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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 June 30, 1997

                                       OR

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

                        For the transition period from to


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

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

     1-973        PUBLIC SERVICE ELECTRIC AND GAS COMPANY          22-1212800
                        (A New Jersey Corporation)
                               80 Park Plaza
                               P.O. Box 570
                       Newark, New Jersey 07101-0570
                               201 430-7000


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

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

                     Class: Common Stock, without par value
                   Outstanding at July 31, 1997: 231,957,608

As of July 31, 1997, Public  Service  Electric  and  Gas  Company had issued and
outstanding  132,450,344  shares of common stock,  without nominal or par value,
all of which were privately held,  beneficially  and of record by Public Service
Enterprise Group Incorporated.

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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 and Six
       Months Ended June 30, 1997 and 1996...................................

       Consolidated Balance Sheets as of June 30, 1997
       and December 31, 1996.................................................

       Consolidated Statements of Cash Flows for the Six
       Months Ended June 30, 1997 and 1996...................................

       Consolidated Statements of Retained Earnings for the Three and Six
       Months Ended June 30, 1997 and 1996...................................

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

       Consolidated Statements of Income for the Three and Six
       Months Ended June 30, 1997 and 1996...................................

       Consolidated Balance Sheets as of June 30, 1997
       and December 31, 1996.................................................

       Consolidated Statements of Cash Flows for the Six
       Months Ended June 30, 1997 and 1996...................................

       Consolidated Statements of Retained Earnings for the Three and Six
       Months Ended June 30, 1997 and 1996...................................

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

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

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


PART II.  OTHER INFORMATION

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

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

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

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

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


<PAGE>
<TABLE>
<CAPTION>

                                PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                                     CONSOLIDATED STATEMENTS OF INCOME
                               (Thousands of Dollars, except per share data)
                                               (Unaudited)


                                                                          Three Months Ended                Six Months Ended
                                                                               June 30,                         June 30,
                                                                   --------------------------------  -------------------------------
                                                                         1997            1996             1997             1996
                                                                   ---------------  ---------------  --------------   --------------
<S>                                                                <C>              <C>              <C>              <C>          
OPERATING REVENUES
   Electric                                                        $      946,006   $      989,145   $   1,906,463    $   1,948,581
   Gas                                                                    324,179          297,674       1,058,039        1,094,590
   Nonutility Activities                                                   52,719           50,255          90,954           92,251
                                                                   ---------------  ---------------  --------------   --------------
               Total Operating Revenues                                 1,322,904        1,337,074       3,055,456        3,135,422
                                                                   ---------------  ---------------  --------------   --------------
OPERATING EXPENSES
   Operation:
      Fuel for Electric Generation and Interchanged Power                 242,776          215,972         491,128          432,047
      Gas Purchased                                                       179,555          186,504         601,388          643,236
      Other                                                               267,792          250,223         517,132          507,084
   Maintenance                                                             70,118           87,240         127,671          182,656
   Depreciation and Amortization                                          155,084          151,555         305,423          303,901
   Taxes:
      Federal Income Taxes                                                 49,595           56,092         152,579          154,194
      New Jersey Gross Receipts Taxes                                     117,077          130,979         289,123          319,415
      Other                                                                21,557           20,944          42,478           45,886
                                                                   ---------------  ---------------   -------------   --------------
               Total Operating Expenses                                 1,103,554        1,099,509       2,526,922        2,588,419
                                                                   ---------------  ---------------   -------------   --------------
OPERATING INCOME                                                          219,350          237,565         528,534          547,003
OTHER INCOME AND DEDUCTIONS
    Settlement of Salem Litigation - Net of Applicable
      Taxes of  $28,700                                                         -                -         (53,300)               -
    Other - net                                                             1,902           (1,273)          4,204           (2,046)
                                                                   ---------------  ---------------  --------------   --------------
               Total Other Income and Deductions                            1,902           (1,273)        (49,096)          (2,046)
                                                                   ---------------  ---------------  --------------   --------------
INCOME BEFORE INTEREST CHARGES AND DIVIDENDS
  ON PREFERRED SECURITIES                                                 221,252          236,292         479,438          544,957
                                                                   ---------------  ---------------  --------------   --------------
INTEREST EXPENSE AND PREFERRED DIVIDENDS
   Interest Expense                                                       116,828          111,044         226,377          226,561
   Allowance for Funds Used During Construction - Debt and
     Capitalized Interest                                                  (4,300)          (3,921)         (9,846)          (8,468)
   Preferred Securities Dividend Requirements                              14,430           12,228          28,722           24,469
   Net Loss (Gain) on Preferred Stock Redemptions                           2,795          (18,493)          3,172          (18,493)
                                                                   ---------------  ---------------  --------------   --------------
               Total Interest Expense and Preferred Dividends             129,753          100,858         248,425          224,069
                                                                   ---------------  ---------------  --------------   --------------
INCOME FROM CONTINUING OPERATIONS                                          91,499          135,434         231,013          320,888
Discontinued Operations - Net of Taxes (Note 5)                                 -             (896)              -            7,754
                                                                   ---------------  ---------------  --------------   --------------
NET INCOME                                                         $       91,499   $      134,538   $     231,013    $     328,642
                                                                   ===============  ===============  ==============   ==============

AVERAGE SHARES OF COMMON STOCK OUTSTANDING                            231,957,608      244,697,930     232,014,291      244,697,930
EARNINGS PER AVERAGE SHARE
   Income From Continuing Operations                                        $0.39            $0.55           $0.99            $1.31
   Income From Discontinued Operations                                          -                -               -             0.03
                                                                   ---------------  ---------------  --------------   --------------
TOTAL EARNINGS PER AVERAGE SHARE                                            $0.39            $0.55           $0.99            $1.34
                                                                   ===============  ===============  ==============   ==============

DIVIDENDS PAID PER SHARE OF COMMON STOCK                                    $0.54            $0.54           $1.08            $1.08

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

<PAGE>
<TABLE>
<CAPTION>

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


                                                                                          (Unaudited)
                                                                                            June 30,           December 31,
                                                                                             1997                 1996
                                                                                          -----------          ------------
<S>                                                                                       <C>                  <C>        
UTILITY PLANT - Original cost
   Electric                                                                               $13,548,730          $13,314,033
   Gas                                                                                      2,625,772            2,555,901
   Common                                                                                     547,564              530,185
                                                                                          -----------          -----------
        Total                                                                              16,722,066           16,400,119
   Less: Accumulated depreciation and amortization                                          6,158,905            5,889,098
                                                                                          -----------          -----------
        Net                                                                                10,563,161           10,511,021
   Nuclear Fuel in Service, net of accumulated amortization -
      1997, $293,330; 1996, $259,384                                                          165,327              198,845
                                                                                          -----------          -----------
        Net Utility Plant in Service                                                       10,728,488           10,709,866
   Construction Work in Progress, including Nuclear Fuel in
     Process - 1997, $108,008; 1996, $70,455                                                  347,659              445,321
   Plant Held for Future Use                                                                   23,966               23,966
                                                                                          -----------          -----------
        Net Utility Plant                                                                  11,100,113           11,179,153
                                                                                          -----------          -----------
 INVESTMENTS AND OTHER NONCURRENT ASSETS
  Long-Term Investments, net of amortization - 1997, $16,728; 1996, $12,679, and
     net of valuation allowances - 1997, $16,057; 1996,
     $16,969                                                                                2,257,665            1,854,304
  Nuclear Decommissioning and Other Special Funds                                             432,350              382,348
  Other Noncurrent Assets                                                                     154,867              115,332
                                                                                          -----------          -----------
        Total Investments and Other Noncurrent Assets                                       2,844,882            2,351,984
                                                                                          ------------         -----------
 CURRENT ASSETS
   Cash and Cash Equivalents                                                                   53,746              278,903
   Accounts Receivable:
     Customer Accounts Receivable                                                             456,913              499,858
     Other Accounts Receivable                                                                214,270              241,483
     Less: Allowance for Doubtful Accounts                                                     37,284               42,283
   Unbilled Revenues                                                                          172,050              248,504
   Fuel, at average cost                                                                      224,724              313,019
   Materials and Supplies, at average cost, net of inventory valuation
     reserves - 1997 and 1996, $16,100                                                        147,407              147,757
   Prepaid Gross Receipts Taxes - net                                                         301,481                    -
   Miscellaneous Current Assets                                                                67,917               57,186
                                                                                          -----------          -----------
        Total Current Assets                                                                1,601,224            1,744,427
                                                                                          -----------          -----------
 DEFERRED DEBITS
   Property Abandonments - net                                                                 45,024               52,573
   Oil and Gas Property Write-Down                                                             28,347               30,924
   Unamortized Debt Expense                                                                   132,601              139,067
   Deferred OPEB Costs                                                                        306,759              226,171
   Unrecovered Environmental Costs                                                            126,184              125,900
   Unrecovered Plant and Regulatory Study Costs                                                33,229               33,941
   Underrecovered Electric Energy and Gas Costs - net                                         160,824              176,055
   Unrecovered SFAS 109 Deferred Income Taxes                                                 740,627              751,763
   Decontamination and Decommissioning Costs                                                   46,643               46,643
   Other                                                                                       81,023               56,730
                                                                                          -----------          -----------
        Total Deferred Debits                                                               1,701,261            1,639,767
                                                                                          -----------          -----------
 Total                                                                                    $17,247,480          $16,915,331
                                                                                          ===========          ===========
<FN>
 See Notes to Consolidated Financial Statements.
</FN>
</TABLE>


<PAGE>
<TABLE>
<CAPTION>

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


                                                                                        (Unaudited)
                                                                                          June 30,     December 31,
                                                                                            1997           1996
                                                                                         -----------   -----------
<S>                                                                                      <C>           <C>        
CAPITALIZATION
  Common Equity:
    Common Stock                                                                         $ 3,603,300   $ 3,626,792
    Retained Earnings                                                                      1,544,421     1,586,256
                                                                                         -----------   -----------
       Total Common Equity                                                                 5,147,721     5,213,048
  Subsidiaries' Preferred Securities:
    Preferred Stock Without Mandatory Redemption                                              94,523       113,392
    Preferred Stock With Mandatory Redemption                                                 75,000       150,000
    Monthly Guaranteed Preferred Beneficial Interest in PSE&G's
       Subordinated Debentures                                                               210,000       210,000
    Quarterly Guaranteed Preferred Beneficial Interest in PSE&G's
      Subordinated Debentures                                                                303,000       208,000
  Long-Term Debt                                                                           4,713,494     4,580,231
                                                                                         -----------   -----------
       Total Capitalization                                                               10,543,738    10,474,671
                                                                                         -----------   -----------
OTHER LONG-TERM LIABILITIES
  Decontamination and Decommissioning Costs                                                   46,643        46,643
  Environmental Costs                                                                         82,797        85,755
  Capital Lease Obligations                                                                   51,969        52,371
                                                                                         -----------   -----------
       Total Other Long-Term Liabilities                                                     181,409       184,769
                                                                                         -----------   -----------
CURRENT LIABILITIES
  Long-Term Debt due within one year                                                         532,359       547,981
  Commercial Paper and Loans                                                                 990,991       638,051
  Accounts Payable                                                                           593,191       697,304
  Other                                                                                      276,906       388,418
                                                                                         -----------   -----------
       Total Current Liabilities                                                           2,393,447     2,271,754
                                                                                         -----------   -----------
DEFERRED CREDITS
  Deferred Income Taxes                                                                    3,306,857     3,250,343
  Deferred Investment Tax Credits                                                            352,155       361,786
  Deferred OPEB Costs                                                                        306,759       226,171
  Other                                                                                      163,115       145,837
                                                                                         -----------   -----------
       Total Deferred Credits                                                              4,128,886     3,984,137
                                                                                         -----------   -----------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 3)                                                   --            --
                                                                                         -----------   -----------
Total                                                                                    $17,247,480   $16,915,331
                                                                                         ===========   ===========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>


<PAGE>
<TABLE>
<CAPTION>

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



                                                                   Six Months Ended June 30,
                                                                   -------------------------
                                                                      1997         1996
                                                                   ---------    ---------
<S>                                                                <C>          <C>      
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                       $ 231,013    $ 328,642
  Adjustments to reconcile net income to net cash flows from
   operating activities:
    Depreciation and Amortization                                    305,423      303,901
    Amortization of Nuclear Fuel                                      33,947       26,277
    Recovery (deferral) of Electric Energy and Gas Costs - net        15,231      (36,344)
    Unrealized Gains on Investments - net                             (6,653)      (1,985)
    Provision for Deferred Income Taxes - net                          4,467       44,430
    Investment Tax Credits - net                                      (9,393)      (9,021)
    Allowance for Funds Used During Construction - Debt and
      Capitalized Interest                                            (9,846)      (8,468)
    Proceeds from Leasing Activities                                  46,755       35,818
    Changes in certain current assets and liabilities:
     Net decrease in Accounts Receivable and Unbilled Revenues       141,613      147,076
     Net decrease in Inventory - Fuel and Materials and Supplies      88,645       59,731
     Net decrease in Accounts Payable                               (104,113)     (49,550)
     Net change in Prepaid / Other Accrued Taxes                    (313,597)    (294,823)
     Net change in Other Current Assets and Liabilities             (110,127)     (33,056)
    Other                                                            (14,366)       4,349
    Net cash provided by operating activities - Discontinued
      Operations                                                        --         61,377
                                                                   ---------    ---------
       Net cash provided by operating activities                     298,999      578,354
                                                                   ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES
  Additions to Utility Plant, excluding AFDC                        (229,327)    (218,426)
  Net increase in Long-Term Investments and Real Estate             (384,847)      (8,320)
  Contribution to Decommissioning Funds and Other Special Funds      (27,655)     (13,444)
  Cost of Plant Removal - net                                        (16,241)     (13,827)
  Other                                                              (40,119)      (2,547)
  Change in Net Assets - Discontinued Operations                        --        (23,947)
                                                                   ---------    ---------
       Net cash used in investing activities                        (698,189)    (280,511)
                                                                   ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES
  Net increase  in Short-Term Debt                                   352,940      169,613
  Issuance of Long-Term Debt                                         475,754      368,324
  Redemption of Long-Term Debt                                      (358,113)    (529,967)
  Long-Term Debt Issuance and Redemption Costs                        (1,339)     (38,618)
  Redemption of Preferred Stock                                      (93,869)    (211,602)
  Issuance of Preferred Securities of Subsidiaries                    95,000      208,000
  Retirement of Common Stock                                         (42,588)        --
  Cash Dividends Paid on Common Stock                               (250,514)    (264,274)
  Preferred Securities Issuance Expenses                              (3,238)      (6,508)
                                                                   ---------    ---------
       Net cash provided by (used in) financing activities           174,033     (305,032)
                                                                   ---------    ---------
Net decrease in Cash and Cash Equivalents                           (225,157)      (7,189)
Cash and Cash Equivalents at Beginning of Period                     278,903       61,964
                                                                   ---------    ---------
Cash and Cash Equivalents at End of Period                         $  53,746    $  54,775
                                                                   =========    =========

Income Taxes Paid                                                  $  83,686    $  83,900
Interest Paid                                                      $ 186,571    $ 271,785

<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)
                                                    (Unaudited)


                                                        Three Months Ended June 30,  Six Months Ended June 30,
                                                        --------------------------- -------------------------
                                                           1997         1996            1997         1996
                                                        ----------   ----------     ----------   ----------
<S>                                                     <C>          <C>            <C>          <C>       
Balance at Beginning of Period                          $1,578,256   $1,698,939     $1,586,256   $1,636,971
Add:
  Net Income                                                91,499      134,538        231,013      328,642
                                                        ----------   ----------     ----------   ----------

       Total                                             1,669,755    1,833,477      1,817,269    1,965,613
                                                        ----------   ----------     ----------   ----------

Deduct:
  Cash Dividends on Common Stock                           125,257      132,136        250,514      264,274
  Retirement of Common Stock                                  --           --           19,096         --
  Preferred Securities Issuance Expenses                        77        6,510          3,238        6,508
                                                        ----------   ----------     ----------   ----------

       Total Deductions                                    125,334      138,646        272,848      270,782
                                                        ----------   ----------     ----------   ----------

Balance at End of Period                                $1,544,421   $1,694,831     $1,544,421   $1,694,831
                                                        ==========   ==========     ==========   ==========


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

<PAGE>





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<PAGE>
<TABLE>
<CAPTION>

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


                                                             Three Months Ended                Six Months Ended
                                                                   June 30,                        June 30,
                                                          --------------------------    --------------------------
                                                                1997          1996           1997          1996
                                                          ------------  ------------    ------------  ------------
<S>                                                       <C>           <C>             <C>           <C>        
OPERATING REVENUES
   Electric                                               $    946,006  $    989,145    $ 1,906,463   $ 1,948,581
   Gas                                                         324,179       297,674      1,058,039     1,094,590
                                                          ------------  ------------    -----------   -----------
               Total Operating Revenues                      1,270,185     1,286,819      2,964,502     3,043,171
                                                          ------------  ------------    -----------   -----------
OPERATING EXPENSES
   Operation:
      Fuel for Electric Generation and Interchanged Power      242,776       215,972        491,128       432,047
      Gas Purchased                                            179,555       186,504        601,388       643,236
      Other                                                    246,175       235,410        477,838       478,300
   Maintenance                                                  70,118        87,240        127,671       182,656
   Depreciation and Amortization                               154,049       150,869        303,208       302,302
   Taxes:
      Federal Income Taxes                                      45,568        48,984        147,475       143,614
      New Jersey Gross Receipts Taxes                          117,077       130,979        289,123       319,415
      Other                                                     19,838        19,230         39,523        42,817
                                                          ------------  ------------    ------------   -----------
               Total Operating Expenses                      1,075,156     1,075,188      2,477,354     2,544,387
                                                          ------------  ------------    ------------   -----------

OPERATING INCOME                                               195,029       211,631        487,148       498,784

OTHER INCOME AND DEDUCTIONS
    Settlement of Salem Litigation - Net of Applicable
      Taxes of  $28,700                                              -             -        (53,300)            -
    Other - net                                                  1,905        (1,279)         4,201        (2,057)
                                                          ------------  ------------    ------------   ------------
               Total Other Income and Deductions                 1,905        (1,279)       (49,099)       (2,057)
                                                          ------------  ------------    ------------   ------------

INCOME BEFORE INTEREST CHARGES AND
  DIVIDENDS ON PREFERRED SECURITIES                            196,934       210,352        438,049       496,727
                                                          ------------  ------------    ------------   -----------

INTEREST EXPENSE AND PREFERRED SECURITIES
  DIVIDENDS
     Interest Expense                                          101,328       100,291        196,811       202,592
     Allowance for Funds Used During Construction - Debt        (2,855)       (3,471)        (7,666)       (7,762)
     Preferred Securities Dividend Requirement
       of Subsidiaries                                          11,131         4,765         21,551         9,480
                                                          ------------  ------------    ------------   -----------
        Total Interest Expense and Preferred Securities
         Dividends                                             109,604       101,585        210,696       204,310
                                                          ------------  ------------    ------------   -----------
NET INCOME                                                      87,330       108,767        227,353       292,417
Preferred Stock Dividend Requirements                            3,299         7,463          7,171        14,989
Net Loss (Gain) on Preferred Stock Redemptions                   2,795       (18,493)         3,172       (18,493)
                                                          ------------  ------------    ------------   -----------
EARNINGS AVAILABLE TO PUBLIC SERVICE
   ENTERPRISE GROUP INCORPORATED                          $     81,236  $    119,797    $   217,010    $  295,921
                                                          ============  ============    ===========    ===========

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

<PAGE>
<TABLE>
<CAPTION>

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

                                                                                       (Unaudited)
                                                                                         June 30,    December 31,
                                                                                           1997          1996
                                                                                       -----------   -----------
<S>                                                                                    <C>           <C>
UTILITY PLANT - Original cost
  Electric                                                                             $13,548,730   $13,314,033
  Gas                                                                                    2,625,772     2,555,901
  Common                                                                                   547,564       530,185
                                                                                       -----------   -----------
       Total                                                                            16,722,066    16,400,119
  Less: Accumulated depreciation and amortization                                        6,158,905     5,889,098
                                                                                       -----------   -----------
       Net                                                                              10,563,161    10,511,021
  Nuclear Fuel in Service, net of accumulated amortization -
    1997, $293,330; 1996, $259,384                                                         165,327       198,845
                                                                                       -----------   -----------
       Net Utility Plant in Service                                                     10,728,488    10,709,866
  Construction Work in Progress, including Nuclear Fuel in
    Process - 1997, $108,008; 1996, $70,455                                                347,659       445,321
  Plant Held for Future Use                                                                 23,966        23,966
                                                                                       -----------   -----------
       Net Utility Plant                                                                11,100,113    11,179,153
                                                                                       -----------   -----------
INVESTMENTS AND OTHER NONCURRENT ASSETS
  Long-Term Investments, net of amortization - 1997, $16,728; 1996, $12,679,
    and net of valuation allowances - 1997, $14,057; 1996, $13,969                         133,699       133,342
  Nuclear Decommissioning and Other Special Funds                                          432,350       382,348
  Other Plant, net of accumulated depreciation and
    amortization - 1997, $1,176; 1996, $1,171                                               19,153        19,157
                                                                                       -----------   -----------
       Total Investments and Other Noncurrent Assets                                       585,202       534,847
                                                                                       -----------   -----------
CURRENT ASSETS
  Cash and Cash Equivalents                                                                 19,420        47,639
  Accounts Receivable:
    Customer Accounts Receivable                                                           456,913       499,858
    Other Accounts Receivable                                                              132,805       175,009
    Less: Allowance for Doubtful Accounts                                                   37,284        42,283
  Accounts Receivable - Associated Companies - net                                            --           4,308
  Unbilled Revenues                                                                        172,050       248,504
  Fuel, at average cost                                                                    224,724       313,019
  Materials and Supplies, at average cost, net of inventory
    valuation reserves - 1997 and 1996, $16,100                                            147,407       147,757
  Prepaid Gross Receipts and Franchise Taxes                                               301,481          --
  Miscellaneous Current Assets                                                              65,421        53,619
                                                                                       -----------   -----------
       Total Current Assets                                                              1,482,937     1,447,430
                                                                                       -----------   -----------
DEFERRED DEBITS
  Property Abandonments - net                                                               45,024        52,573
  Oil and Gas Property Write-Down                                                           28,347        30,924
  Unamortized Debt Expense                                                                 131,489       137,606
  Deferred OPEB Costs                                                                      306,759       226,171
  Unrecovered Environmental Costs                                                          126,184       125,900
  Unrecovered Plant and Regulatory Study Costs                                              33,229        33,941
  Underrecovered Electric Energy and Gas Costs - net                                       160,824       176,055
  Unrecovered SFAS 109 Deferred Income Taxes                                               740,627       751,763
  Decontamination and Decommissioning Costs                                                 46,643        46,643
  Other                                                                                     79,868        56,348
                                                                                       -----------   -----------
       Total Deferred Debits                                                             1,698,994     1,637,924
                                                                                       -----------   -----------
Total                                                                                  $14,867,246   $14,799,354
                                                                                       ===========   ===========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

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

                                                                                     (Unaudited)
                                                                                       June 30,    December 31,
                                                                                         1997          1996
                                                                                     -----------   -----------
<S>                                                                                  <C>           <C>        
CAPITALIZATION
   Common Equity:
    Common Stock                                                                     $ 2,563,003   $ 2,563,003
    Contributed Capital from Enterprise                                                  594,395       594,395
    Retained Earnings                                                                  1,326,675     1,365,003
                                                                                     -----------   -----------
       Total Common Equity                                                             4,484,073     4,522,401
  Preferred Stock Without Mandatory Redemption                                            94,523       113,392
  Preferred Stock  With Mandatory Redemption                                              75,000       150,000
  Subsidiaries' Preferred Securities:
    Monthly Guaranteed Preferred Beneficial Interest in PSE&G's
       Subordinated Debentures                                                           210,000       210,000
    Quarterly Guaranteed Preferred Beneficial Interest in PSE&G's
      Subordinated Debentures                                                            303,000       208,000
  Long-Term Debt                                                                       4,141,444     4,107,331
                                                                                     -----------   -----------
       Total Capitalization                                                            9,308,040     9,311,124
                                                                                     -----------   -----------
OTHER LONG-TERM LIABILITIES
  Decontamination and Decommissioning Costs                                               46,643        46,643
  Environmental Costs                                                                     82,797        85,755
  Capital Lease Obligations                                                               51,969        52,371
                                                                                     -----------   -----------
       Total Other Long-Term Liabilities                                                 181,409       184,769
                                                                                     -----------   -----------
CURRENT LIABILITIES
  Long-Term Debt due within one year                                                     391,862       423,500
  Commercial Paper and Loans                                                             861,991       638,051
  Accounts Payable                                                                       540,523       627,023
  Accounts Payable - Associated Companies - net                                              651          --
  Other                                                                                  250,745       341,742
                                                                                     -----------   -----------
       Total Current Liabilities                                                       2,045,772     2,030,316
                                                                                     -----------   -----------
DEFERRED CREDITS
  Deferred Income Taxes                                                                2,532,277     2,557,587
  Deferred Investment Tax Credits                                                        342,253       351,637
  Deferred OPEB Costs                                                                    306,759       226,171
  Other                                                                                  150,736       137,750
                                                                                     -----------   -----------
       Total Deferred Credits                                                          3,332,025     3,273,145
                                                                                     -----------   -----------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 3)                                             --            --
                                                                                     -----------   -----------
Total                                                                                $14,867,246   $14,799,354
                                                                                     ===========   ===========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

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

                                                                                                  Six Months Ended June 30,
                                                                                          -----------------------------------
                                                                                               1997                   1996
                                                                                          -----------             -----------
<S>                                                                                          <C>                    <C>     
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                                                 $227,353               $292,417
  Adjustments to reconcile net income to net cash flows from
   Operating activities:
    Depreciation and Amortization                                                             303,208                302,302
    Amortization of Nuclear Fuel                                                               33,947                 26,277
    Recovery (deferral) of Electric Energy and Gas Costs - net                                 15,231                (36,344)
    Provision for Deferred Income Taxes - net                                                 (14,174)                29,609
    Investment Tax Credits - net                                                               (9,384)                (9,486)
    Allowance for Funds Used During Construction - Debt                                        (7,666)                (7,762)
    Changes in certain current assets and liabilities:
     Net decrease in Accounts Receivable and Unbilled Revenues                                160,912                146,124
     Net decrease in Inventory - Fuel and Materials and Supplies                               88,645                 59,731
     Net decrease in Accounts Payable                                                         (85,849)               (73,157)
     Net change in Prepaid / Other Accrued Taxes                                             (301,407)              (279,499)
     Net change in Other Current Assets and Liabilities                                      (102,873)               (12,712)
    Other                                                                                     (19,050)                 6,606
                                                                                          -----------             ----------
       Net cash provided by operating activities                                              288,893                444,106
                                                                                          -----------             ----------
CASH FLOWS FROM INVESTING ACTIVITIES
  Additions to Utility Plant, excluding AFDC                                                 (229,327)              (218,426)
  Net increase in Long-Term Investments                                                        (4,419)               (32,377)
  Contribution to Decommissioning Funds and Other Special Funds                               (27,655)               (13,444)
  Cost of Plant Removal - net                                                                 (16,241)               (13,827)
  Other                                                                                             4                    (92)
                                                                                          -----------             ----------
       Net cash used in investing activities                                                 (277,638)              (278,166)
                                                                                          -----------             ----------
CASH FLOWS FROM FINANCING ACTIVITIES
  Net increase in Short-Term Debt                                                             223,940                169,613
  Issuance of Long-Term Debt                                                                  278,720                368,324
  Redemption of Long-Term Debt                                                               (276,245)              (414,010)
  Long-Term Debt Issuance and Redemption Costs                                                 (1,339)               (38,573)
  Redemption of Preferred Stock                                                               (93,869)              (211,602)
  Net (Loss) Gain on Preferred Stock Redemptions                                               (3,172)                18,493
  Issuance of Preferred Securities of Subsidiaries                                             95,000                208,000
  Cash Dividends Paid                                                                        (259,271)              (271,389)
  Other                                                                                        (3,238)                (6,509)
                                                                                          -----------             ----------
       Net cash used in financing activities                                                  (39,474)              (177,653)
                                                                                          -----------             ----------
Net decrease in Cash and Cash Equivalents                                                     (28,219)               (11,713)
Cash and Cash Equivalents at Beginning of Period                                               47,639                 32,373
                                                                                          -----------             ----------
Cash and Cash Equivalents at End of Period                                                    $19,420                $20,660
                                                                                          ===========             ==========

Income Taxes Paid                                                                            $136,599               $142,751
Interest Paid                                                                                $160,941               $214,403

<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)
                                             (Unaudited)

                                                               Three Months Ended June 30,  Six Months Ended June 30,
                                                               -------------------------    -------------------------
                                                                   1997          1996           1997          1996
                                                               -----------   -----------    -----------   -----------
<S>                                                            <C>           <C>            <C>           <C>        
Balance at Beginning of Period                                 $ 1,370,816   $ 1,411,839    $ 1,365,003   $ 1,365,915
Add:
  Net Income                                                        87,330       108,767        227,353       292,417
                                                               -----------   -----------    -----------   -----------

       Total                                                     1,458,146     1,520,606      1,592,356     1,658,332
                                                               -----------   -----------    -----------   -----------

Deduct:
  Cash Dividends on Common Stock                                   125,300       126,200        252,100       256,400
  Preferred Stock, at required rates                                 3,299         7,463          7,171        14,989
  Preferred Securities Issuance Expenses                                77         6,509          3,238         6,509
                                                               -----------   -----------    -----------   -----------

       Total Deductions                                            128,676       140,172        262,509       277,898
                                                               -----------   -----------    -----------   -----------

Net Loss (Gain) on Preferred Stock Redemptions                       2,795       (18,493)         3,172       (18,493)
                                                               -----------   -----------    -----------   -----------

Balance at End of Period                                       $ 1,326,675   $ 1,398,927    $ 1,326,675   $ 1,398,927
                                                               ===========   ===========    ===========   ===========




<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 to Consolidated
Financial  Statements  (Notes)  thereto should be read in  conjunction  with the
respective  Registrant's Notes contained in the 1996 Annual Report on Form 10-K.
The Notes contained herein update and supplement  matters  discussed in the 1996
Annual Report on Form 10-K.

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

Note 2.  Rate Matters

     Interim Competition Transition Charge (ICTC)

     On April 24, 1997, the New Jersey Board of Public  Utilities (BPU) issued a
generic order to investigate the policy issues related to whether  customers who
cease to receive  electric  service from a utility and go to on-site  generation
should be charged an exit fee.  As a result,  PSE&G's  petition  and the motions
concerning PSE&G's September 1996 ICTC filing to address this situation has been
placed in abeyance pending the conclusion of the generic  proceeding.  PSE&G and
other interested  parties presented  testimony at the public hearing held by the
BPU under the generic  proceeding on June 19, 1997.  The matter  continues to be
reviewed by the BPU within the New Jersey Energy Master Plan  proceeding.  PSE&G
cannot predict the outcome of this proceeding.

     Demand Side Adjustment Factor (DSAF)

     On February 24, 1997,  PSE&G filed a motion with the BPU  requesting a $151
million increase for its DSAF to reflect  increases in the costs associated with
PSE&G's Demand Side  Management  (DSM)  Programs.  The increase was requested to
become effective on May 1, 1997 and continue through December 31, 1998. On March
26, 1997, this matter was transferred to the Office of Administrative  Law (OAL)
for hearing.  A hearing has been scheduled before the OAL beginning on September
17, 1997. PSE&G cannot predict the outcome of this proceeding.

     Remediation Adjustment Charge (RAC)

     On July 30, 1997,  the BPU approved  the  recovery of  remediation  program
costs incurred during the period August 1, 1995 through July 31, 1996 on a final
basis.  Also on this  date,  PSE&G  filed a motion  with the BPU  requesting  an
increase  of $6.8  million  in its RAC in order  to  recover  remediation  costs
incurred  during the period  August 1, 1996 through July 31, 1997.  PSE&G cannot
predict the outcome of this proceeding.

     Postretirement Benefits Other Than Pensions (OPEB)

     On July 8, 1997,  PSE&G filed its Phase II Petition with the BPU to resolve
the regulatory and rate issues associated with Statement of Financial Accounting
Standards No. 106 "Employers' Accounting for Postretirement  Benefits Other Than
Pensions"  (SFAS 106).  The petition  requests the BPU to recognize that current
base rates are  sufficient to recover  PSE&G's  accrued and deferred OPEB costs.
This  petition  was in response  to a January 8, 1997 BPU Order which  adopted a
Stipulation of the parties for determining accrual rate recognition under one of
the rate mechanisms  established in the BPU's Generic  Proceeding,  initiated on
August 1, 1996. PSE&G cannot predict the outcome of this proceeding.

<PAGE>

     New Jersey Gross Receipts and Franchise Tax (NJGRT)

     Legislation was approved and will become effective on January 1, 1998 which
repeals the NJGRT  collected by utilities  from their  customers and replaces it
with a  combination  of corporate  business  tax,  state sales and use tax and a
transitional  tax assessment  which will be phased out over five years.  The new
tax structure is expected to improve the competitive position of PSE&G vis-a-vis
non-utility  energy  providers  in New Jersey who are  currently  not subject to
NJGRT.

Note 3.  Commitments and Contingent Liabilities

     Hazardous Waste

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

     PSE&G Manufactured Gas Plant Remediation Program

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

Note 4.  Financial Instruments and Risk Management


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

     Natural Gas Hedging

     Through June 30, 1997, Energis Resources  Incorporated  (Energis Resources)
entered into futures contracts to buy an aggregate of 7,280,000 mmbtu of natural
gas at an  average  price  of $2.13  per  mmbtu  related  to  fixed-price  sales
commitments.  Such contracts,  together with physical purchase contracts, hedged
approximately 89% of its fixed-price sales commitments at June 30, 1997. Energis
Resources had a deferred unrealized hedge gain of $0.9 million at June 30, 1997.

<PAGE>


     Interest Rate Swap

     CEA Americas Operating Company (CEA-AOC),  an indirect 90% owned subsidiary
of Community Energy Alternatives  Incorporated  (CEA),  entered into an interest
rate borrowing on June 2, 1997 to swap floating rate  borrowings into fixed rate
borrowings.  The interest differential to be received or paid under the interest
rate swap  agreement is accrued over the life of the  agreement as an adjustment
to the interest expense of the related borrowing. The swap terminates on May 28,
1999.

     The notional amount and interest rates are as follows:

Pay-fixed swap
      Notional amount                                  $43,522,000
      Pay rate                                               6.65%
      Average receive rate                                   5.69%
      June 30, 1997 receive rate                             5.69%
      Receive rate index:  Libor

Note 5.  Discontinued Operations

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

                                   Three Months Ended        Six Months Ended
                                      June 30, 1996           June 30, 1996
                                 ----------------------   ----------------------

                                 (Thousands of Dollars)   (Thousands of Dollars)
Revenues                               $ 58,914                 $126,259
Operating income                          4,163                   22,457
Earnings before income taxes             (3,638)                   9,062
Income taxes                             (2,742)                   1,308
Net income                                 (896)                   7,754



                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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


<PAGE>


                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


     Following  are the  significant  changes  in or  additions  to  information
reported in the Public Service Enterprise Group  Incorporated  (Enterprise) 1996
Annual Report on Form 10-K affecting the  consolidated  financial  condition and
the results of operations of Enterprise and its  subsidiaries.  This  discussion
refers to the Consolidated  Financial Statements  (Statements) and related Notes
of Enterprise and should be read in conjunction with such Statements and Notes.

Results of Operations

     Earnings  per share of  Enterprise  common  stock for the  quarter  and six
months ended June 30, 1997 were $0.39 and $0.99, respectively,  down 29% and 26%
compared to the same periods in 1996.

     Earnings  per share for the  quarter  and six months  ended  June 30,  1997
decreased  primarily  due to lower  electric  and gas  sales by  Public  Service
Electric and Gas Company (PSE&G) resulting from  considerably  cooler weather in
May and June 1997, as well as milder winter  weather during 1997, the settlement
of a  lawsuit  filed by two of the  co-owners  of the Salem  Nuclear  Generating
Station  (Salem),   higher  administrative  costs  attributable  to  legal  fees
associated with the settlement and a gain in the second quarter of 1996 from the
repurchase of a portion of PSE&G's  outstanding  cumulative  preferred  stock at
discounts to par. These decreases were partially offset by lower 1997 operations
and maintenance  expenses at Hope Creek Nuclear  Generating Station (Hope Creek)
and Salem.

     Enterprise  Diversified  Holdings  Incorporated's  (EDHI)  contribution  to
earnings  decreased for the quarter and six months ended June 30, 1997 primarily
due to lower Public Service Resources  Corporation  (PSRC) earnings in 1997 as a
result of  leveraged  buy-out fund gains  realized in 1996 and higher  operating
expenses of Energis Resources Incorporated (Energis Resources).

PSE&G - Revenues

     Electric

                                Increase (Decrease)       Increase (Decrease)
                               --------------------      ---------------------
                                Three Months Ended         Six Months Ended
                                    June 30,                   June 30,
                                 1997 vs. 1996               1997 vs. 1996
                               --------------------      -----------------------
                               (Millions of Dollars)     (Millions of Dollars)
Kilowatt-hour revenues              $  (62)                   $   (84)
Recovery of energy costs                30                         61
Non-margin revenues (A)                 (8)                       (17)
Other operating revenues                (3)                        (2)
                               --------------------      -----------------------
      Total Electric Revenues       $  (43)                   $   (42)
                               =====================     ======================

     Revenues  decreased  $43  million  or 4.4% and $42  million or 2.2% for the
quarter  and six  months  ended June 30,  1997,  respectively,  from  comparable
periods in 1996.  These decreases were primarily due to cooler spring and summer
weather in 1997,  and a change in estimates  of unbilled  revenue as a result of
refinements to PSE&G's  methodology,  partially offset by increased energy sales
to other utilities and to wholesale customers.


<PAGE>
     Gas

                                Increase (Decrease)       Increase (Decrease)
                               --------------------      ---------------------
                                Three Months Ended         Six Months Ended
                                    June 30,                   June 30,
                                 1997 vs. 1996               1997 vs. 1996
                               --------------------      ---------------------
                               (Millions of Dollars)     (Millions of Dollars)
Therm revenues                      $   40                    $   27 
Recovery of fuel costs                  (5)                      (36)
Non-margin revenues (A)                 (9)                      (26)
Other operating revenues                 1                        (2)
                               ---------------------      ---------------------
       Total Gas Revenues           $   27                    $  (37)
                               =====================     =====================

     Revenues  increased $27 million or 8.9% for the quarter ended June 30, 1997
over the  comparable  period of 1996  primarily due to cooler weather in May and
June of 1997 and a change  in  estimates  of  unbilled  revenue  as a result  of
refinements to PSE&G's  methodology.  Revenues decreased $37 million or 3.3% for
the six months ended June 30, 1997 over the comparable  period of 1996 primarily
due to a lower recovery of fuel costs and mild winter weather in 1997.

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

PSE&G - Expenses

     Fuel for Electric Generation and Interchanged Power

     Fuel for Electric  Generation and Interchanged  Power increased $27 million
or 12.4% and $59 million or 13.7% for the quarter and six months  ended June 30,
1997,  respectively,  from the  comparable  1996  periods.  The  increases  were
primarily due to an increase in energy sales to other utilities and to wholesale
customers.  Due to the  operation of the Electric  Levelized  Energy  Adjustment
Clause (LEAC) mechanism, variances in fuel revenues and expenses offset, with no
direct  effect on earnings.  However,  under the New Jersey  Energy Master Plan,
future  changes in  electric  fuel and  replacement  power  costs  could  impact
earnings (see Competitive Environment).

     Other Operation and Maintenance Expenses

     Other operation and maintenance  expenses  decreased $6 million or 2.0% and
$55  million  or 8.4% for the  quarter  and six  months  ended  June  30,  1997,
respectively, from the comparable 1996 periods. The decreases were primarily due
to Hope  Creek's  extended  refueling  outage  in 1996 and  lower  1997  restart
activity expenses at Salem.

     Net (Loss) Gain on Preferred Stock Redemptions

     Net (Loss) Gain on Preferred  Stock  Redemptions  decreased $21 million and
$22 million for the quarter and six months  ended June 30,  1997,  respectively,
from the  comparable  1996 periods.  The decreases  were primarily due to an $18
million net gain on the repurchase of certain of PSE&G's outstanding  cumulative
preferred stock at discounts to par in the second quarter of 1996.



<PAGE>


EDHI - Net Income

                                Increase (Decrease)       Increase (Decrease)
                               --------------------      ---------------------
                                Three Months Ended         Six Months Ended
                                    June 30,                   June 30,
                                 1997 vs. 1996               1997 vs. 1996
                               --------------------      ---------------------
                               (Millions of Dollars)     (Millions of Dollars)
PSRC                                $   (2)                   $   (8)
CEA                                      -                         2
Energis Resources                       (3)                       (6)
EGDC                                     -                         1
                               ---------------------     ----------------------
Continuing Operations                   (5)                      (11)
Discontinued Operations - EDC            1                        (8)
                               --------------------      -----------------------
               Total                $   (4)                   $  (19)
                               =====================     ======================

     Continuing Operations

     EDHI's income from  continuing  operations  was $10 million for the quarter
and $14  million  for the six months  ended June 30,  1997,  respectively,  a $5
million  and $11 million  decrease  from the  comparable  1996  periods.  PSRC's
earnings  decreased  primarily due to leveraged  buy-out fund gains  realized in
1996. The loss for Energis Resources increased due to higher  administrative and
general  expenditures.  CEA's income  increased  due to improved  operations  of
several projects.

     Discontinued Operations

     Energy Development Corporation (EDC) was sold on July 31, 1996.

Liquidity and Capital Resources

     Enterprise

     Cash generated  from  operations is expected to provide the major source of
funds for growth of the business.  Cash and cash equivalents totaled $54 million
at June 30, 1997.

     As of June 30,  1997,  Enterprise's  capital  structure  consisted of 48.8%
common equity, 44.7% long-term debt and 6.5% preferred stock and other preferred
securities.

     Dividend  payments on Common  Stock were $1.08 per share and  totaled  $251
million for the six months ended June 30,  1997.  The ability of  Enterprise  to
declare and pay  dividends is contingent  upon its receipt of dividend  payments
from its subsidiaries.  Since 1992, Enterprise has maintained a constant rate of
dividend on its common stock. A key  Enterprise  objective is to keep its common
stock dividend secure.

     PSE&G

     During the period January 1, 1997 through June 30, 1997,  PSE&G had utility
plant  additions,  including  AFDC,  of  $237  million,  primarily  due  to  the
replacement of the Salem Unit 1 steam generators.

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


<PAGE>


     EDHI

     During the period January 1, 1997 through June 30, 1997,  PSRC entered into
leveraged  leases of three power plants:  one located in the United  Kingdom and
two in the Netherlands.  In July 1997, PSRC entered into an additional leveraged
lease of a waste-to-energy facility located in the Netherlands. The aggregate of
these investments is approximately $145 million.

     During the period January 1, 1997 through June 30, 1997,  CEA's  investment
activities included:

          Acquisition of a 50% interest in a 200 MW natural gas-fired power
          plant  located in Colombia,  South  America  which is currently  under
          construction.

          Acquisition  with a partner of a 90% interest in two  Argentinean
          electric  distribution  companies  serving the Buenos Aires  province.
          CEA's  indirect  ownership of the two  companies is 30%. Each of these
          investments is considered an exempt foreign utility company.

          Acquisition  of a 49% interest in an  operating  180 MW oil-fired
          cogeneration plant located on the island of Oahu in Hawaii.

          Acquisition of an 80% interest in a 30 MW coal-fired cogeneration
          plant in the  Jiangsu  Province  of China  which  is  currently  under
          construction.

          Acquisition of 27% and 50% ownership  interests in energy  development
          companies located in the Philippines and Thailand, respectively.

     The aggregate of these investments is approximately $290 million,  of which
$97 million was financed with nonrecourse debt.

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

External Financings - PSE&G

     PSE&G has New Jersey  Board of Public  Utilities  (BPU)  authority to issue
approximately  $4.455 billion  aggregate amount of additional  Bonds/Medium-Term
Notes  (MTNs)/Preferred  Stock/Preferred  Securities  through 1997 for refunding
purposes.  Under its Mortgage,  PSE&G may issue new First and Refunding Mortgage
Bonds (Bonds) against previous  additions and improvements  and/or retired Bonds
provided  that its ratio of earnings  to fixed  charges is at least 2:1. At June
30, 1997,  this  Mortgage  ratio was 2.92:1.  As of June 30, 1997,  the Mortgage
would permit up to $3.200 billion aggregate  principal amount of new bonds to be
issued against previous additions and improvements.

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

     In June 1997,  PSE&G issued $235 million of 6.50% Series XX Bonds due 2000.
The proceeds were used primarily to refund the 8.50% Series LL Bonds due 2022.


<PAGE>


     The BPU has authorized  PSE&G to issue and have outstanding at any one time
through  January 2, 1999, not more than $1.3 billion of short-term  obligations,
consisting of commercial  paper and other  unsecured  borrowings  from banks and
other  lenders.  On June 30,  1997,  PSE&G had $792 million of  short-term  debt
outstanding.

     To provide  liquidity for its commercial  paper  program,  PSE&G has a $650
million one-year  revolving  credit  agreement  expiring in June 1998 and a $650
million five-year  revolving credit agreement expiring in June 2002 with a group
of commercial banks, which provide for borrowings of up to one year. On June 30,
1997, there were no borrowings outstanding under these credit agreements.

     PSE&G Fuel Corporation (Fuelco) has a $125 million commercial paper program
to finance a 42.49% share of Peach Bottom  Atomic Power  Station  nuclear  fuel,
supported by a $125 million  revolving  credit  facility  with a group of banks,
which  expires on June 28,  2001.  PSE&G has  guaranteed  repayment  of Fuelco's
respective  obligations  under this  program.  As of June 30,  1997,  Fuelco had
commercial paper of $70 million outstanding under such program.

External Financings - EDHI

     PSEG  Capital  Corporation's   (Capital)  Medium-Term  Note  (MTN)  program
provides for an aggregate  principal  of up to $650  million.  At June 30, 1997,
Capital had total debt  outstanding  of $388 million,  including $325 million of
MTNs.  In July 1997,  Capital  issued an  additional  $100  million of MTNs with
interest rates of approximately 7%.

     As of June 30, 1997,  Enterprise Capital Funding Corporation  (Funding) had
$128  million  of debt  outstanding.  The MTN and  Funding  proceeds  were  used
primarily to fund the investments of PSRC and CEA.

     EDHI,  PSRC and CEA are  subject  to  restrictive  business  and  financial
covenants contained in existing debt agreements.  EDHI is required to maintain a
debt to equity ratio of no more than 2.00:1 and a twelve-months  earnings before
interest  and taxes (EBIT)  coverage  ratio of at least  1.50:1.  As of June 30,
1997,  EDHI had a  consolidated  debt to equity ratio of 1.45:1.  For the twelve
months ended June 30, 1997, the EBIT coverage  ratio,  as defined to exclude the
effects  of EGDC and the 1996 gain on the sale of EDC,  was  2.26:1.  Compliance
with applicable  financial  covenants will depend upon future financial position
and levels of earnings, as to which no assurance can be given.

Nuclear Operations

     PSE&G's Salem Units 1 and 2 were taken out of service in the second quarter
of 1995. The Salem Restart Plan,  which  encompassed a comprehensive  review and
improvement of personnel,  process and equipment issues,  has been completed for
Salem Unit 2. On August 6, 1997,  the NRC authorized the restart of Salem 2. The
NRC stated that it would continue to closely monitor  activities at Salem. Three
planned  hold  points  were  established  and the NRC  plans to  perform a final
assessment after  approximately two months of full power  operations.  The NRC's
June 9, 1995 Confirmatory  Action letter was amended to include the planned hold
points and the final assessment. The restart process is underway.

     Installation  of Salem Unit 1 steam  generators  has been completed and the
unit is  expected  to return to service  around the end of the year.  Restart of
Salem Unit 1 is also subject to NRC  approval.  The  inability  to  successfully
return these units to continuous,  safe operation could have a material  adverse
impact on the financial  condition,  results of operations and net cash flows of
Enterprise and PSE&G (see Forward Looking Statements).


<PAGE>


Competitive Environment

     New Jersey Energy Master Plan

     On July 15, 1997,  PSE&G filed a proposal  regarding  competition and rates
with the BPU in  accordance  with the April 30, 1997 final  report of the BPU on
Phase II of the New Jersey Energy Master Plan (Energy  Master Plan).  The BPU is
expected to take at least a year to review and hold  public  hearings on PSE&G's
proposal,  rendering a decision by September  1998.  Enterprise and PSE&G cannot
predict the outcome of this matter.  PSE&G's  proposal in response to the Energy
Master Plan includes the following key elements:

          A decrease in rates of between 5% and 10%,  effective January 1, 1999,
         dependent upon BPU approval of the proposal's several key elements.

          Allow all  customers  in all classes to register  for their  choice of
         energy supplier  beginning October 1, 1998. Those customers  choosing a
         supplier  other  than  PSE&G  would be  permitted  to switch to the new
         supplier effective January 1, 1999.

          A  transition  period of seven years with basic  tariff  rates  capped
         during the period.  During this transition period, PSE&G would maintain
         responsibility for system reliability of energy and capacity supply.

          Recovery of transition costs through securitization,  restructuring of
         certain non-utility  generation  contracts and depreciation  accounting
         changes.

          Recovery of societal mandated costs,  such as nuclear  decommissioning
         and demand side management expenses, would be adjusted based on changes
         in these costs.

          Discontinuation  of PSE&G's LEAC  effective  December 31, 1998.  PSE&G
         would be  responsible  for all  risks  associated  with  changing  fuel
         prices,  changes in operations and maintenance  expenses and mitigation
         of the transition costs of non-securitized generation production assets
         within the price capped rates.

          Transfer of PSE&G's nuclear and fossil generation  assets, at net book
         value,  to a separate entity  functionally  independent of PSE&G at the
         conclusion of the transition period.

          PSE&G  would  file a rate  case or a plan  for a form  of  alternative
         regulation for its electric distribution delivery service functions one
         year prior to the end of the transition period.

          At the end of the  transition  period,  responsibility  for generation
         reliability  would shift to the  marketplace and PSE&G would retain its
         obligation  to  connect  and  deliver  energy  and  would  offer  basic
         generation service.

     Stranded Costs

     PSE&G believes its identifiable  potentially stranded costs associated with
fossil  and  nuclear  generation  stations  is $3.9  billion,  based on  certain
assumptions,  which include  market prices of  electricity  and  performance  of
generating  units.  Changes in these and other factors could alter the amount of
such stranded costs.  PSE&G is proposing to refinance,  through  securitization,
$2.5  billion of these  costs,  with the  remainder  to be  mitigated,  in part,
through depreciation changes during the transition period. In addition, PSE&G is
seeking to restructure  certain of its Non-utility  Generators (NUGs) contracts,
which are estimated as being $1.5 billion above assumed market prices. Under the
Energy Master Plan, the cost of power under these contracts would be recoverable
in rates (see Forward Looking Statements).

     Securitization

     PSE&G is proposing to securitize $2.5 billion of the  potentially  stranded
costs  through the issuance of  transition  bonds with an  estimated  term of 15
years. The use of  securitization as a means to reduce rates depends on enabling
legislation,  which the New Jersey legislature is not expected to consider prior
to the second  quarter of 1998. If  legislative  approval is not granted,  PSE&G
would alter its proposal and projected rate reduction range.

     Depreciation

     PSE&G is proposing to lengthen the  depreciable  lives of its  distribution
assets,  which are  expected  to  remain  regulated,  from 28 to 45  years,  and
amortize  the excess of the  calculated  theoretical  depreciation  reserves for
distribution  assets over the seven year transition  period.  This adjustment is
expected  to  result  in  an  annual   depreciation   expense   associated  with
distribution  assets  that  would  decline  by $94  million  a year  during  the
transition period and $32 million a year thereafter.

     Accounting for the Effects of Regulation

     Currently,  PSE&G accounts for the effects of regulation in accordance with
the Statement of Financial  Accounting  Standards (SFAS) No. 71, "Accounting for
the Effects of Certain Types of  Regulation"  (SFAS 71). In accordance  with the
provisions of SFAS 71, PSE&G defers certain expenses  (regulatory assets) on the
basis that they will be recovered from customers through the ratemaking process.
The  regulatory  changes  proposed in the Energy Master Plan will create a shift
from regulated pricing to competitive market pricing.  These proposed regulatory
changes  will limit  Enterprise's  and  PSE&G's  ability to continue to meet the
applicable criteria of SFAS 71 for the generation portion of PSE&G's business.

     In  response  to  the  continuing  deregulation  of  the  electric  utility
industry,  the Financial Accounting Standards Board (FASB), through its Emerging
Issues Task Force (EITF), has undertaken an initiative  designated as EITF Issue
No.  97-4,  "Deregulation  of the Pricing of  Electricity".  The purpose of this
initiative is to develop  guidance for the  application of SFAS 101,  "Regulated
Enterprises-Accounting  for the Discontinuation of Application of FASB Statement
No. 71". SFAS 101  addresses how an enterprise  that ceases to meet the criteria
for  application of SFAS 71 to all or part of its operations  should report that
event in its general-purpose financial statements.

     In May and July 1997,  the EITF met to  deliberate  EITF Issue No. 97-4. In
its discussions, the EITF reached a consensus. First, the EITF concluded that an
enterprise  is  required  to  discontinue  the  application  of  SFAS 71 for the
deregulated  portion of its business once  legislation is passed or a rate order
is issued,  which contains a plan to transition from regulated pricing to market
pricing.  In addition,  the EITF  concluded  that an enterprise  may continue to
carry on its books the  regulatory  assets  and  regulatory  liabilities  of the
portion  of the  business  to  which  SFAS 101 is being  applied,  provided  the
regulators  have  approved a regulated  cash flow  stream.  This also applies to
costs or  obligations  not yet  recorded  as  regulatory  assets or  liabilities
regardless  of  when  they  are  incurred.  The  discontinuance  of SFAS 71 also
requires an enterprise to evaluate the impact of SFAS 121,  "Accounting  for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed Of".
SFAS 121 requires that regulatory  assets be written off once they are no longer
probable  of recovery  and that  impairment  losses be  recorded  for long lived
assets when related  future cash flows are less than the  carrying  value of the
assets.

     The impact to Enterprise and PSE&G will be determined  based on the outcome
of PSE&G's  proposal  filed in response  to the Energy  Master  Plan.  Under its
proposal,  PSE&G would have the  opportunity,  through  various  mechanisms,  to
recover its electric generation related potentially  stranded costs.  Management
cannot  predict  the impact of EITF Issue No. 97-4 on  Enterprise's  and PSE&G's
future results of operations and financial condition.  However, depending on the
legislative and regulatory  actions taken in New Jersey with respect to electric
utility deregulation, the impact could be material.

     Impact of New Accounting Pronouncements

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

     In June 1997, the FASB issued SFAS 130,  "Reporting  Comprehensive  Income"
(SFAS 130),  which is effective for fiscal years  beginning  after  December 15,
1997. SFAS 130 requires that all items that are required to be recognized  under
accounting  standards as  components  of  comprehensive  income be reported in a
financial  statement  that is  displayed  with  the  same  prominence  as  other
financial  statements.  It also requires that an  enterprise  classify  items of
other comprehensive  income by their nature in a financial statement and display
the accumulated balance of other  comprehensive  income separately from retained
earnings and additional  paid-in capital in the equity section of a statement of
financial position.

     Also in June 1997, FASB issued SFAS 131,  "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131), which is effective for financial
statements for periods  beginning  after December 15, 1997.  This Statement need
not be  applied to  interim  financial  statements  in the  initial  year of its
application. SFAS 131 supersedes Statement of Financial Accounting Standards No.
14, "Financial  Reporting for Segments of a Business  Enterprise" (SFAS 14), and
requires that  companies  disclose  segment data based on how  management  makes
decisions   about   allocating   resources  to  segments  and  measuring   their
performance.

PSE&G

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

Forward Looking Statements

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



<PAGE>


                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                           PART II. OTHER INFORMATION


Item 1.  Legal Proceedings

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

     (1)  Pages  17 and 25.  In July  1997  EPA  named  PSE&G  as a  Potentially
          Responsible Party (PRP) with respect to its Harrison Gas Plant and its
          Essex Generating Station under the Federal Comprehensive Environmental
          Response,  Compensation  and  Liability  Act of 1980  (CERCLA)  at the
          Passaic River Site. There are currently three PRPs named by EPA at the
          site, and EPA has sent data requests to additional corporations. While
          certain  remedial  activities  are ongoing,  a report  presenting  the
          results  thereof is not expected until at least 1999. That report will
          assess the  requirement  for  remediation  and,  if  determined  to be
          required,   present  an  assessment  of  and   recommendation   for  a
          remediation  alternative.  Total  costs  associated  with the  current
          assessment and  feasibility  study at the site that have been incurred
          by other parties are expected to approximate $30 million. PSE&G cannot
          predict what,  if any,  action EPA or other PRPs may take with respect
          to the  site  or,  in such  event,  what  contributions  PSE&G  may be
          required to make to the costs of these initiatives.

     (2) Page 24.  PSE&G and the three  other  co-owners  of Salem filed suit in
         February 1996 in the U.S. 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.  Ernest H. Drew,
         a Director  of  Enterprise,  but not of PSE&G  became  Chief  Executive
         Officer - Industries and Technology  Group of  Westinghouse  on July 1,
         1997.

     In addition, see the following at the pages indicated:

     (1)  Page 12.  Proceedings  before the BPU relating to PSE&G's  Remediation
          Adjustment Charge (RAC) filed July 30, 1997, Docket No. GR97080573.

     (2)  Page 12.  General  proceeding  before the BPU relating to Statement of
          Financial  Accounting  Standards No. 106,  "Employers'  Accounting for
          Postretirement  Benefits  Other than  Pensions"(SFAS-106),  Docket No.
          ER97070470.

Item 5.  Other Information

     Certain information reported under Enterprise's and PSE&G's 1996 Annual and
1997  Quarterly  Reports  to the SEC is  updated  below.  References  are to the
related  pages of the Form  10-K  and the  first  quarter  10-Q as  printed  and
distributed.

Other State Regulatory Matters

     Form 10-K, Page 4

     In an Order dated June 25, 1997, the BPU determined to commence  management
audits of all New Jersey electric utilities,  with the assistance of one or more
consulting firms,  under the direction of its own audit staff. The audit process
is to  include,  but not be limited  to,  focused  reviews of  electric  utility
filings in response to the Energy Master Plan.


<PAGE>


Pennsylvania - New Jersey - Maryland Interconnection (PJM)

     Form 10-K, Page 6, and First Quarter 10-Q, Page 24

     On June 2, 1997, the PJM Member  Companies,  except for PECO Energy Company
(PECO), filed a proposal with the Federal Energy Regulatory Commission (FERC) to
reorganize PJM into an Independent System Operator (ISO). The proposal builds on
PJM's December 31, 1996 filing with regard to energy market operation and design
of transmission  tariffs.  The filing was made to meet a commitment made to FERC
in the  December  31,  1996  filing.  On June 9, 1997,  PECO  filed a  competing
proposal that continues to advocate a different  design of the energy market and
transmission  tariffs  consistent  with their  December 31, 1996  filing.  PSE&G
cannot predict what actions, if any, FERC may take on this matter.

Air Pollution Control

     Form 10-K, Page 15

     In August  1997,  the New Jersey  Department  of  Environmental  Protection
announced that it would be proposing  regulations to reduce Nitrogen Oxide (NOx)
emissions in New Jersey by 90% from the 1990 level by 2003. At this time,  PSE&G
cannot predict the impact such proposed  regulations  may have on its operations
or any cost associated with compliance.

Nuclear

     On July 8, 1997, a predecisional  enforcement  conference was held with the
NRC to discuss  apparent  violations at Salem.  These apparent  violations  were
identified in May and June,  1997,  and concern  emergency  core cooling  system
switchover and related residual heat removal system flow issues,  and Appendix R
(fire protection) issues.  PSE&G cannot predict what further actions the NRC may
take in this matter.

     A predecisional  enforcement conference was held with the NRC on August 12,
1997, to discuss apparent  violations at Hope Creek relating to the installation
of cross-tie valves in the residual heat removal system at Hope Creek in 1994.
PSE&G cannot predict what further actions the NRC may take in this matter.

     PSE&G has been  advised by PECO that on July 17,  1997,  the NRC issued its
periodic Systematic  Assessment of Licensee  Performance (SALP) Report for Peach
Bottom Nuclear Generating Station (Peach Bottom) for the period October 15, 1995
to June 7,  1997.  Peach  Bottom  achieved  ratings of "1" in the areas of Plant
Operations,  Maintenance and Plant Support.  The area of Engineering  achieved a
rating of "2". Overall,  the NRC observed excellent  performance at Peach Bottom
during the assessment period.  The NRC stated that station  management  provided
excellent oversight and control of engineering activities throughout the period.
The NRC noted that, while overall  engineering  performance was good, there were
several instances where operating procedures,  surveillances, and tests were not
consistent with the design and licensing  bases.  PECO has advised PSE&G that it
will continue to take actions to improve performance at Peach Bottom.

Item 6.  Exhibits and Reports on Form 8-K

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


<PAGE>


Exhibit Number    Document

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

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

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

     27(A)        Financial Data Schedule (Enterprise)

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

(b)  Reports on Form 8-K.
       None


<PAGE>


                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

                                   SIGNATURES

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

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

                              By: PATRICIA A. RADO

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

Date: August 14, 1997


<PAGE>
<TABLE>
<CAPTION>




                                                                                                                     EXHIBIT 12
                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

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


                                                                                                                  12 Months
                                                                                                                    Ended
                                                            YEARS ENDED DECEMBER 31,                              June 30,
                                    ------------   ------------   ------------   -------------  -------------
                                       1992           1993           1994            1995           1996            1997
                                    ------------   ------------   ------------   -------------  ------------- ------------------
                                                                      (Thousands of Dollars)
<S>                                     <C>            <C>            <C>             <C>           <C>                 <C>    
Earnings as Defined in Regulation S-K:
Net Income (A)                          475,150        549,178        666,521         627,287       587,358             513,967
Federal Income Taxes (B)                238,270        296,223        320,218         348,324       297,277             268,735
Fixed Charges                           537,455        538,556        534,859         548,579       527,974             527,756
                                    ------------   ------------   ------------   -------------  ------------  ------------------
Earnings                              1,250,875      1,383,957      1,521,598       1,524,190     1,412,609           1,310,458
                                    ============   ============   ============   =============  ============  ==================


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

Total Interest Expense (D)              481,116        470,585        462,189         464,207       453,111             452,927
Interest Factor in Rentals                9,591         11,090         12,120          11,956        11,490              11,363
Subsidiaries' Preferred Securities
    Dividend Requirements                    --             --          1,680          15,664        27,741              39,861
Preferred Stock Dividends                31,907         38,114         40,467         33,762         23,161              15,343
Adjustment to Preferred and
  Preference Stock Dividends to
  state on a pre-income tax basis        14,841         18,767         18,403         22,990         12,471               8,262
                                    ------------   ------------   ------------   ------------   -----------   ------------------
Total Fixed Charges                     537,455        538,556        534,859         548,579       527,974             527,756
                                    ============   ============   ============   =============  ============  ==================

Ratio of Earnings to Fixed Charges         2.33           2.57           2.84            2.78          2.68                2.48
                                    ============   ============   ============   =============  ============  ==================

</TABLE>



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

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

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

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



<PAGE>
<TABLE>
<CAPTION>



                                                                                                                 EXHIBIT 12 (A)
                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY

               COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES


                                                                                                                   12 Months
                                                                                                                     Ended
                                                                                                                   June 30,
                                    ------------  -------------  -------------   -------------  -------------
                                       1992           1993           1994            1995           1996             1997
                                    ------------  -------------  -------------   -------------  -------------   ----------------
                                                                      (Thousands of Dollars)
<S>                                     <C>            <C>            <C>            <C>             <C>                <C>    
Earnings as Defined in
Regulation S-K:
Net Income                              475,936        614,868        659,406        616,964         535,071            470,007
Federal Income Taxes (A)                223,782        307,414        301,447        325,737         267,619            244,390
Fixed Charges                           411,493        401,046        408,045        418,825         437,812            444,024
                                    ------------  -------------  -------------   ------------   ------------   -----------------
Earnings                              1,111,211      1,323,328      1,368,898      1,361,526       1,240,502          1,158,421
                                    ============  =============  =============   ============   =============  =================


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

Total Interest Expense (C)              401,902        389,956        395,925        406,869         398,581            392,800
Interest Factor in Rentals                9,591         11,090         12,120         11,956          11,490             11,363
Subsidiaries' Preferred Securities
    Dividend Requirements                    --             --             --             --          27,741             39,861
                                    ------------  -------------  -------------   ------------   -------------  -----------------
Total Fixed Charges                     411,493        401,046        408,045        418,825         437,812            444,024
                                    ============  =============  =============   ============   =============  =================

Ratio of Earnings to Fixed Charges         2.70           3.30           3.35           3.25            2.83               2.61
                                    ============  =============  =============   ============   =============  =================

</TABLE>


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

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

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




<PAGE>
<TABLE>
<CAPTION>


                                                                                                                 EXHIBIT 12 (B)
                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY

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


                                                                                                                  12 Months
                                                                                                                    Ended
                                                             YEARS ENDED DECEMBER 31,                              June 30,
                                    ------------  -------------  -------------   -------------  -------------
                                       1992           1993           1994            1995           1996             1997
                                    ------------  -------------  -------------   -------------  -------------  -----------------
                                                                      (Thousands of Dollars)
<S>                                     <C>            <C>            <C>             <C>            <C>                <C>    
Earnings as Defined in Regulation S-K:
Net Income                              475,936        614,868        659,406         616,964        535,071            470,007
Federal Income Taxes (A)                223,782        307,414        301,447         325,737        267,619            244,390
Fixed Charges                           411,493        401,046        408,045         418,825        437,812            444,024
                                    ------------  -------------  -------------   -------------  ------------   ----------------
Earnings                              1,111,211      1,323,328      1,368,898       1,361,526      1,240,502          1,158,421
                                    ============  =============  =============   =============  =============  ================

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

Total Interest Expense (C)              401,902        389,956        395,925         406,869        398,581            392,800
Interest Factor in Rentals                9,591         11,090         12,120          11,956         11,490             11,363
Subsidiaries' Preferred Securities
    Dividend Requirements                    --             --             --              --         27,741             39,861
Preferred Stock Dividends                31,907         38,114         42,147          49,426         23,161             15,343
Adjustment to Preferred and
  Preference Stock Dividends to
  state on a pre-income tax basis        14,768         18,843         18,763          23,428         12,043              8,262
                                    ------------  -------------  -------------   -------------  ------------   -----------------
Total Fixed Charges                     458,168        458,003        468,955         491,679        473,016            467,629
                                    ============  =============  =============   =============  =============  =================

Ratio of Earnings to Fixed Charges         2.43           2.89           2.92            2.77           2.62               2.48
                                    ============  =============  =============   =============  =============  =================

</TABLE>


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

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

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