EMPLOYMENT AGREEMENT


                  AGREEMENT,  by and between  Public  Service  Enterprise  Group
Incorporated,  a New Jersey Corporation ("Enterprise") and E. James Ferland (the
"Executive"), dated as of June 16, 1998.

                  WHEREAS, the Executive is currently serving as Chairman of the
Board,  President and Chief Executive Officer of Enterprise,  and as Chairman of
the  Board  and Chief  Executive  Officer  of its  subsidiaries  Public  Service
Electric and Gas Company ("PSE&G"),  a New Jersey  corporation,  and PSEG Energy
Holdings  Inc.  ("Energy  Holdings"),   a  New  Jersey  corporation,   all  such
corporations hereinafter collectively referred to as the "Company".

                  WHEREAS,  the  Executive  is willing to commit  himself to  be
employed by the Company on the terms and conditions herein set forth; and

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

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

                  1.       General.

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

                  (b) Term. The term of the  Executive's  employment  under this
Agreement  (the  "Employment  Period") shall commence as of the date hereof (the
"Effective  Date") and shall  continue  until March 31, 2005.  If the  Executive
elects to retire prior to March 31, 2005, the Employment Period shall end on the
date of retirement.

                  2.       Position, Duties and Powers of the Executive.

                   (a) Position.  During the  Employment  Period,  the Executive
shall serve as Chairman of the Board and Chief Executive Officer of Enterprise.

                  (b) Reporting Duties and Powers. During the Employment Period,
the Executive shall report directly to the Board of Directors of Enterprise (the
"Board").  As Chief  Executive  Officer of  Enterprise,  he shall be the highest
ranking  officer  of  Enterprise  with  plenary  powers of the  supervision  and
direction of the business and affairs of  Enterprise  and its  subsidiaries  and
affiliates.

                  (c) End of  Employment  Period.  At the end of the  Employment
Period (the "Retirement  Date"), the Executive will retire from all offices held
with the  Company  and  shall be  entitled  to a  pension  unreduced  for  early
retirement  and calculated in accordance  with Section 3(f) hereof  (hereinafter
referred to as "Retirement").

                  (d) Board Membership. The Executive shall continue as a member
of and Chairman of the Board on the first day of the  Employment  Period through
the end of his current term ending with the Annual  Meeting of  Stockholders  in
2001. Thereafter,  the Board shall consider the Executive for re-election to the
Board throughout the Employment Period in accordance with its customary practice
for  nominations  to the Board,  and shall  elect him  Chairman  of the Board if
elected as a director by the shareholders.  At the end of the Employment Period,
the  Executive  may  continue  as a member of the Board  and be  considered  for
nomination for reelection to the Board thereafter on the same basis as the other
directors who are former CEOs, in accordance with the Board's customary practice
for nominations and its Retirement Policy.

                  (e) Other  Positions.  In addition to serving as Chairman  and
Chief Executive  Officer of Enterprise,  the Executive is also presently serving
as  President  of  Enterprise  and as Chairman of the Board and Chief  Executive
Officer of PSE&G and Energy Holdings. The Executive agrees to serve, if elected,
at no  additional  compensation  in the  position  of officer or director of any
direct or indirect subsidiary or affiliate of the Company.

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

                  3.       Compensation.

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

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

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

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

         (d) Stock Award.  In  consideration  of the  commitment  he will assume
during  the  Employment  Period,  the  Executive  shall be granted an award (the
"Stock  Award")  with  respect to 150,000  shares of the  Common  Stock  without
nominal or par value of  Enterprise  ("Stock"),  effective  as of the  Effective
Date,  the shares of which Stock Award shall be restricted  and shall be subject
to the following terms and conditions:

                  (i) The  shares  for the Stock  Award  shall be  purchased  by
         Enterprise  or its  agent on the open  market.  In the event any of the
         shares of the Stock Award shall be forfeited, Enterprise may apply such
         shares for its corporate purposes in its discretion.

                  (ii) The  Executive's  right to the Stock  Award shall vest in
         accordance with the following schedule, provided that the Executive has
         remained continuously employed by the Company, or its successor, during
         the Employment Period through the dates indicated below:

                       Date                     Number of Shares
                    3/31/2002                        60,000
                    3/31/2003                        20,000
                    3/31/2004                        30,000
                    3/31/2005                        40,000

         If,  during  the  Employment   Period,   the  Company   terminates  the
         Executive's  employment  for  Cause  or the  Executive  terminates  his
         employment without Good Reason, including Retirement prior to March 31,
         2005, the Executive  shall forfeit all right to all shares of the Stock
         Award that are not vested as of the Date of Termination. If, during the
         Employment   Period,   the  Company  shall  terminate  the  Executive's
         employment without Cause or the Executive terminates his employment for
         Good Reason,  or the  Executive's  Employment  terminates  by reason of
         death or Disability, the Executive's right to receive all shares of the
         Stock Award shall vest as of the Date of Termination.

         (iii)  Shares  of the  Stock  Award  will be  issued in the name of the
         Executive,  but  will be  held by  Enterprise  for the  account  of the
         Executive  together with a stock power that the Executive shall execute
         and deliver to Enterprise.  The shares shall bear a restrictive  legend
         indicating  that  they  are  subject  to  the  terms,   conditions  and
         limitations of this Agreement.

         (iv) Once  shares of the  Stock  Award  shall  vest,  Enterprise  shall
         promptly  issue to the Executive a certificate  for such shares without
         any  legend or  restriction  (other  than may be  required  by law) and
         Enterprise  shall return to the  Executive or shall destroy the related
         stock power previously executed by the Executive.

         (v) Shares of Stock held by Enterprise for the account of the Executive
         prior  to  distribution  to the  Executive  may not be  sold  assigned,
         transferred,  pledged, hypothecated or otherwise disposed of, except by
         will or the laws of  descent  and  distribution.  Any  attempted  sale,
         assignment,   transfer,   pledge,   hypothecation   or  disposition  in
         contravention of the foregoing shall be null and void and of no effect.

         (vi) Except as otherwise  provided herein, the Executive shall have all
         of the rights of a stockholder  with respect to the shares of the Stock
         Award issued in his name,  including  the right to vote the shares,  to
         receive dividends and other distributions thereon and to participate in
         any change in capitalization of Enterprise.  In the event of any change
         in capitalization resulting in the issuance of additional shares to the
         Executive,  such shares shall be subject to the same terms,  conditions
         and restrictions as the shares in respect to which they are issued, and
         the Executive  shall execute and deliver to Enterprise  stock powers in
         respect thereto.  If the Executive elects to reinvest  dividends on the
         shares of the Stock Award, or if he shall receive rights or warrants in
         respect  to any  shares of the Stock  Award,  the  shares  acquired  by
         dividend  reinvestment  or through the  exercise of rights may be held,
         sold or otherwise  disposed of by the Executive,  free and clear of any
         restrictions created by this Agreement.

         (vii)  Unless  the  shares  of the  Stock  Award  to be  issued  to the
         Executive have been  registered  pursuant to a  Registration  Statement
         under the  Securities  Act of 1933,  prior to receiving such shares the
         Executive  shall  represent  in writing to the Company that such shares
         are being  acquired for  investment  purposes  only and not with a view
         towards  the further  sale or  distribution  thereof  and shall  supply
         Enterprise  with  such  other  documentation  as  may  be  required  by
         Enterprise,  unless in the  opinion of counsel to the  Enterprise  such
         representation,  agreement or  documentation is not necessary to comply
         with  the  Securities  Act  of  1933  and  the  rules  and  regulations
         thereunder.

         (viii)  Enterprise  shall not be  required to deliver any shares of the
         Stock Award until they have been listed on each securities  exchange on
         which  shares  of  the  Stock  are  listed  or  until  there  has  been
         qualification  under or  compliance  with such state and federal  laws,
         rules or regulations  that Enterprise may deem  applicable.  Enterprise
         will use its best  efforts to obtain such  listing,  qualification  and
         compliance.

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

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

                  (f)  Retirement  Benefit.  During the Employment  Period,  the
Executive shall participate in PSE&G's Pension Plan, and also in PSE&G's Limited
Supplemental  Benefits Plan,  Mid-Career Hire Plan,  Reinstatement Plan and such
other supplemental  executive  retirement plans as may be adopted and amended by
the Company from time to time  ("SERPs"),  such that the aggregate  value of the
retirement benefits that he and his beneficiaries will receive at the end of the
Employment  Period  under  all  pension  benefit  plans of the  Company  and its
affiliates  (whether  qualified  or not) will not be less than the  benefits  he
would have received had he continued,  through the end of the Employment Period,
to participate in such plans,  as in effect  immediately  before the date hereof
and giving effect to the service  credits and payment terms set forth in Section
4 of the  employment  agreement  dated  April  16,  1986  between  PSE&G and the
Executive (the "PSE&G Employment  Agreement"),  the terms of which Section 4 are
incorporated herein by reference, and a copy of which PSE&G Employment Agreement
is attached hereto. It is agreed that the Stock Award and any dividends or other
distributions in respect of the Stock Award shall not be included in any pension
calculation.

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

                  (h)  Fringe  Benefits.   During  the  Employment  Period,  the
Executive  shall be furnished with such fringe  benefits and  perquisites as are
customary for the Chairman and Chief  Executive  Officer of a corporation of the
size and nature of the Company and shall  participate in all fringe benefits and
perquisites  available  to  senior  executives  of  the  Company  on  terms  and
conditions that are commensurate with his positions and  responsibilities at the
Company.

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

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



                  4.       Termination of Employment.

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

                  (b)      By the Company.

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

                  (ii) A termination  of the  Executive's  employment  for Cause
shall be effected in accordance with the following procedures. The Company shall
give the Executive  written notice  ("Notice of  Termination  for Cause") of its
intention to terminate the  Executive's  employment for Cause,  setting forth in
reasonable  detail the specific  conduct of the  Executive  that it considers to
constitute  Cause and the specific  provision(s)  of this  Agreement on which it
relies.  Such  notice  shall be given no  later  than 60 days  after  the act or
failure (or the last in a series of acts or failures)  that the Company  alleges
to constitute Cause. The Executive shall have 30 days after receiving the Notice
of  Termination  for Cause in which to cure such act or  failure,  to the extent
such cure is possible.  In the case of a termination under Section 4(b)(i)(A) or
Section  4(b)(i)(B),  if the Executive  fails to cure such act or failure to the
reasonable  satisfaction  of the Board,  the Company  shall give the Executive a
second written notice stating the date,  time and place of a special  meeting of
the Board  called  and held  specifically  for the  purpose of  considering  the
Executive's  termination  for Cause,  which special meeting shall take place not
less  than ten and not more  than  twenty  business  days  after  the  Executive
receives  notice  thereof,  and the  Executive  shall be  given an  opportunity,
together  with  counsel,  to be heard at the special  meeting of the Board.  The
Executive's termination for Cause shall be effective when and if a resolution is
duly adopted by the affirmative  vote of a majority of the Board stating that in
the good faith  opinion of the Board,  the  Executive  is guilty of the  conduct
described  in the  Notice  of  Termination  for  Cause  and  that  such  conduct
constitutes Cause under this Agreement.

                  (c)      Good Reason.

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

                  (A) any adverse change in the Executive's  titles,  authority,
         duties,  responsibilities  and reporting lines as specified in Sections
         2(a) and 2(b) of this Agreement,  or the assignment to the Executive of
         any duties or  responsibilities  inconsistent in any respect with those
         customarily  associated with the position of Chief Executive Officer of
         Enterprise to be held by the Executive pursuant to this Agreement;

                  (B) the  failure  by the Board to elect the  Executive  to the
         positions of Chairman and Chief Executive  Officer of Enterprise during
         the Employment Period;

                  (C) the failure by the Board to  nominate  the  Executive  for
         reelection  to  the  Board  at  any  annual  meeting  of   Enterprise's
         shareholders during the Employment Period at which the Executive's term
         as a director is scheduled to expire,  and if elected a director by the
         shareholders, to elect the Executive as Chairman of the Board;

                  (D) the  appointment at any time during the Employment  Period
         of any person other than the Executive to (x) the position specified in
         Section  2(a) or (y) any other  position  or title  conferring  similar
         status or authority;

                  (E) any  reduction in the  Executive's  salary,  target annual
         bonus, target long-term incentive or Retirement benefit;

                  (F)  any  requirement  by the  Company  that  the  Executive's
         services be rendered primarily at a location or locations other than in
         New Jersey;

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

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

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

provided that following a Change in Control which is recommended to the Board by
the  Executive,  Sections  4(c)(i)(A),  (B),  (C) and (D) shall not  permit  the
Executive  to  terminate  his  employment  for Good Reason so long as during the
remainder of the  Employment  Period,  the Board  nominates  the  Executive as a
director of the  surviving  parent  corporation,  his office with the  surviving
parent  corporation is Chairman,  Vice Chairman or President,  and his executive
position with the surviving  parent  corporation is Chief  Executive  Officer or
Chief Operating Officer;  and the provisions of Sections 2(a), (b) and (d) shall
be deemed modified to reflect such offices,  positions and duties as are so held
by the Executive.

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

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

                  (iii)  A  termination  of the  Executive's  employment  by the
         Executive  without  Good Reason shall be effected by giving the Company
         written notice specifying the effective date of termination.

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

                  5. Obligations of the Company upon Termination.

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

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

                  A.       The sum of:

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

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

                           (3)      any accrued vacation pay;

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

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

                  (ii)     the Stock Award shall vest in accordance with
                           3(d)(ii);

                  (iii) any stock  awards,  other  than the Stock  Award,  stock
         options,  stock appreciation  rights or other equity-based  awards that
         were outstanding  immediately prior to the Date of Termination  ("Prior
         Equity  Awards")  shall remain  outstanding  and shall continue to vest
         and/or become exercisable as though the Executive's  employment had not
         terminated until the later of (x) the third  anniversary of the Date of
         Termination  and (y) 90 days from the date that a stock option or other
         award (or portion  thereof) first becomes  exercisable  but in no event
         beyond the original term  thereof,  and the Company shall take all such
         actions as may be necessary to effectuate the foregoing;

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

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

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

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

                  (b) Cause;  Other  than for Good  Reason.  If the  Executive's
         employment shall be terminated for Cause during the Employment  Period,
         or if  the  Executive  voluntarily  terminates  employment  during  the
         Employment  Period,  excluding  a  resignation  for Good  Reason,  this
         Agreement shall terminate without further  obligations to the Executive
         other  than  for  amounts  described  in  Sections   5(a)(i)(A)(1)  and
         5(a)(i)(A)(3) and the timely payment or provision of Other Benefits. In
         such case,  all such amounts  shall be paid to the  Executive in a lump
         sum within 30 days of the Date of Termination.

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

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

                  (e) Retirement.  If the Executive's  employment  terminates at
         the  expiration  of the  Employment  Period (or at any earlier  date at
         which  the  Executive  elects  to  retire  under  any  retirement  plan
         maintained  by the Company),  the  Executive  shall be paid the Accrued
         Obligations  in a lump  sum in  cash  within  30  days  of the  Date of
         Termination  and the Executive  shall be entitled to any Other Benefits
         in accordance with their terms. Upon the Executive's retirement, unless
         the Board  otherwise  determines,  there  shall be no  acceleration  of
         vesting of any portion of the Stock Award not yet earned. The Executive
         agrees not to retire  (except  for any  Disability)  prior to March 31,
         2002.

                  6.       Change in Control.

                  (a) Benefits Upon a Change in Control.  Upon the occurrence of
a Change in Control during the Employment Period, the Stock Award shall continue
in effect and vest (or be  forfeited)  in  accordance  with  provisions  of this
Agreement  as  though no  Change  in  Control  had  occurred,  except  that,  as
appropriate, the shares of Stock of the Stock Award shall be treated the same as
all  other  shares  of  Stock  of  Enterprise.  The  Executive's  rights  upon a
termination of employment that occurs  following a Change in Control shall be as
specified in Section 5 generally for  termination of employment,  except (i) the
amount  payable  under  5(a)(i)(B)  shall  be  three  times  the  sum of (x) the
Executive's Annual Base Salary and (y) the Target Bonus; (ii) the benefits under
Section 5(a)(iv) shall be provided for three years after the Date of Termination
and the  Executive's  eligibility  (but  not the  time of  commencement  of such
benefits) for retiree benefits pursuant to such plans,  practices,  programs and
policies  shall be determined as if the  Executive had remained  employed  until
three years after the Date of Termination and to have retired on the last day of
such period, and (iii) the Executive shall be paid within 15 days after the Date
of Termination, an amount equal to the excess of

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

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

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

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

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

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

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

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

                  7.       Confidential Information; No competition.

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

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

                  (c) The  confidential  knowledge,  information  and  data,  as
defined in the previous paragraph,  gained in the performance of the Executive's
duties  hereunder  may be  valuable  to  those  who are now,  or  might  become,
competitors of the Company or its affiliates and subsidiaries.  Accordingly, the
Executive  agrees  that he will not,  for the  period of two years  from Date of
Termination,  directly own, manage,  operate, join, control, become employed by,
consult  to or  participate  in the  ownership,  management,  or  control of any
business which is in direct  competition  with the Company and/or its affiliates
and  subsidiaries.  Further,  the Executive agrees that, for two years following
the Date of Termination,  he will not, directly or indirectly,  solicit or hire,
or encourage  the  solicitation  or hiring of any person who was a managerial or
higher  level  employee  of the  Company  at any  time  during  the  term of the
Executive's employment by the Company by any employer other than the Company for
any position as an employee,  independent  contractor,  consultant or otherwise.
The foregoing  agreement of the Executive  shall not apply to any person after 6
months have elapsed subsequent to the date on which such person's  employment by
the Company has  terminated.  In the case of any such prohibited  activity,  the
Executive  shall not be  entitled to  post-employment  payments  (including  any
unpaid installments of the Stock Award), and the Executive shall return or repay
to the Company a portion of any installments of the Stock Award that have vested
in  accordance  with  Section  3(d)(ii)  during the two year period  immediately
preceding  such  prohibited  activity  which  is  equal  to the  amount  of such
installments paid within such two year period times a fraction, the numerator of
which is the number of months from the commencement of such activity to the date
that is 24 months after the Date of Termination  and the denominator of which is
24.

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

                  8.       Full Settlement.

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

                  (b)  Non-exclusivity of Rights.  Except as provided in Section
7(c), nothing in the Agreement shall prevent or limit the Executive's continuing
or future participation in any plan, program, policy or practice provided by the
Company or any of its affiliated  companies for which the Executive may qualify,
nor,  subject  to Section  12(g),  shall  anything  in this  Agreement  limit or
otherwise  affect such rights as the  Executive  may have under any  contract or
agreement with the Company or any or its affiliated  companies.  Vested benefits
and other amounts that the Executive is otherwise  entitled to receive under the
incentive  compensation  plans  referred to in Section 3(c),  the SERPs,  or any
other plan,  policy,  practice of program of, or any contract of agreement with,
the  Company  or any  of its  affiliated  companies  on or  after  the  Date  of
Termination  shall be  payable in  accordance  with the terms of each such plan,
policy, practice,  program, contract or agreement, as the case may be, except as
explicitly modified by this Agreement.

                  9.       Disputes

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

                  10.      Successors.

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

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

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

                  11.      Certain Additional Payments by the Company.

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

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

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

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

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

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

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

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

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

                  12.      Miscellaneous.

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

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

                  If to the Executive:      80 Park Plaza
                                            P. O. Box 570
                                            Newark, NJ  07101







                  If to the Company:        80 Park Plaza
                                            P. O. Box 570
                                            Newark, NJ  07101
                                            Attention:  General Counsel

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

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

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

                  (e)  Failure to Assert  Rights.  Except as provided in Section
4(b)(ii) and 4(c)(ii),  the Executive's or the Company's  failure to insist upon
strict  compliance  with any provisions  of, or to assert any right under,  this
Agreement  shall not be deemed to be a waiver of such  provision  or right or of
any other provision of or right under this Agreement.

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

                  (g) Entire Agreement. This Employment Agreement represents the
complete  agreement between the Executive and the Company relating to employment
and  termination  and may not be altered or changed except by written  agreement
executed  by  the  parties  hereto  or  their  respective  successors  or  legal
representatives. This Agreement supersedes the PSE&G Employment Agreement, dated
April 16, 1986, except Paragraph 4 thereof relating to additional service credit
for  retirement  purposes  which is hereby  incorporated  by  reference  in this
Agreement.


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



                           E. JAMES FERLAND
                           ----------------
                           E. James Ferland



                           PUBLIC SERVICE ENTERPRISE
                           GROUP INCORPORATED


                           By: IRWIN LERNER
                               ------------
                           Irwin Lerner, Chairman
                           Organization and Compensation Committee

<PAGE>


                                           April 16, 1986


E. James Ferland, President
Northeast Utilities
P. O. Box 270
Hartford, Connecticut  06141

Dear Mr. Ferland:

         In conjunction  with your  employment as President and Chief  Operating
Officer of PSE&G effective June 1, 1986 and as Chairman of the Board,  President
and Chief  Executive  Officer  commencing  July 1,  1986,  the  agreed  terms of
employment are as follows:

         1.   Your salary shall  commence at the annual rate of $375,000 and may
              be  increased,  but shall not be  reduced,  thereafter  during the
              three-year period commencing June 1, 1986. In addition,  you shall
              be  entitled  to those  benefits  from time to time  available  to
              officers and employees of PSE&G generally.

         2.   If you should be discharged  without  cause during the  three-year
              period  commencing June 1, 1986,  PSE&G will pay to you the salary
              which would have been  payable  pursuant to  Paragraph 1 above for
              the remainder of such  three-year  period.  "Cause" shall mean (i)
              the  gross  dereliction  of,  and  continued  failure  by  you  to
              substantially perform, your duties with PSE&G (other than any such
              failure  resulting form your  incapacity due to physical or mental
              illness),  after a written demand for  substantial  performance is
              delivered to you by the Board which  specifically  identifies  the
              manner in which the Board  believes that you have not so performed
              your duties,  or (ii) any conduct  constituting  a felony or moral
              turpitude.

         3.   Your participation in the Management  Incentive  Compensation Plan
              will begin  effective June 1, 1986, and any award available to you
              with  respect to  calendar  year 1986 shall be prorated to reflect
              such  effective  date;  provided  that if for  any of the  periods
              indicated  below the amount of your award under the Plan as of the
              date it is established is less than the amount specified below for
              such period, PSE&G shall promptly pay to you as a lump sum in cash
              the difference  between the amount specified below for such period
              and the amount of your award  prorated  for such period  under the
              Plan.

              Period                                          Amount
              June 1, 1986 to December 31, 1986               $29,000
              January 1, 1987 to December 31, 1987            $50,000
              January 1, 1988 to May 31, 1988                 $21,000

         4.   Your credited service of 22 years at Northeast  Utilities shall be
              utilized in determining  the benefits to which you are and will be
              entitled under PSE&G's various benefit plans in a manner as if you
              had been a PSE&G employee for that entire 22-year  period;  except
              that you agree to forego until at least June 1, 1996,  election of
              the option to retire when the sum of your age  together  with your
              credited  service  (Northeast  Utilities and PSE&G combined) equal
              eighty.  In addition,  the amount of your pension or  survivorship
              benefits  from  Northeast  Utilities  shall be  deducted  from the
              pension  benefits  payable to you or your  beneficiary by PSE&G on
              account of such service with Northeast.

         5.   In accordance with our relocation  program,  PSE&G will compensate
              you for all reasonably  incurred moving,  relocation and temporary
              housing  expenses   (including  the  reimbursement  of  any  sales
              commission on your existing  house and  including,  if you desire,
              the  purchase  of your  present  house) in  conjunction  with your
              relocation  from  Connecticut  to New  Jersey  for the  purpose of
              commencing  employment with PSE&G  effective June 1, 1986,  except
              that no payment  shall be made for  miscellaneous  expenses in the
              amount of one half a month's salary as provided in such program.

                  If the  foregoing is in  accordance  with your  understanding,
         please sign the enclosed copy of this letter and return it to me.

                                                     Sincerely,


                                                     /s/ HAROLD W. SONN


         Agreed to this 21
         day of April, 1986

         /s/  E. JAMES FERLAND
         E. James Ferland