of the Company all confidential information,  knowledge or data (defined
below)  relating to the Company or any of its  affiliates or  subsidiaries,  and
their  respective  businesses,  which shall have been  obtained by the Executive
during  the  Executive's  employment  by the  Company  or any of its  affiliated
companies and which shall not be or become public  knowledge (other than by acts
by the  Executive  or  representatives  of the  Executive  in  violation of this
Agreement).  Upon Termination of the Executive's employment,  he shall return to
the  Company all  Company  information.  After  termination  of the  Executive's
employment with the Company,  the Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal  process,
communicate or divulge any such  information,  knowledge or data to anyone other
than the Company  and those  designated  by it,  except (x)  otherwise  publicly
available  information,  or (y) as may be  necessary to enforce his rights under
this Agreement or necessary to defend himself against a claim asserted  directly
or indirectly by the Company or its affiliates. Unless and until a determination
has been made in  accordance  with  Section  7(d) or  Section 9 hereof  that the
Executive has violated this Section 7, an asserted  violation of the  provisions
of this Section 7 shall not constitute a basis for deferring or withholding  any
amounts otherwise payable to the Executive under this Agreement.


                  (b)  As  used  herein,  the  term  "confidential  information,
knowledge  or data"  means  all  trade  secrets,  proprietary  and  confidential
business information  belonging to, used by, or in the possession of the Company
or any of  its  affiliates  and  subsidiaries,  including  but  not  limited  to
information,  knowledge  or data  related  to  business  strategies,  plans  and
financial information, mergers, acquisitions or consolidations, purchase or sale
of  property,  leasing,  pricing,  sales  programs  or  tactics,  actual or past
sellers, purchasers,  lessees, lessors or customers, those with whom the Company
or its  affiliates and  subsidiaries  has begun  negotiations  for new business,
costs, employee  compensation,  marketing and development plans,  inventions and
technology,  whether such confidential  information,  knowledge or data is oral,
written or electronically  recorded or stored,  except information in the public
domain, information known by the Executive prior to employment with the Company,
and information received by the Executive from sources other than the Company or
its affiliates and subsidiaries, without obligation of confidentiality.

                  (c) The  confidential  knowledge,  information  and  data,  as
defined in the previous paragraph,  gained in the performance of the Executive's
duties  hereunder  may be  valuable  to  those  who are now,  or  might  become,
competitors of the Company or its affiliates and subsidiaries.  Accordingly, the
Executive agrees that,  without the written consent of Enterprise,  he will not,
for the  period  of one year  from  Date of  Termination  or  completion  of the
Employment Period,  whichever occurs first, directly own, manage, operate, join,
control,  become  employed  by,  consult  to or  participate  in the  ownership,
management,  or control of any business which is in direct  competition with the
Company and/or its affiliates and  subsidiaries.  Further,  the Executive agrees
that, for two years following the Date of Termination,  he will not, directly or
indirectly,  solicit or hire,  or encourage  the  solicitation  or hiring of any
person who was a managerial or higher level  employee of the Company at any time
during the term of the  Executive's  employment  by the Company by any  employer
other than the Company for any position as an employee,  independent contractor,
consultant or  otherwise.  The  foregoing  agreement of the Executive  shall not
apply to any person after 6 months have elapsed  subsequent to the date on which
such person's employment by the Company has terminated.  In the case of any such
prohibited  activity,  the  Executive  shall not be entitled to  post-employment
payments (including any unexercised options under the Option Award).


                  (d) In the  event of a breach by the  Executive  of any of the
agreements set forth in Paragraphs  (a), (b) or (c) above, it is agreed that the
Company  shall  suffer  irreparable  harm for  which  money  damages  are not an
adequate  remedy,  and that,  in the event of such breach,  the Company shall be
entitled to obtain an order of a court of competent  jurisdiction  for equitable
relief from such breach,  including,  but not limited to, temporary  restraining
orders and preliminary and/or permanent  injunctions  against the breach of such
agreements by the Executive.  In the event that the Company should  initiate any
legal action for the breach or enforcement of any of the provisions contained in
this  Section 7 and the  Company  does not prevail in such  action,  the Company
shall  promptly  reimburse  the  Executive  the full amount of any court  costs,
filing  fees,  attorney's  fees which the  Executive  incurs in  defending  such
action, and any loss of income during the period of such litigation.

                  8.       Full Settlement.
                           ---------------

                  (a) No Duty to Mitigate;  No Reduction.  Except as provided in
Section  7(c),  and except to the extent that a Court under  Section  7(d) or an
arbitrator  appointed  under  Section 9 shall  determine  to permit an offset in
respect of a violation by the Executive of his obligations  under Section 7, the
Company's  obligation  to make the payments  provided for in this  Agreement and
otherwise  to perform  its  obligations  hereunder  shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action which
the Company  may have  against the  Executive  or others.  In no event shall the
Executive be obligated to seek other  employment or take any other action by way
of  mitigation  of  the  amounts  payable  to  the  Executive  under  any of the
provisions of this Agreement  and,  except as  specifically  provided in Section
5(a)(iv)  and  Section  5(a)(vii)  with  respect to certain  medical  and dental
benefits, such amounts shall not be reduced whether or not the Executive obtains
other employment.


                  (b)  Non-exclusivity of Rights.  Except as provided in Section
7(c), nothing in the Agreement shall prevent or limit the Executive's continuing
or future participation in any plan, program, policy or practice provided by the
Company or any of its affiliated  companies for which the Executive may qualify.
Vested  benefits and other amounts that the  Executive is otherwise  entitled to
receive under the incentive  compensation plans referred to in Section 3(c), the
SERPs, or any other plan,  policy,  practice of program of the Company or any of
its affiliated companies on or after the Date of Termination shall be payable in
accordance with the terms of each such plan, policy, practice or program, as the
case may be, except as explicitly modified by this Agreement.


                  9.       Disputes

                  Except  with  respect  to  equitable  relief  provided  for in
Section 7(d), any dispute about the validity, interpretation,  effect or alleged
violation  of  this  Agreement  shall  be  resolved  by   confidential   binding
arbitration before one arbitrator to be held in Newark, New Jersey in accordance
with  the  Employment  Dispute  Resolution  Rules  of the  American  Arbitration
Association  and the United  States  Arbitration  Act.  Judgment  upon the award
rendered  by the  arbitrator  may be  entered in any court  having  jurisdiction
thereover.  All costs and expenses  incurred by the Company or the  Executive or
the  Executive's  beneficiaries  in  connection  with  any such  controversy  or
dispute, including without limitation reasonable attorney's fees, shall be borne
by the Company as incurred,  except that the Executive  shall be responsible for
any such costs and expenses  incurred in connection with any claim determined by
the arbitrator to have been without  reasonable basis or to have been brought in
bad faith. The Executive shall be entitled to interest at the applicable Federal
rate  provided for in Section  7872 (f) (2)(A) of the  Internal  Revenue Code of
1986,  as amended (the  "Code"),  on any delayed  payment  which the  arbitrator
determine he was entitled to under this Agreement.

                  10.      Successors.
                           ----------

                  (a) No Assignment by Executive.  This Agreement is personal to
the Executive and without the prior written  consent of Enterprise  shall not be
assignable  by the Executive  otherwise  than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.

                  (b) Successors to Enterprise.  This Agreement shall inure to
the benefit of and be binding upon Enterprise and its successors and assigns.

                  (c) Performance by a Successor to Enterprise.  Enterprise will
require  any  successor  (whether  direct  or  indirect,  by  purchase,  merger,
consolidation or otherwise) to all or  substantially  all of the business and/or
assets of Enterprise to assume  expressly and agree to perform this Agreement in
the same  manner and to the same  extent  that  Enterprise  would be required to
perform it if no such  succession  had taken place.  As used in this  Agreement,
"Enterprise" shall mean Enterprise as hereinbefore  defined and any successor to
its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.

                  11.      Certain Additional Payments by the Company.
                           ------------------------------------------

                  (a)    Anything   in   this    Agreement   to   the   contrary
notwithstanding,  in the  event it  shall be  determined  that  any  payment  or
distribution by the Company to or for the benefit of the Executive (whether paid
or  payable  or  distributed  or  distributable  pursuant  to the  terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 11) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the  Executive  with respect to such excise tax (such excise tax,  together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise  Tax"),  then the  Executive  shall be entitled to receive an additional
payment (a  "Gross-Up  Payment")  in an amount  such that  after  payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including,  without limitation,  any income and employment taxes
(and any interest  and  penalties  imposed with respect  thereto) and Excise Tax
imposed  upon the  Gross-Up  Payment,  the  Executive  retains  an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

                  (b)  Subject  to  the   provisions  of  Section   11(c),   all
determinations  required to be made under this Section 11, including whether and
when a Gross-Up  Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination,  shall be made
by the Company's  independent auditors or such other certified public accounting
firm  as may be  jointly  designated  by the  Executive  and  the  Company  (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
the Company and the  Executive.  All fees and  expenses of the  Accounting  Firm
shall be borne  solely by the  Company.  Any  Gross-Up  Payment,  as  determined
pursuant  to this  Section  11,  shall be paid by the  Company to the  Executive
within  15 days of the  receipt  of the  Accounting  Firm's  determination.  Any
determination  by the Accounting  Firm shall be binding upon the Company and the
Executive.  As a result of the uncertainty in the application of Section 4999 of
the  Code at the  time  of the  initial  determination  by the  Accounting  Firm
hereunder,  it is possible that Gross-Up  Payments which will not have been made
by the  Company  should  have been made  ("Underpayment"),  consistent  with the
calculations  required  to be made  hereunder.  In the  event  that the  Company
exhausts its remedies pursuant to Section 11(c) and the Executive  thereafter is
required  to make a  payment  of any  Excise  Tax,  the  Accounting  Firm  shall
determine  the  amount  of the  Underpayment  that  has  occurred  and any  such
Underpayment  shall be promptly paid by the Company to or for the benefit of the
Executive.

                  (c) The  Executive  shall notify the Company in writing of any
claim by the Internal  Revenue  Service that, if  successful,  would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as  practicable  but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such  claim and the date on which  such claim is  requested  to be paid.  The
Executive  shall not pay such claim prior to the expiration of the 30-day period
following the date on which he gives such notice to the Company (or such shorter
period  ending on the date that any payment of taxes with  respect to such claim
is  due).  If the  Company  notifies  the  Executive  in  writing  prior  to the
expiration  of such period that it desires to contest such claim,  the Executive
shall:

                (i) give the Company any information reasonably requested by the
        Company relating to such claim,

                (ii) take such action in connection  with  contesting such claim
        as the Company  shall  reasonably  request in writing from time to time,
        including,  without  limitation,  accepting  legal  representation  with
        respect to such claim by an attorney reasonably selected by the Company,

                (iii)  cooperate  with  the  Company  in  good  faith  in  order
        effectively to contest such claim, and

                (iv)  permit  the  Company  to  participate  in any  proceedings
        relating to such claim;

provided  however,  that the Company  shall bear and pay  directly all costs and
expenses  (including  additional  interest and penalties) incurred in connection
with such contest and shall  indemnify  and hold the Executive  harmless,  on an
after-tax  basis,  for any  Excise  Tax or income tax  (including  interest  and
penalties with respect thereto) imposed as a result of such  representation  and
payment of costs and expenses. Without limitation on the foregoing provisions of
this  Section  11(c),  the  Company  shall  control  all  proceedings  taken  in
connection  with such contest  and, at its sole option,  may pursue or forgo any
and all administrative appeals,  proceedings,  hearings and conferences with the
taxing  authority in respect of such claim and may, at its sole  option,  either
direct the  Executive to pay the tax claimed and sue for a refund or contest the
claim in any  permissible  manner,  and the Executive  agrees to prosecute  such
contest to a determination  before any  administrative  tribunal,  in a court of
initial  jurisdiction and in one or more appellate  courts, as the Company shall
determine;  provided  however,  that if the Company directs the Executive to pay
such claim and sue for a refund,  the Company  shall  advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including  interest or penalties with respect  thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further  provided that any extension of the statute of limitations  relating
to payment of taxes for the taxable year of the Executive  with respect to which
such  contested  amount is claimed to be due is limited solely to such contested
amount.  Furthermore,  the Company's  control of the contest shall be limited to
issues with respect to which a Gross-Up  Payment would be payable  hereunder and
the  Executive  shall be entitled to settle or contest,  as the case may be, any
other  issue  raised  by  the  Internal  Revenue  Service  or any  other  taxing
authority.

                  (d) If,  after  the  receipt  by the  Executive  of an  amount
advanced  by the  Company  pursuant  to Section  11(c),  the  Executive  becomes
entitled to receive any refund with respect to such claim,  the Executive  shall
(subject to the Company's  complying  with the  requirements  of Section  11(c))
promptly  pay to the  Company  the  amount  of such  refund  (together  with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the  Executive  of an amount  advanced  by the  Company  pursuant  to
Section 11(c), a determination  is made that the Executive shall not be entitled
to any refund  with  respect to such claim and the  Company  does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration  of 30 days  after such  determination,  then such  advance  shall be
forgiven  and shall not be required to be repaid and the amount of such  advance
shall offset, to the extent thereof,  the amount of Gross-Up Payment required to
be paid.

                  12.      Miscellaneous.
                           -------------

                  (a)  Governing  Law. This  Agreement  shall be governed by and
construed in accordance  with the laws of the State of New Jersey  applicable to
agreements  executed  and  performed  entirely  therein.  The  captions  of this
Agreement  are not part of the  provisions  hereof  and  shall  have no force or
effect.  This  Agreement  may not be amended  or  modified  otherwise  than by a
written agreement executed by the parties hereto or their respective  successors
and legal representatives.

                  (b) Notices.  All notices and other  communications  hereunder
shall be in writing and shall be given by hand delivery to the other party or by
registered  or  certified  mail,  return  receipt  requested,  postage  prepaid,
addressed as follows:


                  If to the Executive:      80 Park Plaza
                                            P. O. Box 1171
                                            Newark, NJ  07102

                  If to the Company:        80 Park Plaza
                                            P. O. Box 1171
                                            Newark, NJ  07102
                  Attention: Vice President and General Counsel


or to such other  address as either  party shall have  furnished to the other in
writing in accordance  herewith.  Notice and  communications  shall be effective
when actually received by the addressee.


                  (c)  Invalidity.  The  invalidity or  unenforceability  of any
provision of this Agreement shall not affect the validity or  enforceability  of
any other provision of this Agreement.  If any provision of this Agreement shall
be held  invalid  or  unenforceable  in  part,  the  remaining  portion  of such
provision,  together with all other  provisions of this Agreement,  shall remain
valid and  enforceable  and  continue  in full force and  effect to the  fullest
extent  consistent  with law.  Further,  to the extent that a provision is to be
held invalid or unenforceable, it shall be limited or construed in a manner that
is valid and enforceable and gives maximum  permissible  effect to the provision
and the intent of this Agreement.


                  (d) Tax  Withholding.  Notwithstanding  any other provision of
this  Agreement,  the Company may withhold  from any amounts  payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.

                  (e) Failure to Assert Rights. The Executive's or the Company's
failure to insist upon strict  compliance  with any  provisions of, or to assert
any  right  under,  this  Agreement  shall  not be deemed to be a waiver of such
provision or right or of any other provision of or right under this Agreement.

                  (f) No  Alienation.  The rights and benefits of the  Executive
under this Agreement may not be anticipated,  assigned,  alienated or subject to
attachment,  garnishment,  levy,  execution or other legal or equitable  process
except as required by law. Any attempt by the Executive to anticipate, alienate,
assign,  sell,  transfer,  pledge,  encumber  or charge  the same shall be void.
Payments  hereunder shall not be considered assets of the Executive in the event
of insolvency or bankruptcy.

                  (g) Entire Agreement. This Employment Agreement represents the
complete  agreement between the Executive and the Company relating to employment
and  termination  and may not be altered or changed except by written  agreement
executed  by  the  parties  hereto  or  their  respective  successors  or  legal
representatives.  This  Agreement  supersedes  the PSE&G  Employment  Agreement,
except Section 8 thereof,  which is hereby  incorporated  by reference into this
Agreement.

                  IN  WITNESS  WHEREOF,  the  Executive  and,  pursuant  to  due
authorization  from  its  Board of  Directors,  the  Company  have  caused  this
Agreement to be executed as of the day and year first above written.


                       By:      ALFRED C. KOEPPE
                        ________________________________
                                Alfred C. Koeppe
                      President and Chief Operating Officer
                     Public Service Electric and Gas Company


                            PUBLIC SERVICE ENTERPRISE
                               GROUP INCORPORATED


                       By:      E. JAMES FERLAND
                        ________________________________
                                E. James Ferland
                   Chairman of the Board, President and Chief
                                Executive Officer