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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 March  31, 2000

                                       OR

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

  For the transition period from                  to

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

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

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


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

                     Class: Common Stock, without par value
                   Outstanding at April 30, 2000: 216,354,551

As of April 30, 2000, 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>
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                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
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                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
PART I.  FINANCIAL INFORMATION

   Item 1. Financial Statements

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

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

     Notes to Consolidated Financial Statements -- PSEG...................     9

     Notes to Consolidated Financial Statements -- PSE&G...................   16

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

       PSEG ..............................................................    17

       PSE&G..............................................................    26

   Item 3. Qualitative and Quantitative Disclosures About Market Risk.....    27

PART II.  OTHER INFORMATION

   Item 1. Legal Proceedings..............................................    28

   Item 4. Submission of Matters to a Vote of Security Holders............    28

   Item 5. Other Information..............................................    29

   Item 6. Exhibits and Reports on Form 8-K...............................    30

   Signatures -- PSEG.....................................................    31

   Signatures -- PSE&G....................................................    31

<PAGE>

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

                          PART I. FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS
<PAGE>
<TABLE>

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

<CAPTION>

                                                         For The Quarters Ended
                                                                March 31,
                                                         ----------------------
                                                            2000         1999
                                                         ---------    ---------
<S>                                                           <C>        <C>
    OPERATING REVENUES
      Electric Revenues  *
        Bundled                                               $ -        $ 966
        Generation                                            558            -
        Transmission and Distribution                         404            -
                                                         ---------    ---------
         Total Electric Revenues                              962          966
      Gas Distribution                                        747          700
      Other                                                   215          129
                                                         ---------    ---------
         Total Operating Revenues                           1,924        1,795
                                                         ---------    ---------
    OPERATING EXPENSES
      Electric Energy Costs                                   216          225
      Gas Costs                                               480          449
      Operation and Maintenance                               485          431
      Depreciation and Amortization                            90          173
      Taxes Other Than Income Taxes                            50           56
                                                         ---------    ---------
           Total Operating Expenses                         1,321        1,334
                                                         ---------    ---------
    OPERATING INCOME                                          603          461
    Other Income and Deductions                                11            6
    Interest Expense                                         (137)        (112)
    Preferred Securities Dividend Requirements                (24)         (24)
                                                         ---------    ---------
    INCOME BEFORE INCOME TAXES                                453          331
    Income Taxes                                             (183)        (143)
                                                         ---------    ---------
    NET INCOME                                              $ 270        $ 188
                                                         =========    =========

    WEIGHTED AVERAGE COMMON SHARES
        OUTSTANDING (000's)                               216,437      222,703
                                                         =========    =========

    EARNINGS PER SHARE (BASIC AND DILUTED)                 $ 1.25       $ 0.85
                                                         =========    =========

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

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

      See Notes to Consolidated Financial Statements.

</TABLE>
<PAGE>
<TABLE>

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

<CAPTION>

                                                       (Unaudited)
                                                        March 31,   December 31,
                                                           2000        1999
                                                       -----------  ------------
<S>                                                          <C>          <C>
CURRENT ASSETS
  Cash and Cash Equivalents                                  $ 121        $ 259
  Accounts Receivable:
    Customer Accounts Receivable                               782          646
    Other Accounts Receivable                                  404          371
    Allowance for Doubtful Accounts                            (46)         (40)
  Unbilled Revenues                                            183          241
  Fuel                                                         165          311
  Materials and Supplies, net of  valuation
      reserves - 2000 and 1999, $11                            139          130
  Prepayments                                                   29           53
  Miscellaneous Current Assets                                  71           72
                                                        -----------  -----------
       Total Current Assets                                  1,848        2,043
                                                        -----------  -----------

PROPERTY, PLANT AND EQUIPMENT
  Electric - Generation                                      2,551        2,510
  Electric - Transmission and Distribution                   5,141        5,093
  Gas - Distribution                                         3,042        3,019
  Other                                                        605          534
                                                        -----------  -----------
       Total                                                11,339       11,156
  Accumulated depreciation and amortization                 (4,208)      (4,078)
                                                        -----------  -----------
       Net Property, Plant and Equipment                     7,131        7,078
                                                        -----------  -----------

NONCURRENT ASSETS
 Regulatory Assets                                           5,027        5,041
 Long-Term Investments, net of accumulated
     amortization and net of valuation allowances -
     2000, $67;1999, $65                                     3,960        3,848
 Nuclear Decommissioning Fund                                  633          631
 Other Special Funds                                           140          148
 Other Noncurrent Assets,  net of accumulated
     amortization - 2000, $16; 1999, $12                       229          226
                                                        -----------  -----------
       Total Noncurrent Assets                               9,989        9,894
                                                        -----------  -----------
TOTAL                                                     $ 18,968     $ 19,015
                                                        ===========  ===========

See Notes to Consolidated Financial Statements.

</TABLE>
<PAGE>
<TABLE>
                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                           CONSOLIDATED BALANCE SHEETS
                         LIABILITIES AND CAPITALIZATION
                              (Millions of Dollars)


<CAPTION>
                                                  (Unaudited)
                                                   March 31,      December 31,
                                                      2000           1999
                                                  -------------   -----------
<S>                                                      <C>         <C>
CURRENT LIABILITIES
  Long-Term Debt Due Within One Year                     $ 973       $ 1,073
  Commercial Paper and Loans                             1,202         1,972
  Accounts Payable                                         802           738
  Accrued Taxes                                            255            70
  Other                                                    367           324
                                                  -------------   -----------
       Total Current Liabilities                         3,599         4,177
                                                  -------------   -----------

NONCURRENT LIABILITIES
  Deferred Income Taxes and ITC                          2,961         2,928
  Regulatory Liabilities                                   582           604
  Nuclear Decommissioning                                  633           631
  OPEB Costs                                               405           390
  Other                                                    502           506
                                                  -------------   -----------
       Total Noncurrent Liabilities                      5,083         5,059
                                                  -------------   -----------
COMMITMENTS AND CONTINGENT LIABILITIES                       -             -
                                                  -------------   -----------

CAPITALIZATION:
  LONG - TERM DEBT                                       4,901         4,575
                                                  -------------   -----------

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

  COMMON STOCKHOLDERS' EQUITY:
    Common Stock, issued: 231,957,608 shares             3,604         3,604
    Treasury Stock, at cost: 2000 and 1999
        - 15,540,390 shares                               (597)         (597)
    Retained Earnings                                    1,345         1,193
    Accumulated Other Comprehensive Loss                  (175)         (204)
                                                  -------------   -----------
       Total Common Stockholders' Equity                 4,177         3,996
                                                  -------------   -----------
            Total Capitalization                        10,286         9,779
                                                  -------------   -----------
TOTAL                                                 $ 18,968      $ 19,015
                                                  =============   ===========

See Notes to Consolidated Financial Statements.

</TABLE>
<PAGE>
<TABLE>
                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (Millions of Dollars)
                                   (Unaudited)
<CAPTION>

                                                             For The Quarters Ended
                                                                    March 31,
                                                             -----------------------
                                                                2000          1999
                                                             ---------     ---------
<S>                                                             <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                    $ 270         $ 188
  Adjustments to reconcile net income to net cash flows
   from operating activities:
    Depreciation and Amortization                                  90           173
    Amortization of Nuclear Fuel                                   26            12
    Recovery of Electric Energy and Gas Costs - net                16            89
    Provision for Deferred Income Taxes and ITC - net              29           (73)
    Investment Distributions                                       12             3
    Equity Income from Partnerships                               (11)          (10)
    Gains on Investments                                          (31)          (14)
    Leasing Activities                                            (18)          (18)
    Net Changes in certain current assets and liabilities:
       Accounts Receivable and Unbilled Revenues                 (105)          (74)
       Fuel and Materials and Supplies                            137           118
       Prepayments                                                 24            22
       Accounts Payable                                            64          (151)
       Accrued Taxes                                              185           221
       Other Current Assets and Liabilities                        44           118
    Other                                                          35             9
                                                             ---------     ---------
       Net Cash Provided By Operating Activities                  767           613
                                                             ---------     ---------
CASH FLOWS FROM INVESTING ACTIVITIES
  Additions to Property, Plant and Equipment,
      excluding Capitalized Interest and AFDC                    (149)          (79)
  Net Change in Long-Term Investments                             (62)           (2)
  Contribution to Decommissioning Funds and Other Special Funds    (8)          (12)
  Other                                                             -            (7)
                                                             ---------     ---------
       Net Cash Used In Investing Activities                     (219)         (100)
                                                             ---------     ---------
CASH FLOWS FROM FINANCING ACTIVITIES
  Net Change in Short-Term Debt                                  (770)         (332)
  Issuance of Long-Term Debt                                      300           252
  Redemption/Purchase of Long-Term Debt                           (99)         (149)
  Purchase of Treasury Stock                                        -          (235)
  Cash Dividends Paid on Common Stock                            (117)         (120)
                                                             ---------     ---------
       Net Cash Used In Financing Activities                     (686)         (584)
                                                             ---------     ---------
Net Change In Cash And Cash Equivalents                          (138)          (71)
Cash And Cash Equivalents At Beginning Of Period                  259           140
                                                             ---------     ---------
Cash And Cash Equivalents At End Of Period                      $ 121          $ 69
                                                             =========     =========

Income Taxes Paid                                                $  1         $   1
Interest Paid                                                    $ 96         $ 107

See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
                              (Millions of Dollars)
                                   (Unaudited)

<CAPTION>

                                                        For The Quarters Ended
                                                               March 31,
                                                      --------------------------
                                                         2000            1999
                                                      ----------     -----------
<S>                                                         <C>           <C>
    OPERATING REVENUES
       Electric Revenues  *
         Bundled                                            $ -           $ 966
         Generation                                         558               -
         Transmission and Distribution                      404               -
                                                      ----------     -----------
           Total Electric Revenues                          962             966
       Gas Distribution                                     747             700
                                                      ----------     -----------
           Total Operating Revenues                       1,709           1,666
                                                      ----------     -----------
    OPERATING EXPENSES
       Electric Energy Costs                                205             221
       Gas Costs                                            457             424
       Operation and Maintenance                            388             387
       Depreciation and Amortization                         88             172
       Taxes Other Than Income Taxes                         49              56
                                                      ----------     -----------
             Total Operating Expenses                     1,187           1,260
                                                      ----------     -----------
    OPERATING INCOME                                        522             406
    Other Income and Deductions                              10               3
    Interest Expense                                        (97)            (93)
    Preferred Securities Dividend Requirements              (11)            (11)
                                                      ----------     -----------
    INCOME BEFORE INCOME TAXES                              424             305
    Income Taxes                                           (174)           (133)
                                                      ----------     -----------
    NET INCOME                                              250             172
    Preferred Stock Dividend Requirement                     (2)             (3)
                                                      ----------     -----------
    EARNINGS AVAILABLE TO PUBLIC SERVICE
     ENTERPRISE GROUP INCORPORATED                        $ 248           $ 169
                                                      ==========     ===========

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

       See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
                           CONSOLIDATED BALANCE SHEETS
                                     ASSETS
                              (Millions of Dollars)
<CAPTION>


                                                           (Unaudited)
                                                             March 31,     December 31,
                                                               2000          1999
                                                            -----------   ------------
<S>                                                               <C>           <C>
CURRENT ASSETS
  Cash and Cash Equivalents                                       $ 31          $ 173
  Accounts Receivable:
    Customer Accounts Receivable                                   605            529
    Other Accounts Receivable                                      370            313
    Allowance for Doubtful Accounts                                (40)           (35)
  Unbilled Revenues                                                183            241
  Fuel                                                             164            308
  Materials and Supplies, net of
      valuation reserves - 2000 and 1999, $11                      133            130
  Prepayments                                                       25             48
  Miscellaneous Current Assets                                      36             36
                                                            -----------   ------------
       Total Current Assets                                      1,507          1,743
                                                            -----------   ------------

PROPERTY, PLANT AND EQUIPMENT
  Electric - Generation                                          2,408          2,439
  Electric - Transmission and Distribution                       5,141          5,093
  Gas - Distribution                                             3,042          3,019
  Other                                                            463            457
                                                            -----------   ------------
       Total                                                    11,054         11,008
  Accumulated depreciation and amortization                     (4,166)        (4,046)
                                                            -----------   ------------
       Net Property, Plant and Equipment                         6,888          6,962
                                                            -----------   ------------

NONCURRENT ASSETS
 Regulatory Assets                                               5,027          5,041
 Long-Term Investments                                              87             99
 Nuclear Decommissioning Fund                                      633            631
 Other Special Funds                                               140            148
 Other Noncurrent Assets                                            88            100
                                                            -----------   ------------
       Total Noncurrent Assets                                   5,975          6,019
                                                            -----------   ------------
TOTAL                                                         $ 14,370       $ 14,724
                                                            ===========   ============

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


                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
                           CONSOLIDATED BALANCE SHEETS
                         LIABILITIES AND CAPITALIZATION
                              (Millions of Dollars)
<CAPTION>

                                                (Unaudited)
                                                  March 31,      December 31,
                                                    2000            1999
                                                 ------------    ------------
<S>                                                    <C>             <C>
CURRENT LIABILITIES
  Long-Term Debt Due Within One Year                   $ 523           $ 623
  Commercial Paper and Loans                             905           1,475
  Accounts Payable                                       872             676
  Accrued Taxes                                          118              70
  Other                                                  246             211
                                                 ------------    ------------
       Total Current Liabilities                       2,664           3,055
                                                 ------------    ------------

NONCURRENT LIABILITIES
  Deferred Income Taxes and ITC                        2,050           2,032
  Regulatory Liabilities                                 582             604
  Nuclear Decommissioning                                633             631
  OPEB Costs                                             405             390
  Other                                                  471             479
                                                 ------------    ------------
       Total Noncurrent Liabilities                    4,141           4,136
                                                 ------------    ------------

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

CAPITALIZATION:
  LONG - TERM DEBT                                     3,100           3,099
                                                 ------------    ------------

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

  COMMON STOCKHOLDER'S EQUITY:
    Common Stock, issued: 132,450,344 shares           2,563           2,563
    Contributed Capital                                  594             594
    Retained Earnings                                    628             597
    Accumulated Other Comprehensive Loss                  (3)             (3)
                                                 ------------    ------------
       Total Common Stockholder's Equity               3,782           3,751
                                                 ------------    ------------
            Total Capitalization                       7,565           7,533
                                                 ------------    ------------
TOTAL                                               $ 14,370        $ 14,724
                                                 ============    ============

See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (Millions of Dollars)
                                   (Unaudited)

<CAPTION>
                                                              For The Quarters Ended
                                                                     March 31,
                                                              -----------------------
                                                                2000          1999
                                                              ----------    ---------
<S>                                                               <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                      $ 250        $ 172
  Adjustments to reconcile net income to net cash flows from
   operating activities:
    Depreciation and Amortization                                    88          172
    Amortization of Nuclear Fuel                                     26           12
    Recovery of Electric Energy and Gas Costs - net                  16           89
    Provision for Deferred Income Taxes and ITC - net                18          (59)
    Net Changes in certain current assets and liabilities:
       Accounts Receivable and Unbilled Revenues                    (70)         (62)
       Fuel and Materials and Supplies                              141          116
       Prepayments                                                   23           21
       Accounts Payable                                             231          (59)
       Accrued Taxes                                                 48           78
       Other Current Assets and Liabilities                          35          144
    Other                                                            46          (12)
                                                              ----------    ---------
       Net Cash Provided By Operating Activities                    852          612
                                                              ----------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES
  Additions to Property, Plant and Equipment,
      excluding Capitalized Interest and AFDC                      (110)         (79)
  Contribution to Decommissioning Funds and Other Special Funds      (8)         (12)
  Other                                                              12           10
                                                              ----------    ---------
       Net Cash Used In Investing Activities                       (106)         (81)
                                                              ----------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES
  Net Change in Short-Term Debt                                    (570)        (279)
  Redemption/Purchase of Long-Term Debt                             (99)           -
  Cash Dividends Paid on Common Stock                              (217)        (277)
  Other                                                              (2)          (2)
                                                              ----------    ---------
       Net Cash Used In Financing Activities                       (888)        (558)
                                                              ----------    ---------
Net Change In Cash And Cash Equivalents                            (142)         (27)
Cash And Cash Equivalents At Beginning Of Period                    173           42
                                                              ----------    ---------
Cash And Cash Equivalents At End Of Period                         $ 31         $ 15
                                                              ==========    =========

Income Taxes Paid                                                  $  -         $  1
Interest Paid                                                      $ 90         $ 98

See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
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                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
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                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.  Basis of Presentation

Basis of Presentation

     The financial statements included herein have been prepared pursuant to the
rules and regulations of the Securities and Exchange  Commission (SEC).  Certain
information  and note  disclosures  normally  included in  financial  statements
prepared in accordance with generally accepted  accounting  principles have been
condensed or omitted  pursuant to such rules and  regulations.  However,  in the
opinion of  management,  the  disclosures  are adequate to make the  information
presented not misleading.  These consolidated  financial statements and Notes to
Consolidated Financial Statements (Notes) should be read in conjunction with the
Registrant's Notes contained in the 1999 Annual Report on Form 10-K. These Notes
update and supplement matters discussed in the 1999 Annual Report on Form 10-K.

     The unaudited  financial  information  furnished  reflects all  adjustments
which are, in the opinion of  management,  necessary to fairly state the results
for the interim periods presented. The year-end consolidated balance sheets were
derived from the audited consolidated  financial statements included in the 1999
Annual Report on Form 10-K. Certain  reclassifications of prior period data have
been made to conform with the current presentation.

Note 2.  Regulatory Issues

New Jersey Energy Master Plan Proceedings and Related Orders

     In January  1999,  the State  Legislature  passed  the New Jersey  Electric
Discount and Energy  Competition Act (Energy  Competition  Act) which was signed
into law by the  Governor on February 9, 1999.  Following  the  enactment of the
Energy Competition Act, the Board of Public Utilities (BPU) rendered its summary
decision  relating to Public  Service  Electric and Gas  Company's  (PSE&G) rate
unbundling,  stranded costs and  restructuring  proceedings  (Summary  Order) on
April 21,  1999 and  subsequently  issued  its Final  Order in these  matters on
August 24, 1999. The Energy  Competition Act and the related BPU proceedings are
hereinafter  defined as the Energy Master Plan  Proceedings.  These  proceedings
opened the New Jersey energy  markets to  competition by allowing all New Jersey
retail electric customers to select their electric supplier commencing August 1,
1999 and all New  Jersey  retail  gas  customers  to select  their gas  supplier
commencing January 1, 2000.

     In October  and  November  1999,  two  appeals  of the Final  Order and two
appeals of the BPU's order approving  PSE&G's petition  relating to the proposed
securitization transaction for an irrevocable Bondable Stranded Costs Rate Order
(Finance Order) were filed in the Appellate  Division of the New Jersey Superior
Court on behalf of several  customers and the Office of the Ratepayer  Advocate.
On April 13, 2000, a three-judge panel unanimously  affirmed the Final Order and
Finance  Order.  On May 2,  2000,  one of the  appellants  filed a notice of its
intention to request the New Jersey  Supreme Court to exercise its discretion to
review the unanimous  Appellate Division  decision.  The brief of the appellant,
specifying  the issues to be reviewed  and the  reasons  why the  Supreme  Court
should consider its request, must be filed with the Court not later than May 15,
2000. On May 5, 2000,  PSE&G filed a Notice of Motion for  Accelerated  Briefing
and  Disposition  of the Petition for  Certification  which,  if granted,  would
require all briefing to be completed by May 30, 2000.  While PSE&G believes that
the Court is not  reasonably  likely to exercise  its  discretion  to review the
Appellate Division decision and that the securitization  transaction is expected
to be completed by or around the end of the second quarter of 2000,  followed by
the  generation-related  asset sale, no assurances can be given as to the timing
or outcome of such matters.

<PAGE>

Note 3. Regulatory Assets and Liabilities

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

                                                                        March 31,         December 31,
                                                                          2000                1999
                                                                      ---------------    -----------------
                                                                            (Millions of Dollars)
<S>                                                                          <C>                  <C>
Regulatory Assets:
   Stranded Costs to be Securitized...........................               $4,057               $4,057
   SFAS 109 Income Taxes......................................                  285                  286
   OPEB Costs.................................................                  232                  237
   Societal Benefits Charges (SBC)............................                  119                  130
   Demand Side Management Costs...............................                    7                    7
   Environmental Costs........................................                  104                   94
   Unamortized Loss on Reacquired Debt and Debt Expense.......                  113                  117
   Other......................................................                  110                  113
                                                                      ---------------    -----------------
       Total Regulatory Assets................................               $5,027               $5,041
                                                                      ===============    =================

Regulatory Liabilities:
   Excess Depreciation Reserve................................                 $537                 $569
   Non-utility Generation Market Transition Charge (NTC)......                   14                   20
   Overrecovered Gas Costs....................................                   31                   15
                                                                      ---------------    -----------------
       Total Regulatory Liabilities...........................                 $582                 $604
                                                                      ===============    =================
</TABLE>

Note 4.  Commitments and Contingent Liabilities

Pending Asset Purchases

     On October 6, 1999,  PSEG Power LLC (Power)  announced  an  agreement  with
Niagara Mohawk Power  Corporation  (Niagara Mohawk) to purchase its 400 megawatt
(MW) oil and gas-fired  electric  generating station in Albany, New York (Albany
Steam  Station)  for $47.5  million.  Payment of Power's  obligation  under such
agreement has been  guaranteed by PSEG.  Niagara Mohawk could also receive up to
an  additional  $9.0  million if Power  chooses to pursue  redevelopment  of the
Albany Steam Station.  Under a transition power supply contract in place through
September 2003,  Niagara Mohawk will purchase  electricity  from Power at prices
consistent with those established in Niagara Mohawk's regulatory  agreement with
the New York  Public  Service  Commission  (NYPSC).  In April  2000,  the  NYPSC
approved  the sale of the  Albany  Steam  Station  to Power.  Power  expects  to
complete the transaction in the second quarter of 2000.

     On  September  30,  1999,  Power  announced  an agreement to acquire all of
Conectiv's  interests in Salem Nuclear Generating Station (Salem) and Hope Creek
Nuclear Generating Station (Hope Creek) and half of Conectiv's interest in Peach
Bottom Atomic Power Station  (Peach  Bottom) for an aggregate  purchase price of
$15.4  million  plus the net book value of  Conectiv's  nuclear fuel at closing.
Payment of Power's  obligation under such agreement has been guaranteed by PSEG.
Power will purchase Conectiv's 14.82% interest (328 MW) in Salem,  Conectiv's 5%
interest (52 MW) in Hope Creek and half of Conectiv's  15.02%  interest (164 MW)
in Peach Bottom.  Once  completed,  PSEG,  through Power and PSE&G,  would own a
57.41%  interest  (1,270 MW) in Salem, a 100% interest  (1,031 MW) in Hope Creek
and a 50%  interest  (1,094  MW)  in  Peach  Bottom.  While  certain  regulatory
approvals have been obtained, the purchases are still subject to approval by the
BPU, the Virginia  State  Corporation  Commission  and the  Pennsylvania  Public
Utility Commission (PPUC). Power expects to complete the purchases in 2000.

<PAGE>
PSE&G Manufactured Gas Plant Remediation Program

     Since 1988, New Jersey Department of Environmental  Protection  (NJDEP) and
PSE&G have identified 38 former manufactured gas plant sites. PSE&G is currently
working  with NJDEP under a program to assess,  investigate  and, if  necessary,
remediate  environmental  conditions 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 long-term costs of the Remediation  Program cannot be reasonably  estimated,
but  experience to date indicates  that costs of  approximately  $20 million per
year could be incurred over a period of about 30 years and that the overall cost
could be material.  The Energy  Competition Act provides for the continuation of
Remediation  Adjustment Charge (RAC) programs.  The Final Order provides for the
recovery of costs for this remediation effort through the SBC.

Passaic River Site

     The U.S.  Environmental  Protection  Agency (EPA) has determined that a six
mile stretch of the Passaic River in Newark,  New Jersey is a "facility"  within
the meaning of that term under the Federal Comprehensive Environmental Response,
Compensation  and  Liability  Act of 1980  (CERCLA) and that,  to date, at least
thirteen corporations, including PSE&G, may be potentially liable for performing
required  remedial actions to address potential  environmental  pollution at the
Passaic  River  "facility".  PSE&G  and  certain  of its  predecessors  operated
industrial  facilities  at  properties  within  the  Passaic  River  "facility",
including  the former  Harrison Gas Plant and Essex  Generating  Station.  PSE&G
cannot predict what action,  if any, the EPA or any third party may take against
PSE&G with  respect to these  matters,  or in such  event,  what costs PSE&G may
incur to address any such claims. However, such costs may be material.

Note  5.  Financial Instruments and Risk Management

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

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

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

     At March 31, 2000, PSE&G had outstanding  commodity  financial  instruments
with a  notional  contract  quantity  of 9.4  million  megawatt-hours  (mWh)  of
electricity  and 16.7 million MMBTU (million  British  thermal units) of natural
gas. At December 31, 1999, PSE&G had outstanding commodity financial instruments
with a notional  contract  quantity of 36.1 million mWh of electricity  and 25.5
million MMBTU of natural gas. Notional amounts are indicative only of the volume
of activity and are not a measure of market risk.

     PSE&G's energy trading and related contracts have been marked to market and
gains and losses from such contracts  were included in earnings.  PSE&G recorded
$34 million and $18  million of gains in the  quarters  ended March 31, 2000 and
1999, respectively.

Commodity-Related Instruments -- Energy Holdings

     PSEG Energy  Technologies  Inc. (Energy  Technologies)  enters into futures
contracts  to buy  natural  gas and  electricity  related to  fixed-price  sales
commitments.  Such contracts hedged approximately 56% and 85% of its fixed price
natural gas sales and electric  sales  commitments,  respectively,  at March 31,
2000 and 64% and 85% of its fixed  price  natural gas sales and  electric  sales
commitments,  respectively,  at December  31,  1999.  In February  2000,  Energy
Technologies  entered into a business  arrangement with a third party to provide
an  internet-based  auction  exchange that will allow  customers an  alternative
method in purchasing  their energy  requirements.  As a result of this change in
strategic direction, Energy Technologies will discontinue the business of buying
and selling natural gas and electricity.

Equity Securities -- Energy Holdings

     PSEG Resources Inc.  (Resources) has  investments in equity  securities and
limited partnerships.  Resources carries its investments in equity securities at
their  approximate  fair  value  as of the  reporting  date.  Consequently,  the
carrying value of these  investments is affected by changes in the fair value of
the  underlying  securities.  Fair value is  determined  by adjusting the market
value of the  securities  for liquidity  and market  volatility  factors,  where
appropriate.  The aggregate fair values of such investments  which had available
market prices at March 31, 2000 and December 31, 1999 were $157 million and $131
million,  respectively.  The increase in fair value was  primarily due to higher
valuation of various  securities  within  Resources'  portfolio.  The  potential
change in fair value  resulting from a hypothetical  10% change in quoted market
prices of these  investments  amounted  to $12 million at March 31, 2000 and $11
million at December 31, 1999.

Foreign Currencies -- Energy Holdings

     In accordance with their growth strategies,  Global and Resources have made
international  investments  of  approximately  $1.5  billion  and $1.1  billion,
respectively, as of March 31, 2000.

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

     Global's international  investments are primarily in projects that generate
or distribute  electricity in Argentina,  Brazil,  Chile, China, India, Peru and
Venezuela.  Investing in foreign  countries  involves certain  additional risks.
Economic  conditions  that result in higher  comparative  rates of  inflation in
foreign   countries  likely  result  in  declining  values  in  such  countries'
currencies.  As  currencies  fluctuate  against  the  U.S.  dollar,  there  is a
corresponding  change in Global's  investment value in terms of the U.S. dollar.
Such change is  reflected  as an  increase  or  decrease in other  comprehensive
income, a separate component of stockholders' equity. Cumulatively,  net foreign
currency   devaluations  have  reduced  the  reported  amount  of  PSEG's  total
stockholders' equity by approximately $172 million.

     Global had  consolidated  project debt totaling $89 million as of March 31,
2000 associated  with Global's  investment in a Brazilian  distribution  company
that  is  non-recourse  to  Global,  Energy  Holdings  and  PSEG.  The  debt  is
denominated  in the  Brazilian  Real and is indexed  to a basket of  currencies,
approximately  58% of which is the U.S.  dollar.  Global is  subject  to foreign
currency  exchange rate risk as a result of exchange rate movements  between the
indexed  foreign  currencies and Real and between the Real and the U.S.  dollar.
Exchange  rate  changes  ultimately  impact  the debt level  outstanding  in the
reporting  currency  and result in foreign  currency  gains or losses.  Gains or
losses  resulting from such exchange rate movements are included in other income
for the period and amounted to a gain of $1 million and a loss of $3 million for
the quarters ended March 31, 2000 and 1999, respectively.

Interest Rates

     PSEG,  PSE&G and Energy  Holdings  are  subject to the risk of  fluctuating
interest  rates in the  normal  course of  business.  Their  policy is to manage
interest  rate risk through the use of fixed rate debt,  floating  rate debt and
interest rate swaps.  As of March 31, 2000, a hypothetical  10% change in market
interest  rates would result in a $5 million,  $10 million and $1 million change
in annual  interest  costs related to short-term and floating rate debt at PSEG,
PSE&G and Energy Holdings, respectively.
<PAGE>
Note 6.  Income Taxes

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

                                                                                      Quarter Ended March 31,
                                                                                   -----------------------------
                                                                                      2000              1999
                                                                                   -----------      ------------

<S>                                                                                  <C>                 <C>
     Federal tax provision at statutory rate.............................             35.0%              35.0%
     New Jersey Corporate Business Tax, net of Federal benefit...........              5.9%               5.9%
     Other-- net.........................................................             (0.5)%              2.1%
                                                                                   -----------      ------------
          Effective Income Tax Rate......................................             40.4%              43.0%
                                                                                   ===========      ============
</TABLE>

Note 7.  Financial Information by Business Segments

Basis of Organization

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

     Information related to the segments of PSEG's business is detailed below:
<TABLE>
<CAPTION>

                                                     Energy
                                                     Resources                                             Consolidated
                                         Generation  and Trade    T & D   Resources   Global    Other (A)     Total
                                         --------------------------------------------------------------------------------
                                                                     (Millions of Dollars)
<S>                                            <C>          <C>   <C>           <C>        <C>      <C>          <C>
For the Quarter Ended March 31, 2000:
     Total Operating Revenues..........        $524         $34   $1,151        $66        $38      $111         $1,924
     Segment Net Income (Loss).........         109          17      124         27          4       (11)           270
                                         ================================================================================
For the Quarter Ended March 31, 1999:
     Total Operating Revenues..........        $658         $18     $990        $46        $28       $55         $1,795
     Segment Net Income (Loss).........          76           8       88         19          2        (5)           188
                                         ================================================================================
As of March 31, 2000:
     Total Assets......................      $2,033        $327  $12,010     $2,194     $1,774      $630        $18,968
                                         ================================================================================
As of December 31, 1999:
     Total Assets......................      $2,256        $246  $12,222     $2,096     $1,715      $480        $19,015
                                         ================================================================================
</TABLE>

(A)    PSEG's other  activities  include amounts  applicable to PSEG, the parent
       corporation, and Energy Holdings, excluding Resources and Global.
<PAGE>
     Geographic information for PSEG is disclosed below. The foreign investments
and  operations  noted below were made through Energy  Holdings.  PSE&G does not
have foreign investments or operations.

<TABLE>
<CAPTION>


                                                       Revenues (1)                        Identifiable Assets
                                               ------------------------------
                                                                                  ---------------------------------------
                                                      Quarter Ended
                                                        March 31,                  March 31,              December 31,
                                               ------------------------------     --------------       ------------------
                                                  2000              1999              2000                   1999
                                               -------------     ------------     --------------       ------------------
                                                  (Millions of Dollars)                   (Millions of Dollars)

<S>                                                 <C>              <C>               <C>                      <C>
United States.............................          $1,876           $1,768            $16,417                  $16,595
Foreign Countries (2).....................              48               27              2,551                    2,420
                                               -------------     ------------     --------------       ------------------
     Total................................          $1,924           $1,795            $18,968                  $19,015
                                               =============     ============     ==============       ==================

Identifiable investments in foreign countries include:
      Netherlands                                                                         $697                     $623
      Chile and Peru                                                                       543                      520
      Argentina                                                                            362                      356
      Brazil (3)                                                                           352                      330
      Other                                                                                597                      591
                                                                                  --------------       ------------------
Total                                                                                   $2,551                   $2,420
                                                                                  ==============       ==================

</TABLE>

--------------------------------------------------------------------------------

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

(2)  Total assets are net of foreign currency  translation  adjustment of $(191)
     million  (pretax)  as of March 31, 2000 and $(222)  million  (pretax) as of
     December 31, 1999.

(3)  Amount is net of foreign currency translation  adjustment of $(171) million
     (pretax)  as of March 31, 2000 and $(189)  million  (pretax) as of December
     31, 1999.

Note 8.  Accounting Matters

     In June  1999,  the  FASB  issued  SFAS  137,  "Accounting  for  Derivative
Instruments  and Hedging  Activities -- Deferral of the  Effective  Date of FASB
Statement  No.  133"  (SFAS  137) to  defer  the  effective  date  of SFAS  133,
"Accounting for Derivative  Instruments and Hedging  Activities"  (SFAS 133) for
one year.  Consequently,  SFAS 133 will be  effective  for all  fiscal  quarters
beginning  after January 1, 2001. The FASB also decided to defer by one year the
transition date regarding embedded derivatives in SFAS 133. SFAS 133 establishes
accounting  and  reporting  standards  for  derivative  instruments  and hedging
activities. It requires an entity to recognize all derivatives, within the scope
of this statement,  as assets or liabilities on the balance sheet at fair value.
Also,  derivatives  that are not hedges must be  adjusted to fair value  through
income. If a derivative is a hedge,  changes in the fair value of the derivative
will  either be offset  against  the change in fair  value of the hedged  asset,
liability  or  firm  commitment  through  earnings  or be  recognized  in  other
comprehensive income until the hedged item is recognized in earnings,  depending
on the  nature  of the  hedge.  The  ineffective  portion  of a  hedge  will  be
immediately recognized in earnings.  PSEG and PSE&G are currently evaluating the
impact of SFAS 133 as part of their implementation plan.
<PAGE>
Note 9.  Comprehensive Income

Comprehensive Income, Net of Tax:
<TABLE>
<CAPTION>

                                                                                       Quarter Ended March 31,
                                                                                   -----------------------------
                                                                                       2000             1999
                                                                                   -----------      ------------
                                                                                      (Millions of Dollars)
<S>                                                                                      <C>              <C>
     Net income..........................................................                $270             $188
     Foreign currency translation, net of tax of $(3) and
     $(14) for 2000 and 1999, respectively...............................                  28             (125)
                                                                                   -----------      ------------
          Comprehensive income...........................................                $298              $63
                                                                                   ===========      ============
</TABLE>

<PAGE>
================================================================================
                     PUBLIC SERVICE ELECTRIC AND GAS COMPANY
================================================================================

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Note 6.  Income Taxes

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

                                                                                       Quarter Ended March 31,
                                                                                   -----------------------------
                                                                                      2000             1999
                                                                                   -----------      ------------
<S>                                                                                     <C>              <C>
     Federal tax provision at statutory rate.............................               35.0%            35.0%
     New Jersey Corporate Business Tax, net of Federal benefit...........               5.9%              5.9%
     Other-- net.........................................................               0.1%              2.9%
                                                                                   -----------      ------------
          Effective Income Tax Rate......................................              41.0%             43.8%
                                                                                   ===========      ============
</TABLE>

Note 9.  Comprehensive Income

     For the  quarters  ended  March 31,  2000 and 1999,  PSE&G's  comprehensive
income equaled the consolidated net income of PSE&G.


<PAGE>


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

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     Following  are the  significant  changes  in or  additions  to  information
reported in the Public Service Enterprise Group Incorporated  (PSEG) 1999 Annual
Report on Form 10-K  affecting  the  consolidated  financial  condition  and the
results of operations of PSEG and its  subsidiaries.  This discussion  refers to
the  Consolidated  Financial  Statements   (Statements)  and  related  Notes  to
Consolidated  Financial  Statements  (Notes)  of  PSEG  and  should  be  read in
conjunction with such Statements and Notes.

Overview and Future Outlook

     Following  the  enactment  of the New Jersey  Electric  Discount and Energy
Competition Act (Energy  Competition  Act), the Board of Public  Utilities (BPU)
rendered  its summary  decision  relating  to Public  Service  Electric  and Gas
Company's (PSE&G) rate unbundling,  stranded costs and restructuring proceedings
(Summary Order) and  subsequently  issued its Final Order in these matters.  The
Energy  Competition Act, the BPU's Summary Order and Final Order and the related
BPU  proceedings  are referred to as the Energy Master Plan  Proceedings.  These
proceedings  opened the New Jersey energy markets to competition by allowing all
New  Jersey  retail  electric   customers  to  select  their  electric  supplier
commencing  August 1, 1999 and all New  Jersey  retail gas  customers  to select
their gas supplier commencing January 1, 2000.

     Also in 1999, the BPU issued its order approving  PSE&G's petition relating
to the proposed securitization  transaction for an irrevocable Bondable Stranded
Costs  Rate  Order  (Finance  Order)  to  authorize,  among  other  things,  the
imposition of a non-bypassable  transition bond charge on PSE&G's customers; the
sale of PSE&G's property right in such charge created by the Energy  Competition
Act to a  bankruptcy-remote  financing  entity;  the issuance and sale of $2.525
billion of  transition  bonds by such entity in payment  therefor,  including an
estimated $125 million of transaction costs; and the application by PSE&G of the
transition bond proceeds to retire outstanding debt and/or equity. The order was
consistent  with the  provisions  of the  Energy  Competition  Act and the Final
Order.

     As set forth in the Final Order, PSE&G has been directed to sell all of its
electric  generation-related assets and all associated rights and liabilities to
a separate  corporate  entity to be owned by PSEG. As a result,  PSEG  organized
PSEG Power LLC (Power) to acquire and manage PSE&G's electric generation-related
assets. Prior to the execution of such transfer, Power must obtain approval from
the Pennsylvania  Public Utility Commission (PPUC) to transfer PSE&G's assets in
Pennsylvania.  In 1999, the Federal Energy Regulatory Commission (FERC) approved
PSE&G's proposed sale of its generating units to Power and gave exempt wholesale
generator  (EWG)  status  to PSEG  Fossil  LLC  (Fossil)  and PSEG  Nuclear  LLC
(Nuclear).  In February  2000,  the  Nuclear  Regulatory  Commission  (NRC) gave
approval to transfer PSE&G's nuclear  licenses to Nuclear,  conditioned upon BPU
approval.

     In October  and  November  1999,  two  appeals  of the Final  Order and two
appeals of the BPU's order approving  PSE&G's petition  relating to the proposed
securitization transaction for an irrevocable Bondable Stranded Costs Rate Order
(Finance Order) were filed in the Appellate  Division of the New Jersey Superior
Court on behalf of several  customers and the Office of the Ratepayer  Advocate.
On April 13, 2000, a three-judge panel unanimously  affirmed the Final Order and
Finance  Order.  On May 2,  2000,  one of the  appellants  filed a notice of its
intention to request the New Jersey  Supreme Court to exercise its discretion to
review the unanimous  Appellate Division  decision.  The brief of the appellant,
specifying  the issues to be reviewed  and the  reasons  why the  Supreme  Court
should consider its request, must be filed with the Court not later than May 15,
2000. On May 5, 2000,  PSE&G filed a Notice of Motion for  Accelerated  Briefing
and  Disposition  of the Petition for  Certification  which,  if granted,  would
require all briefing to be completed by May 30, 2000.  While PSE&G believes that
the Court is not  reasonably  likely to exercise  its  discretion  to review the
Appellate Division decision and that the securitization  transaction is expected
to be completed by or around the end of the second quarter of 2000,  followed by
the  generation-related  asset sale, no assurances can be given as to the timing
or outcome of such matters.

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

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

Results of Operations
<TABLE>
<CAPTION>


                                                              Earnings (Losses)
                                                        -------------------------------
                                                                Quarter Ended
                                                                  March 31,
                                                        -------------------------------
                                                            2000               1999
                                                        ------------       ------------
                                                             (Millions of Dollars)
<S>                                                          <C>                <C>
      PSE&G.......................................           $ 248              $ 169
      Energy Holdings.............................              25                 19
      PSEG*.......................................              (3)                --
                                                        ------------       ------------
            Total PSEG............................          $ 270               $ 188
                                                        ============       ============



</TABLE>

<TABLE>
<CAPTION>

                                                          Contribution to Earnings
                                                                  Per Share
                                                             (Basic and Diluted)
                                                        -------------------------------
                                                                Quarter Ended
                                                                  March 31,
                                                        -------------------------------
                                                            2000               1999
                                                        ------------       ------------
<S>                                                          <C>               <C>
      PSE&G.......................................           $ 1.15            $ 0.76
      Energy Holdings.............................             0.11              0.09
      PSEG*.......................................            (0.01)               --
                                                        ------------       ------------
            Total PSEG............................           $ 1.25            $ 0.85
                                                        ============       ============

       * Interest on certain financing transactions.

</TABLE>
     Basic and diluted  earnings per share of PSEG common stock  (Common  Stock)
were $1.25 for the quarter  ended March 31,  2000,  representing  an increase of
$0.40 or 47% per share from the comparable 1999 period.

     PSE&G's  contribution to earnings per share of Common Stock for the quarter
ended March 31, 2000 increased $0.39 or 51% from the comparable 1999 period. The
increase  for the  quarter  ended  March  31,  2000 was  primarily  due to lower
expenses,  including  lower  Electric  Energy Costs and lower  depreciation  and
amortization   resulting   from   the   lower   net  book   value   of   PSE&G's
generation-related  assets  and  the  amortization  of the  Excess  Depreciation
Reserve beginning in January 2000. Also contributing to the increase were higher
electric  and gas  margins.  Lower  electric  energy  costs  driven  by the high
capacity  factors of PSE&G's nuclear units,  combined with the continued  strong
results of PSE&G's  wholesale  trading  operations  more than offset the 5% rate
reduction in electric rates.

     Energy Holdings' contribution to earnings per share of Common Stock for the
quarter ended March 31, 2000  increased  $0.02 or 22% from the  comparable  1999
period,  primarily due to higher income from Resources'  investment portfolio in
the first quarter of 2000.

     As a result of PSEG's  stock  repurchase  program  which began in September
1998,  earnings per share of Common  Stock for the quarter  ended March 31, 2000
increased $0.04 from the comparable 1999 period.  A total of 15.8 million shares
were  repurchased  at a cost of $607 million  under this program as of March 31,
2000.
<PAGE>
PSE&G -- Revenues

     Electric

     Revenues  decreased $4 million or 0.4% for the quarter ended March 31, 2000
from the comparable  period in 1999 primarily due to the 5% rate reduction which
decreased  generation revenues by approximately $46 million.  The rate reduction
was  substantially  offset by increased sales resulting from the strength of the
New  Jersey  economy  combined  with  increased  trading   revenues.   Once  the
securitization  transaction  is complete,  there will be an  additional  2% rate
reduction.  In addition,  future  customer  migration  from PSE&G could  further
reduce future basic generation  service (BGS) revenues.  However,  such customer
migration also creates the  opportunity  to sell  available  energy and capacity
into the wholesale market. As of March 31, 2000 third party suppliers had gained
approximately  11% of the customer  load  traditionally  served by PSE&G.  Also,
since  PSE&G's  distribution   customers  have  the  ability  to  change  energy
suppliers,  the potential return of migrated customers to PSE&G during high cost
summer periods could have a material adverse effect on Power and PSEG.

     Gas

     Revenues  increased  $47 million or 7% for the quarter ended March 31, 2000
from  the  comparable  period  in 1999 due to  several  factors,  including  the
strength of the New Jersey  economy.  Additional  customer  migration due to the
opening  of full  competition  in 2000 could  further  reduce  future  revenues.
However,  since PSE&G earns income through the  distribution  of gas rather than
the sale of the  commodity,  net  income  would  not be  affected  by  customers
choosing another supplier.

PSE&G -- Expenses

     Electric Energy Costs

     Electric  Energy Costs  decreased  $16 million or 7% for the quarter  ended
March 31, 2000 from the comparable 1999 period primarily due to lower generation
costs due to the high capacity factors of PSE&G's nuclear units and lower prices
for power purchases beginning in August 1999.

     Gas Costs

     As a result of the  increase in gas  revenues  discussed  above,  Gas Costs
increased  $33  million  or 8% for the  quarter  ended  March 31,  2000 from the
comparable 1999 period.

     Depreciation and Amortization

     Depreciation and Amortization  expense decreased $84 million or 49% for the
quarter ended March 31, 2000 from the comparable  1999 period.  The decrease was
primarily  due to lower net book value  balances  of PSE&G's  generation-related
assets  which  were  reduced  as of April 1, 1999 as a result of the  impairment
recorded   pursuant  to  SFAS  121,   resulting  in  reduced   depreciation   by
approximately  $60 million for the quarter  ended March 31, 2000.  Additionally,
for the quarter ended March 31, 2000, the  amortization  of the excess  electric
distribution  depreciation reserve,  which commenced on January 1, 2000, reduced
expenses by  approximately  $32 million  for the quarter  ended March 31,  2000.
These  decreases  were  partially  offset  by  higher   depreciation  rates  for
generation-related  assets and higher  depreciation  expenses related to capital
additions to the transmission and distribution business.

     Once the  securitization  transaction  is complete,  the  regulatory  asset
recorded for PSE&G's  stranded  costs will be amortized  with such  amortization
expense partially offsetting these decreases.
<PAGE>
     Income Taxes

     Income Taxes  increased  $41 million or 31% for the quarter ended March 31,
2000 from the comparable 1999 period,  primarily due to higher pretax  operating
income.

Energy Holdings -- Earnings
<TABLE>
<CAPTION>


                                                                                  Quarter Ended
                                                                                    March 31,
                                                                          --------------------------------
                                                                             2000               1999
                                                                          -------------      -------------
                                                                              (Millions of Dollars)
<S>                                                                             <C>                 <C>
Earnings Before Interest, Taxes and Preferred Dividends:
     Resources..................................................                $62                 $43
     Global.....................................................                 26                  18
     Energy Technologies........................................                 (8)                 (3)
                                                                          -------------      -------------
          Sub-total.............................................                 80                  58
Interest, Taxes and Preferred Dividends.........................                 55                  39
                                                                          -------------      -------------
Total Energy Holdings Earnings..................................                $25                 $19
                                                                          =============      =============
</TABLE>

Energy Holdings -- Revenues

     Revenues  increased  $86 million to $215  million from $129 million for the
quarter  ended  March 31,  2000 as  compared  to the same  period  in 1999.  The
increase was due to an increase of $19 million at Resources due to higher income
from  financial   investments   and  higher  income  from  new  leveraged  lease
investments,  a $56 million increase at Energy  Technologies due to the addition
of revenues from  acquisitions of various HVAC companies in 1999 and 2000 and an
$11 million  increase at Global  primarily  due to the addition of revenues from
distribution  company  investments in Chile and Peru.  Global's revenue includes
its share of the net income from joint ventures recorded under the equity method
of accounting.

Energy Holdings -- Operating Expenses

     Operating  expenses  increased $62 million to $136 million from $74 million
for the quarter ended March 31, 2000 as compared to the same period in 1999. The
increase  was  primarily  due to the  addition of  operating  expenses  from the
entities acquired by Energy  Technologies in 1999 and 2000. In addition,  Energy
Technologies will discontinue buying and selling natural gas and electricity and
has  entered  into a  business  arrangement  with a third  party to  provide  an
internet-based  auction exchange that will allow customers an alternative method
for  purchasing  their  energy  requirements.  As a  result  of this  change  in
strategic  direction,  Energy  Technologies  recognized  a charge  to  income of
approximately $7 million relating to severance costs and the write-down of fixed
assets.

Energy Holdings -- Interest Expense and Preferred Dividends

     Interest  Expense  and  Preferred  Dividends  increased  $16 million to $41
million from $25 million for the quarter ended March 31, 2000 as compared to the
same period in 1999. The increase was primarily due to financing 1999 investment
and acquisition activities.
<PAGE>
Liquidity and Capital Resources

     PSEG and PSE&G

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

     On September 17, 1999,  the BPU issued its Finance Order which  authorized,
among other things, the imposition of a non-bypassable transition bond charge on
PSE&G's customers;  the sale of PSE&G's property right in such charge created by
the Energy Competition Act to a bankruptcy-remote financing entity; the issuance
and sale of $2.525 billion of transition  bonds by such entity as  consideration
for such  property  right,  including an estimated  $125 million of  transaction
costs;  and the  application by PSE&G of the transition  bond proceeds to retire
outstanding  debt and/or  equity.  PSEG and PSE&G expect such sale of transition
bonds and the receipt of proceeds in 2000.

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

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

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

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

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

     During the twelve  months  ended March 31,  2000,  $200 million of Mortgage
Bonds  matured and $322  million of Mortgage  Bonds were  purchased  in the open
market. At March 31, 2000, PSE&G had a total of $3.627 billion of Mortgage Bonds
outstanding,  of which  $2.835  billion are taxable  registered  Mortgage  Bonds
subject to the special  redemption  provisions  outlined in Option 3 (Redeemable
Bonds).  Approximately  $523 million of these  Redeemable Bonds are scheduled to
mature by June 30, 2000.  Further,  $777  million of the  Mortgage  Bonds
outstanding  are  tax-exempt  Pollution  Control  Bonds and $15  million are two
series of taxable  coupon  Mortgage Bonds due 2037 (Coupon  Bonds).  Neither the
Pollution  Control  Bonds  nor the  Coupon  Bonds  are  subject  to the  special
redemption provisions outlined in Option 3.
<PAGE>
     PSE&G has not yet made a final  decision as to the amount and the manner in
which it will retire or redeem its Mortgage Bonds.  Such a decision will be made
on or about  the  time  the  proceeds  from  securitization  and the sale of the
generation-related  assets to Power are deposited with the Trustee, on the basis
of market  conditions and other factors  existing at that time (see Overview and
Future  Outlook).  Based on current  information,  a likely  utilization  of the
options available to PSE&G, as noted above, could be as follows:

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

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

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

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

     B.   Withdraw  the  proceeds  ($2.4  billion  to  $2.8  billion)  from  the
          generation-related  asset sale to Power under Option 1. These proceeds
          will be used to reduce PSE&G common and/or preferred securities.

     As previously reported, in anticipation of securitization,  PSEG's Board of
Directors  has  authorized  the  repurchase  of up to an aggregate of 30 million
shares  of  Common  Stock  in the  open  market.  At March  31,  2000,  PSEG had
repurchased  approximately  15.8 million  shares of Common  Stock,  at a cost of
approximately  $607 million.  The repurchased  shares have been held as treasury
stock  or used  for  other  corporate  purposes.  At April  30,  2000,  PSEG had
repurchased  approximately  16.1  million  shares of  Common  Stock at a cost of
approximately  $617  million.  In December  1999,  PSEG  entered  into a Forward
Purchase Agreement with a third party. The transaction may be settled in cash or
with  shares  of  Common  Stock.  Any  repurchase  of these  shares  will not be
reflected on PSEG's balance sheet until  settlement of the transaction  which is
expected in the second quarter of 2000.  Market  conditions and the availability
of alternative  investments will dictate if and when more shares of Common Stock
will be repurchased under this authorization.

     Going forward,  cash generated from PSE&G's regulated  business is expected
to provide  the  majority  of the funds for PSE&G's  business  needs.  Following
Power's initial  external  financing,  Power's capital needs will be funded with
cash generated from operations and may be supplemented with external  financings
and  equity  infusions  from PSEG as  dictated  by its growth  strategy.  Energy
Holdings'  growth will be funded through external  financings,  equity infusions
from PSEG and cash generated from operations.

     Dividend  payments  on Common  Stock  were  $0.54  per  share  and  totaled
approximately  $117 million and $120 million during the three months ended March
31, 2000 and 1999,  respectively.  PSEG has not  increased  its dividend rate in
eight years in order to retain additional capital for reinvestment and to reduce
its payout  ratio as earnings  grow.  Since 1986,  PSE&G has made  regular  cash
payments  to PSEG in the form of  dividends  on  outstanding  shares of  PSE&G's
common stock. PSE&G paid common stock dividends of $217 million and $277 million
to PSEG during the three  months  ended  March 31, 2000 and 1999,  respectively.
These amounts were used to fund PSEG's  Common Stock  dividends and to support a
portion of PSEG's stock repurchase program.

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

     As a result  of the 1992  focused  audit of PSEG's  non-utility  businesses
(Focused  Audit),  the BPU approved a plan which,  among other things,  provided
that:  (1) PSEG would not permit Energy  Holdings'  non-utility  investments  to
exceed 20% of PSEG's  consolidated  assets  without prior notice to the BPU; (2)
the PSE&G Board of  Directors  would  provide an annual  certification  that the
business and financing plans of Energy Holdings will not adversely affect PSE&G;
(3) PSEG would (a) limit debt  supported  by the minimum  net worth  maintenance
agreement  between  PSEG and PSEG  Capital  Corporation  (PSEG  Capital) to $650
million and (b) make a  good-faith  effort to  eliminate  such  support by April
2003; and (4) Energy  Holdings  would pay PSE&G an  affiliation  fee of up to $2
million a year to be applied by PSE&G to reduce utility rates.  Energy  Holdings
believes it is capable of  eliminating  PSEG support of PSEG Capital debt within
the time period set forth in the Focused Audit.
<PAGE>
     As a result of the final outcome and the accounting  impacts resulting from
the  deregulation of the electric  generation  business in New Jersey,  PSEG and
PSE&G do not believe that the Focused Audit provision requiring  notification to
the BPU if PSEG's  non-utility  assets  exceed  20% of its  consolidated  assets
remains appropriate and believe that modifications will be required (such assets
at March 31, 2000 totaled  approximately 24% of PSEG's consolidated assets). The
Final Order addressed the Focused Audit, noting that PSEG's non-regulated assets
would  likely  exceed 20% of total PSEG  assets  once the  utility's  generating
assets were sold to a  non-regulated  subsidiary  and  directed  PSE&G to file a
petition  with the BPU to maintain  the  existing  regulatory  parameters  or to
propose  modifications  to the Focused  Audit order no later than the end of the
first quarter of 2000. The Final Order also recognized  that, due to significant
changes in the industry  and, in  particular,  PSEG's  corporate  structure as a
result of the Final  Order,  modifications  to or relief from the Focused  Audit
might be warranted.  In March 2000,  PSE&G  submitted a letter to the BPU as its
initial  compliance with this filing requirement in which it notified the BPU of
its  intention to make a filing to modify the terms of the Focused  Audit within
120 days after the Final Order becomes final and non-appealable.

     Regulatory  oversight by the BPU to ensure that there is no harm to utility
customers from PSEG's non-utility  investments is expected to continue. PSEG and
PSE&G  believe that these issues will be  satisfactorily  resolved,  although no
assurances  can be given.  In addition,  if PSEG were no longer exempt under the
Public Utility Holding Company Act (PUHCA),  PSEG and its subsidiaries  would be
subject  to  additional  regulation  by the SEC with  respect to  financing  and
investing activities,  including the amount and type of non-utility investments.
PSEG believes,  however,  that this would not have a material  adverse impact on
PSEG and its subsidiaries.

Capital Requirements

     PSE&G (including Power)

     PSE&G  has  substantial  commitments  as part of its  ongoing  construction
program.  PSE&G's construction program is continuously reviewed and periodically
revised as a result of changes in economic  conditions,  revised load forecasts,
business   strategies,   site  changes,   cost  escalations  under  construction
contracts,  requirements  of regulatory  authorities and laws, the timing of and
amount of electric and gas transmission and/or distribution rate changes and the
ability of PSE&G to raise necessary capital.

     In 2000, Power announced that it will construct a 500 MW natural gas-fired,
combined-cycle  electric generating plant at Bergen Generating Station at a cost
of approximately $290 million with completion  expected in June 2002. Power will
also install four new combustions turbines at Burlington  Generating Station and
two new combustion turbines at Linden Generating Station,  adding 186 MW and 164
MW, respectively,  of electric generating  capacity,  at a cost of approximately
$155  million.  The new  combustion  turbines are  expected to be installed  and
operational  by July 2000.  Project  costs  through  March 31, 2000 totaled $138
million.

     On October 6, 1999,  Power announced an agreement with Niagara Mohawk Power
Corporation  (Niagara Mohawk), to purchase its 400 MW oil and gas-fired electric
generating station in Albany, New York (Albany Steam Station) for $47.5 million.
On  September  30,  1999,  Power  announced  that it has signed an  agreement to
acquire all of  Conectiv's  interests in the Salem  Nuclear  Generating  Station
(Salem) and the Hope Creek Nuclear  Generating  Station (Hope Creek) and half of
Conectiv's  interest in the Peach Bottom  Atomic Power Station  (Peach  Bottom),
totaling 544 MW for an aggregate  purchase  price of $15.4  million plus the net
book value of nuclear  fuel at  closing.  For  further  discussion,  see Note 4.
Commitments and Contingent Liabilities of Notes.

     For the quarter ended March 31, 2000 PSE&G had net plant  additions of $110
million,  excluding  Allowance  for Funds Used  During  Construction  (AFDC) and
capitalized interest, a $31 million increase from the corresponding 1999 period.
<PAGE>
     Energy Holdings

         Global

     In  February  2000,  Global and its 50% partner  completed  a $329  million
project financing for a 1,000 MW gas-fired  combined-cycle  electric  generation
facility  to be  located  in  Texas.  The  facility  is under  construction  and
commercial  operation  is  expected in 2001.  The total cost of the  facility is
estimated to be approximately $528 million, of which Global's equity investment,
including loans and guarantees, is estimated to be approximately $190 million.

         Resources

     In  January  and  February  2000,  Resources  invested  $73  million in two
leveraged  lease  transactions  including  a  gas  distribution  system  in  the
Netherlands and an electric power plant in the United States.

         Energy Technologies

     In January 2000, Energy  Technologies  acquired two mechanical  contracting
companies in  Pennsylvania  and New York for an aggregate cost of  approximately
$21 million.

External Financings

     PSEG

     At March 31,  2000,  PSEG had a committed  $150  million  revolving  credit
facility which expires in December 2002. At March 31, 2000, PSEG had $60 million
outstanding  under this revolving  credit  facility.  On September 8, 1999, PSEG
entered into an uncommitted line of credit with a bank for an unlimited  amount.
At March 31, 2000, PSEG had $105 million outstanding under this line of credit.

     On March 22, 2000, PSEG entered into an $850 million bank credit  facility,
structured as a $570 million 364 day credit  agreement and a $280 million 5 year
credit  agreement.  The sole  purpose  of this  credit  facility  is to  provide
liquidity for the newly  established $850 million PSEG commercial paper program.
PSEG is expected to begin issuing  commercial paper on May 1, 2000. The proceeds
from the commercial  paper program will be used for general  corporate  purposes
and, until  securitization  proceeds are received,  will  temporarily fund share
repurchases and Power.

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

     Also in 1998, PSEG issued $175 million of Extendible  Notes,  Series B, due
November 22, 2000.  These Notes were  automatically  tendered to the remarketing
agent for  remarketing in November 1999. The interest rate is at the three-month
LIBOR plus 0.60%, reset quarterly. These Notes will be automatically tendered to
the remarketing agent for remarketing in May 2000.

     In 1999, PSEG issued $300 million of Extendible  Notes,  Series C, due June
15, 2001. These Notes were  automatically  tendered to the remarketing agent for
remarketing  in March 2000.  The  interest  rate  through  September  2000 is at
three-month LIBOR plus 0.20% reset quarterly.  These Notes will be automatically
tendered to the remarketing agent for remarketing in September 2000.
<PAGE>
     PSE&G

     In addition to the refinancing of existing long-term debt authorized by the
BPU in the Final Order, PSE&G will need to obtain BPU authorization to issue any
incremental debt financing  necessary for its capital program.  PSE&G expects to
apply for and receive  necessary BPU  authorization  for external  financings to
meet its requirements over the next five years, as needed.

     On February  1, 2000,  $100  million of PSE&G's  7.625%  Bonds,  Series II,
matured.

     To provide  liquidity for its commercial  paper program,  PSE&G has an $850
million  revolving  credit  agreement  expiring in June 2000 and a $650  million
revolving credit agreement  expiring in June 2002, The latter will be reduced by
a minimum of $200  million  within 60 days after the sale of  generation-related
assets to Power.  These agreements are with a group of commercial  banks,  which
provide for  borrowings of up to one year.  As of March 31, 2000,  there were no
borrowings outstanding under these credit agreements.

     The BPU has authorized  PSE&G to issue and have outstanding at any one time
through  January 2, 2001, not more than $2.0 billion of short-term  obligations,
consisting of commercial  paper and other  unsecured  borrowings  from banks and
other  lenders.  PSE&G has several  uncommitted  lines of credit with banks.  On
March 31, 2000, PSE&G had $838 million of short-term debt outstanding, including
$130 million borrowed against its uncommitted bank lines of credit.

     PSE&G Fuel Corporation (Fuelco) has a $125 million commercial paper program
to finance a 42.49%  share of Peach  Bottom  nuclear  fuel,  supported by a $125
million  revolving credit facility with a group of banks,  which expires on June
28, 2001.  PSE&G has  guaranteed  repayment of Fuelco's  respective  obligations
under this program.  As of March 31, 2000,  Fuelco had  commercial  paper of $67
million outstanding.  After the purchase of PSE&G's generation-related assets is
completed,  it is  anticipated  that Fuelco's  commercial  paper program will be
discontinued  and financing of Peach Bottom  nuclear fuel will be funded through
Power.

     Energy Holdings

     In February  2000,  Energy  Holdings  issued $300 million of 9.125%  Senior
Notes due February 2004. The proceeds of the sale were used for the repayment of
short-term debt outstanding under Energy Holdings'  revolving credit facilities.
Borrowings  under  the  revolving   credit   facilities  were  used  to  finance
investments and acquisitions and for general corporate purposes. Energy Holdings
expects to file a  registration  statement  with the SEC relating to an exchange
offer for, or the resale of, these Senior Notes later in 2000.

     Also in February 2000,  Energy  Holdings closed on a $190 million letter of
credit facility to support a future equity investment in a generation project in
Texas.

     In October 1999,  Energy Holdings issued $400 million of 10.0% Senior Notes
due October 2009.  The proceeds  were used for the repayment of short-term  debt
outstanding under Energy Holdings' revolving credit facilities. Borrowings under
the  revolving   credit   facilities  were  used  to  finance   investments  and
acquisitions  and for  general  corporate  purposes.  In  January  2000,  Energy
Holdings  filed a  registration  statement  with the SEC relating to an exchange
offer for these Senior Notes.

     At March 31,  2000,  Energy  Holdings  had total debt  outstanding  of $1.8
billion,   including  debt  at  PSEG  Capital  and  consolidated  debt  that  is
non-recourse  to PSEG,  Energy  Holdings  and Global.  At March 31,  2000,  PSEG
Capital had total debt  outstanding of $630 million,  all of which was comprised
of MTNs with maturities between 2000 and 2003.

<PAGE>
Foreign Operations

     In accordance with their growth strategies,  Global and Resources have made
approximately  $1.5 billion and $1.1  billion,  respectively,  of  international
investments.  As of March 31, 2000,  foreign  investments  represented  13.4% of
PSEG's   consolidated   assets  and  contributed  2.5%  of  first  quarter  2000
consolidated  revenues. For discussion of the foreign currency risk, see Note 5.
Financial Instruments and Risk Management of Notes.

PSE&G

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

Forward Looking Statements

     Except for the  historical  information  contained  herein,  certain of the
matters discussed in this report constitute "forward-looking  statements" within
the  meaning of the  Private  Securities  Litigation  Reform  Act of 1995.  Such
forward-looking  statements are subject to risks and  uncertainties  which could
cause  actual  results  to  differ  materially  from  those  anticipated.   Such
statements are based on management's  beliefs as well as assumptions made by and
information  currently  available to  management.  When used  herein,  the words
"will",  "anticipate",   "intend",  "estimate",   "believe",  "expect",  "plan",
"hypothetical",  "potential",  variations of such words and similar  expressions
are intended to identify forward-looking statements. PSEG 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 following review
of factors  should not be construed as exhaustive or as any admission  regarding
the adequacy of  disclosures  made by PSEG and PSE&G prior to the effective date
of the Private Securities Litigation Reform Act of 1995.

     In addition to any assumptions  and other factors  referred to specifically
in connection with such forward-  looking  statements,  factors that could cause
actual   results  to  differ   materially   from  those   contemplated   in  any
forward-looking  statements include,  among others, the following:  deregulation
and the unbundling of energy  supplies and services and the  establishment  of a
competitive  energy  marketplace  for products and  services;  managing  rapidly
changing wholesale energy trading operations in conjunction with electricity and
gas  production,   transmission  and  distribution  systems;   managing  foreign
investments  and electric  generation and  distribution  operations in locations
outside of the  traditional  utility  service  territory;  political and foreign
currency risks; an increasingly competitive energy marketplace;  sales retention
and growth  potential in a mature PSE&G service  territory;  ability to complete
development  or  acquisition  of current  and future  investments;  partner  and
counterparty risk;  exposure to market price fluctuations and volatility of fuel
and power supply, power output, marketable securities,  among others; ability to
obtain  adequate  and timely rate relief,  cost  recovery,  and other  necessary
regulatory approvals;  ability to obtain securitization proceeds; Federal, state
and foreign regulatory actions; regulatory oversight with respect to utility and
non-utility   affiliate  relations  and  activities;   operating   restrictions,
increased  cost  and   construction   delays   attributable   to   environmental
regulations;  nuclear decommissioning and the availability of storage facilities
for spent nuclear fuel;  licensing and regulatory approval necessary for nuclear
and other operating  stations;  the ability to  economically  and safely operate
nuclear  facilities in accordance  with regulatory  requirements;  environmental
concerns;  and market risk and debt and equity market  concerns  associated with
these issues.
<PAGE>

                      ITEM 3. QUALITATIVE AND QUANTITATIVE
                          DISCLOSURES ABOUT MARKET RISK

     The market risk inherent in PSEG's market risk  sensitive  instruments  and
positions  is the  potential  loss  arising  from  adverse  changes in commodity
prices,  pollution credits,  equity security prices,  interest rates and foreign
currency exchange rates as discussed below.  PSEG's policy is to use derivatives
to manage risk  consistent with its business plans and prudent  practices.  PSEG
has a Risk Management  Committee  comprised of executive officers which utilizes
an  independent  risk  oversight  function to ensure  compliance  with corporate
policies and prudent risk management practices.

     PSEG is  exposed  to  credit  losses  in the  event of  non-performance  or
non-payment by  counterparties.  PSEG also has a credit management process which
is used to assess,  monitor and mitigate  counterparty exposure for PSEG and its
subsidiaries.  In  the  event  of  non-performance  or  non-payment  by a  major
counterparty,  there  may  be a  material  adverse  impact  on  PSEG's  and  its
subsidiaries' financial condition,  results of operations or net cash flows. For
discussion of interest rates and Energy Holdings' commodity-related instruments,
equity securities and foreign currency risks, see Note 5. Financial  Instruments
and Risk Management of Notes.

     Commodity-Related Instruments

     The   availability   and  price  of  energy   commodities  are  subject  to
fluctuations from factors such as weather,  environmental  policies,  changes in
supply and demand and state and Federal  regulatory  policies.  To reduce  price
risk caused by market  fluctuations,  PSE&G  enters into  derivative  contracts,
including forwards, futures, swaps and options with approved counterparties,  to
hedge its  anticipated  demand.  These  contracts,  in  conjunction  with  owned
electric generating capacity and physical gas supply contracts,  are designed to
cover estimated electric and gas customer commitments.

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

     The measured  value-at-risk using a  variance/co-variance  model with a 95%
confidence   level  over  a  one-week   time  horizon  at  March  31,  2000  was
approximately $8 million, compared to the December 31, 1999 level of $3 million.
PSEG's calculated  value-at-risk  represents an estimate of the potential change
in the value of its portfolio of physical and financial derivative  instruments.
These  estimates,  however,  are not  necessarily  indicative of actual results,
which may differ due to the fact that actual market rate fluctuations may differ
from forecasted  fluctuations  and due to the fact that the portfolio of hedging
instruments may change over the holding period.

     Foreign Currencies--Energy Holdings

     For discussion of foreign currency risks, see Note 5. Financial Instruments
and Risk Management of Notes.
<PAGE>


                           PART II. OTHER INFORMATION

                            ITEM 1. LEGAL PROCEEDINGS

     Certain  information  reported  under  Item 3 of Part I of  Public  Service
Enterprise  Group  Incorporated's  (PSEG) and Public  Service  Electric  and Gas
Company's (PSE&G) 1999 Annual Report on Form 10-K is updated below.

(1)  Form 10-K, page 27. In the matter of G.E.  Stricklin v. I. Lerner,  et.al.,
     Civil Action No.  99-1950,  on March 29, 2000,  the Third  Circuit Court of
     Appeals  issued an order  affirming  the  lower  courts  dismissal  of this
     action.

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

(3)  Form 10-K,  pages 8, 27, 34 and 69. See Pages 9 and 17. Appeals of the BPUs
     Final Order and Finance Order in the Energy Master Plan Proceedings.

(4)  Form  10-K,  pages 27 and 85.  See Page 11.  Investigation  and  additional
     investigation by the U.S.  Environmental  Protection Agency (EPA) regarding
     the Passaic River site.


                       ITEM 4. SUBMISSION OF MATTERS TO A
                            VOTE OF SECURITY HOLDERS

     PSEG's Annual Meeting of Stockholders  was held on April 18, 2000.  Proxies
for the meeting were  solicited  pursuant to Regulation 14A under the Securities
Act of 1934.  There was no solicitation of proxies in opposition to management's
nominees as listed in the proxy statement and all of management's  nominees were
elected to the Board of Directors. Details of the voting are provided below:

<TABLE>
<CAPTION>

                                                                         Votes                Votes
                                                                          For               Withheld
                                                                    ----------------    -----------------
<S>                                                                   <C>                   <C>
Proposal 1 - Election of Directors
     Class I - Term expiring 2003
          Ernest H. Drew                                              173,431,000           4,464,737
          E. James Ferland                                            173,367,655           4,528,082
          Marilyn M. Pfaltz                                           173,376,996           4,518,741
     Class II - Term Expiring 2001
          Forrest J. Remick                                           173,380,142           4,515,595


                                                                         Votes                Votes
                                                                          For                Against          Abstentions
                                                                    ----------------    -----------------    --------------
Proposal 2 - Ratification of the Appointment of
Deloitte & Touche LLP as Independent Auditors for 2000                175,602,560            819,101           1,474,076

</TABLE>


With respect to Proposal 2,  abstentions are not counted in the vote totals and,
therefore, have no effect on the vote.
<PAGE>
                            ITEM 5. OTHER INFORMATION

     Certain information reported under PSEG's and PSE&G's 1999 Annual Report to
the SEC is updated  below.  References are to the related pages on the Form 10-K
as printed and distributed.

Prevention of Significant Deterioration/New Source Review

     New Matter.  In April 2000,  PSE&G received a request for information  from
the EPA and the NJDEP  pursuant  to  section  114 of the  Clean Air Act  seeking
information  concerning  its Hudson  Generation  Station  and Mercer  Generation
Station to assess those  stations'  compliance  with the EPA's  regulations  for
Prevention of  Significant  Deterioration/New  Source Review.  Generally,  these
regulations  require major sources of criteria air pollutants to obtain permits,
install  pollution control  technology and obtain offsets in some  circumstances
when  those  sources  undergo  a  "major   modification,"   as  defined  in  the
regulations.  PSE&G is  collecting  information  responsive  to the  request and
cannot predict the outcome of the EPA/ NJDEP inquiry.

Service Company Filing

     New Matter.  On April 20,  2000,  PSE&G filed a petition  with the BPU, for
approval  of  centralizing  corporate  support  services  in a separate  service
company named PSEG Services Corporation, a direct subsidiary of PSEG. The filing
specifically  requests BPU approval of a) the transfer of assets/contracts  from
PSE&G to PSEG Services  Corporation and b) a service agreement between PSE&G and
PSEG Services Corporation.

PJM Interconnection LLC (PJM)

     Form 10-K,  page 12.  Beginning on June 1, 2000 the PJM Energy  Market will
transition from a Single  Settlement  System to a Two Settlement  System. In the
Two  Settlement  System  market  participants  will have the option to "lock in"
day-ahead  scheduled  quantities at prices based upon predicted day-ahead hourly
locational  marginal  price (LMP) values (Day Ahead  Settlement).  Actual demand
will be satisfied  through a real time  balancing  market  based upon  real-time
hourly  average LMP  values.  PJM advises  that the Two  Settlement  System will
provide:  (i)  a  means  for  market  participants  to  obtain  increased  price
certainty; (ii) financial incentive for resources and demand to submit day-ahead
schedules  that match their actual  schedules;  (iii)  financial  incentive  for
generation to follow real-time  dispatch.  Management  cannot predict the effect
that the  implementation  of the Two Settlement  System in the PJM Energy Market
will have on Electric Energy Costs or the resulting  effect on PSEG's or PSE&G's
financial condition, results of operations or net cash flows.

Metering, Billing and Account Services

     Form 10-K, page 8. In accordance with the Energy  Competition  Act, the BPU
has  initiated  a  proceeding  to  determine  the  timeline  and extent to which
metering,  billing and customer services may become competitive,  along with the
specific functions and costs that must be considered when it evaluates the issue
of competition  for these  services.  A decision is expected in August 2000. The
Company cannot predict the outcome of the proceeding.

Affiliate Standards

     Form  10-K,  page 9. On March 15,  2000,  the BPU  issued a  written-order,
Affiliate  Relations,  Fair  Competition  and  Accounting  Standards and Related
Reporting  Requirements  (Affiliate  Standards),   as  required  by  the  Energy
Competition Act. As a result of these Affiliate Standards,  PSE&G is required to
file a compliance plan,  within 90 days of the issuance of the written order, to
describe the internal policy and procedures  necessary to ensure compliance with
such  Affiliate  Standards.  The BPU  will  subsequently  conduct  an  audit  of
utilities'  competitive activities and compliance with such Affiliate Standards.
Management  believes  that the adoption of Affiliate  Standards  will not have a
material  adverse effect on PSEG's or PSE&G's  financial  condition,  results of
operations or net cash flows.
<PAGE>

                    ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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


                         PSEG
  --------------------------------------------------------
    Exhibit    Document
    Number
  --------------------------------------------------------
      12       Computation of Ratios of Earnings to Fixed
               Charges (PSEG)

     27(A)     Financial Data Schedule (PSEG)



                         PSE&G

 ---------------------------------------------------------
   Exhibit     Document
   Number
 ---------------------------------------------------------

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

     12(B)     Computation of Ratios of Earnings to Fixed

     27(B)     Financial Data Schedule (PSE&G


(B) Reports on Form 8-K

    None.


                                   SIGNATURES
                                   ----------

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


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


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





Date: May 5, 2000