Document:

MANAGEMENT INCENTIVE COMPENSATION PLAN

                            FOR SELECTED EMPLOYEES OF

                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

                                 AND AFFILIATES

                                            AMENDED EFFECTIVE JANUARY 1, 2000

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                     MANAGEMENT INCENTIVE COMPENSATION PLAN

                            FOR SELECTED EMPLOYEES OF

                  PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

                                 AND AFFILIATES

1.   PURPOSES

     The purposes of this Plan are to foster attainment of the financial and
operating objectives of the Company and its Participating Affiliates which are
important to customers and stockholders by providing incentive to members of
management who contribute to attainment of these objectives; to supplement the
Company's and Participating Affiliates' salary and benefit programs so as to
provide overall compensation for such executives which is competitive with
corporations with which the Company and its Participating Affiliates must
compete for executive talent; and to assist the Company and its Participating
Affiliates in attracting and retaining executives who are important to their
continued success.

2.   DEFINITIONS

     As used in this Plan, the following words and phrases shall have the
meanings indicated:

          (a) "Affiliate" - any organization which is a member of a controlled
     group of corporations (as defined in Code section 414(b), as modified by
     Code section 415(h)) which includes the Company; or any trades or
     businesses (whether or not incorporated) which are under common control (as
     defined in Code section 414(c), as modified by Code section 415(h)) with
     the Company; or a member of an affiliated service group (as defined in Code
     section 414(m)) which includes the Company or any other entity

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     required to be aggregated with the Company pursuant to regulations under
     Code section 414(o).

          (b) "Award" - the amount of final Incentive Award for a Participant
     approved by the Committee pursuant to Paragraphs 5 and 7 of the Plan.

          (c) "Award Year" - a Plan Year in which Incentive Awards are earned by
     Participants in the Plan.

          (d) "Code" - the Internal Revenue Code of 1986, as amended.

          (e) "Committee" - the Organization and Compensation Committee of the
     Board of Directors of the Company.

          (f) "Company" - Public Service Enterprise Group Incorporated.

          (g) "Corporate Factor" - the Corporate Factor is the number, ranging
     from 0 to 1.5, which is equal to the weighted average achievement of the
     Corporate Goals.

          (h) "Corporate Goals" one or more quantifiable, measurable business
     goals which shall be established pursuant to Subparagraph 7(c) of this Plan
     and the achievement of which shall be the basis upon which each
     Participant's Final Incentive Award shall be computed.

          (i) "Disability" - any physical or mental condition that renders a
     Participant incapable of performing further work for the Company and that
     results in termination of employment.

          (j) "Employer" - The Company and any Participating Affiliate.

          (k) "Employer Factor" - the Employer Factor is the number, ranging for
     0 to 1.5, which is equal to the weighted average achievement of a
     Participant's Employer Goals.

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          (l) "Employer Goals" - up to three quantifiable, measurable business
     goals which shall be established pursuant to Subparagraph 7(a) of this Plan
     and the achievement of which shall be the basis upon which a portion of
     each Participant's Final Incentive Award shall be computed.

          (m) "Incentive Award" - the amount earned by a Participant in
     accordance with Paragraph 7.

          (n) "Individual Performance Goals" - one to three measurable goals
     and/or objectives which shall be established in accordance with
     Subparagraph 7(b) of this Plan, the achievement of which will be the basis
     upon which a portion of each Participant's Final Incentive Award will be
     computed.

          (o) "Individual Performance Factor" - the total of a Participant's
     achievement of his/her Individual Performance Goals as described in
     Paragraph 8.

          (p) "Participant" - each officer or other employee of the Company or
     Participating Affiliate as may be designated by the Committee pursuant to
     Paragraph 3 of the Plan.

          (q) "Participating Affiliate"- any Affiliate of the Company which
     adopts the Plan with the approval of the Board of Directors of the Company.
     As a condition to participating in the Plan, such Affiliate shall authorize
     the Board of Directors of the Company and the Committee to act for it in
     all matters arising under or with respect to the Plan and shall comply with
     such other terms and conditions as may be imposed by the Board of Directors
     of the Company.

          (r) "Plan" - the Management Incentive Compensation Plan for Selected
     Employees of Public Service Enterprise Group and Affiliates.

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          (s) "Plan Year" - the calendar year.

          (t) "Primary Award" - the amount determined under Paragraph 7(a)(1).

          (u) "Retirement" - the termination of service with the Company with
     the right to an immediately payable periodic normal or early retirement
     benefit under the Pension Plan of Public Service Enterprise Group
     Incorporated or the Cash Balance Pension Plan of Public Service Enterprise
     Group Incorporated. Retirement shall not include termination of service
     with the right to a deferred retirement benefits under either said plan.

          (v) "Target Incentive Award" - the amount determined under paragraph
     6.

3.   ELIGIBILITY

          (a) The Committee may select such employees of the Company or
     Participating Affiliate (individually or by position) for participation in
     the Plan upon such terms as it deems appropriate, due to the employee's
     responsibilities and his/her opportunity to contribute substantially to the
     attainment of financial and operating objectives of the Company or
     Participating Affiliate. A determination of participation for a Plan Year
     shall be made no later than the beginning of that Plan Year. Provided,
     however, that employees whose duties and responsibilities change
     significantly during a Plan Year may be added or deleted as a Participant
     by the Committee. Provided further, the Committee may prorate the Incentive
     Award of any Participant if appropriate to reflect any such change in
     employee responsibilities during a Plan Year.

          (b) Participation in the Plan in one Plan Year shall not guarantee
     participation in another Plan Year.

          (c) The Committee shall have sole discretion as to whether to suspend

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     operation of the Plan for any period of time.

4.   ADMINISTRATION

          (a) The Plan shall be administered by the Committee. Subject to the
     provisions of the Plan, the Committee shall have full and final authority
     to select Participants, to designate the Target Incentive Award for each
     Participant and to determine the performance objectives and the amount of
     all Incentive Awards. The Committee shall also have, subject to the
     provisions of the Plan, full and final authority to interpret the Plan, to
     establish and revise rules, regulations and guides relating to the Plan and
     to make any other determinations that it believes necessary or advisable
     for the administration of the Plan. The Committee may delegate such
     responsibilities, other than final approval of Awards or appeals of alleged
     adverse determinations under the Plan, to the Chief Executive Officer of
     the Company or to any other officer of the Company or any Participating
     Affiliate.

          (b) All decisions and determinations by the Committee shall be final
     and binding upon all parties, including stockholders, Participants, legal
     representatives and other employees.

5.   DETERMINATION OF AWARD YEAR

     Not later than 120 days after the close of each Plan Year, the Committee
shall, in its sole discretion, determine whether any Participants shall be
eligible to earn Incentive Awards with respect to such Plan Year. The discretion
of the Committee with respect to this final approval of Awards shall be total.

6.   DETERMINATION OF TARGET INCENTIVE AWARDS

     For each Award Year, the Committee shall establish a Target Incentive Award
for

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each Participant based upon the Participant's position and potential for
contribution to the attainment of the Company's and/or Participating Affiliate's
financial and operating objectives. The Target Incentive Award shall be
expressed as a percentage of the Participant's rate of base salary in effect as
of the last day of the Plan Year to which such Target Incentive Award relates.

7. DETERMINATION OF PERFORMANCE GOALS

          (a) Employer Goals. Within 30 days of the beginning of each Plan Year,
     the Committee shall approve such Employer Goals as it deems to be
     appropriate. 70% (50% for PSEG Services Corp.) of each Participant's Target
     Incentive Amount shall be subject to the achievement of these Employer
     Goals.

          (b) Individual Performance Goals. Within 30 days of the beginning of
     each Plan Year, the Committee shall approve from one to three Individual
     Performance Goals for each Participant. 30% (50% for PSEG Services Corp.)
     of each Participant's Target Incentive Amount shall be subject to the
     achievement of these Individual Performance Goals.

          (c) Corporate Goals. Within 30 days of the beginning of each Plan
     Year, the Committee shall approve such Corporate Goals as it deems to be
     appropriate.

          (d) The Chief Executive Officer shall recommend to the Committee an
     Award for each Participant, except that the Committee shall have full
     responsibility for assessing the performance of the Chief Executive Officer
     and that the Committee shall make the final determination of all Awards.

8.   DETERMINATION OF FINAL INCENTIVE AWARD

     A Participant's Final Incentive Award will be determined as follows:

          (a) Within 60 days of the end of each Plan Year, the Committee shall
     certify

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     the achievement of the several Employer Goals, the respective Individual
     Performance Goals and the Corporate Goals for the Plan Year.

          (b) The result of such certifications shall be the Employer Factor,
     the Individual Performance Factor and the Corporate Factor, respectively.

          (d) The respective portions (Employer and Individual Performance) of
     each Participant's Target Incentive Amount shall then be multiplied by the
     Employer Factor and the Individual Performance Factor and added together.
     The result of those calculations shall then be multiplied by the Corporate
     Factor to determine the Participant's Final Incentive Award. For example,
     assume (i) a Target Incentive Amount of 20.0%, (ii) an Employer Factor of
     1.25, (iii) an Individual Performance Factor 0.75 and (iv) a Corporate
     Factor of 0.9:

          1. Employer Portion    =    1.25    x .70  x 20.0%  = 17.5%
          2. Individual Portion  =    0.75    x .30  x 20.0%  =  4.5%

     FINAL INCENTIVE AWARD = 17.5% + 4.5% = 22.0% x .9 = 19.8% x Salary

          (e) Unless otherwise determined by the Committee, the Employer Factor
     to be applied in determining a Participant's Final Incentive Award shall be
     that of the Employer of which the Participant was an employee on the last
     day of the Plan Year to which the Award relates.

          (f) Notwithstanding anything contained in this Plan to the contrary, a
     Participant's Final Incentive Award shall not exceed 1.5 times such
     Participant's Target Incentive Amount for the Plan Year to which it
     relates.

          (g) Also notwithstanding anything contained in this Plan to the
     contrary, the Committee may adjust a Participant's Final Incentive Award
     based upon any reasonable criteria it may determine.

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9.   AWARD PAYMENT

     Each Participant's Incentive Award shall be made in one lump sum cash
payment as soon as practicable after the Determination Date.

10.  TERMINATION

          (a) If the employment of a Participant by the Company is terminated by
     the Participant's death, Disability or Retirement, the Committee shall, if
     it determines that Incentive Awards may be earned for such year of
     termination, prorate an Award for that part of the year in which the
     Participant was participating prior to such termination and the Company
     shall pay the prorated Award as soon as practicable after determination,
     unless otherwise determined by the Committee.

          (b) If the employment of a Participant is terminated for any reason
     other than death, Disability or Retirement, the Participant shall not
     receive an Award for that part of the Plan Year in which the Participant
     was participating at the time of termination, unless otherwise determined
     by the Committee.

          (c) If a Participant becomes or ceases to be a Participant during a
     Plan Year, any Award to the Participant shall be appropriately prorated
     from the time the Participant entered or left the Plan to the end of the
     Plan Year.

          (d) In the case of a Participant's death, payment of any Award related
     to the Participant's final year of participation shall be made to the
     Participant's estate as a lump sum as soon as practicable after the
     Participant's death.

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11.  ASSIGNMENT

     No benefit under the Plan shall in any manner or to any extent be assigned,
alienated, or transferred by any Participant or be subject to attachment,
garnishment or other legal process.

12.  PLAN DOES NOT CONSTITUTE AN EMPLOYMENT AGREEMENT

     This Plan shall not constitute a contract for the continued employment of
any Participant by the Company. The Company reserves the right to modify a
Participant's compensation at any time and from time-to-time as it considers
appropriate and to terminate his/her employment for any reason at any time
notwithstanding this Plan.

13.  AMENDMENT OR TERMINATION OF THE PLAN BY THE COMPANY

     The Board of Directors of the Company may, in its sole discretion, amend,
modify or terminate this Plan at any time, provided, however, that no such
amendment, modification or termination shall materially adversely affect the
right of a Participant in respect of an Incentive Award previously earned by
him/her which has not been paid, unless such Participant or his/her legal
representative shall consent to such change. If this Plan is terminated during
any Plan Year in which Participants have been selected to participate, the Board
of Directors may authorize the Committee to prorate and make provision for
payment of Awards for such period.

14.  WHAT CONSTITUTES NOTICE

     Any notice hereunder to a Participant or his/her legal representative shall
be given either by delivering it, or by depositing it in the United States mail,
postage prepaid, addressed to his/her last-known address. Any notice to the
Company or the Committee hereunder shall be given either by delivering it, or
depositing it in the United States Mail, postage prepaid, to the

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Secretary, Public Service Electric and Gas Company, 80 Park Plaza, T4B, P.O. Box
570, Newark, New Jersey 07101.

15.  ADVANCE DISCLAIMER OF ANY WAIVER

     Failure by the Company or the Committee to insist upon strict compliance
with any of the terms, covenants or conditions hereof shall not be deemed a
waiver of any such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of any such right or power at any other time
or times.

16.  EFFECT OF INVALIDITY OF ANY PART OF THE PLAN

     The invalidity or unenforceability of any provision hereof shall in no way
affect the validity of enforceability of any other provision.

17.  PLAN BINDING ON ANY SUCCESSOR OWNER

     Except as otherwise provided herein, this Plan shall inure to the benefit
of and be binding upon the Company, its successors and assigns, including but
not limited to any corporation which may acquire all or substantially all of the
Company's assets and business or with or into which the Company may be
consolidated or merged.

18.  LAWS GOVERNING THIS PLAN

     Except to the extent that Federal laws applies, this Plan shall be governed
by the laws of the State of New Jersey.

19.  MISCELLANEOUS

     The masculine pronoun shall also mean the feminine wherever appropriate.

20.  WITHHOLDING

     The Company shall have the right to deduct from any payment any sums to be

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withheld by federal, state, or local tax law. There is no obligation hereunder
that any Participant or other person be advised in advance of the existence of
the tax or the amount so required to be withheld.

21.  EFFECTIVE DATE

     This Plan was effective as of July 1, 1985 and was formerly known as the
Management Incentive Compensation Plan of Public Service Electric and Gas
Company.

                                       11November 17, 1999

Lawrence R. Codey
1000 First Avenue
Spring Lake, NJ  07762

Dear Mr. Codey:

      This is to confirm certain terms of your employment as President and Chief
Operating Officer of Public Service Electric and Gas Company ("PSE&G"). The
State of New Jersey has rewritten the rules applicable to the governance of the
electric and gas industries, rules that had not been changed by the State in any
material respect since they were enacted in 1911. On February 9, 1999, the
Electric Discount and Competition Act was enacted, and on April 21, 1999, the
New Jersey Board of Public Utilities ("BPU") issued its initial restructuring
order relating to PSE&G. In order to effectively implement these broad industry
decisions with respect to PSE&G, and its parent Public Service Enterprise Group
Incorporated ("Enterprise"), further regulatory decisions, and possibly
legislative actions, and effective business planning and execution will be
required.

      Your efforts to achieve the best results for PSE&G and Enterprise in these
proceedings have been instrumental in setting a positive platform for Enterprise
and its subsidiaries to be successful energy companies in the future. You had
previously indicated longstanding plans to retire at age 55 in August of 1999,
but your agreement to continue your relationship with PSE&G through this
critical restructuring period and your agreement to refrain from working with
competitors for a limited time after retirement will help assure the future
success of Enterprise.

      Accordingly, and in light of your related work experience prior to
becoming employed by PSE&G, your terms of employment, to the extent that they
differ from those of other senior officers of PSE&G, are as follows:

1.    If you remain employed by PSE&G through February 28, 2000, unless earlier
      released by PSE&G, you shall be granted 10 additional years of service for
      the purpose of determining the amount of any pension benefits from PSE&G.

2.    During the course of your relationship with Enterprise and PSE&G, you have
      access to and shall become familiar with "Confidential Information" as
      defined below. You agree that you shall not, directly or indirectly,
      disclose or use any Confidential Information, except as required in the
      course of your relationship with Enterprise or its affiliates and
      subsidiaries and consistent with their interests. All files, records,
      documents, or recordings, electronic or otherwise, containing or relating
      to Confidential Information, whether prepared by you or otherwise coming
      into your possession, shall remain the exclusive property of Enterprise or
      its affiliates and subsidiaries. You shall return all Confidential
      Information to Enterprise upon termination of employment.

      As used herein, the term "Confidential Information" means all trade
      secrets, proprietary and confidential business information belonging to,
      used by, or in the possession of Enterprise or its affiliates and
      subsidiaries, with respect to their respective business strategies,
      mergers and acquisitions, plans and financial information, purchase or
      sale of property, leasing, pricing, sales programs or tactics, actual or
      past sellers, purchasers, lessees, lessors or customers, those with whom
      Enterprise or its affiliates and subsidiaries have begun negotiations for
      new business, costs, employee compensation, marketing and development
      plans, inventions and technology, whether such Confidential Information is
      oral, written or electronically recorded or stored, except information in
      the public domain, information known to you prior to your employment with
      PSE&G, and information received by you from sources other than Enterprise
      or its affiliates and subsidiaries, without obligation of confidentiality.
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      You further agree that for the period of 24 months following your
termination of employment with PSE&G, if Enterprise or PSE&G so requests, you
shall make yourself available for consultation on any business matter and
service as an agent of Enterprise or PSE&G in presenting information to
individuals, customer groups, employees, government officials, public interest
groups and other constituencies at a rate to be agreed. This consultation shall
not constitute employment by Enterprise or its subsidiaries or affiliates.

      You agree that the knowledge and information, including, but not limited
to, "Confidential Information" as defined above, gained in the performance of
your duties hereunder may be valuable to those who are now, or might become,
competitors of Enterprise or its affiliates and subsidiaries. Accordingly, you
agree that you will not, for the period of two years after termination of
employment, directly or indirectly, own, manage, operate, join, control, become
employed (whether as an employee or a consultant) by or participate in the
ownership, management, or control of, or become connected with, any business
which is in direct competition with Enterprise and/or its affiliates and
subsidiaries in New Jersey, New York, Pennsylvania, Maryland, Delaware,
Connecticut, Massachusetts or Virginia. It is agreed that the foregoing
restriction does not apply to your continued service as a director of Sealed Air
Corporation, The Trust Company of New Jersey, United Water Resources, Inc., or
Blue Cross and Blue Shield of New Jersey, provided that you recuse yourself from
any decisions or transactions by those entities that are in competition with
Enterprise or its affiliates and subsidiaries. In addition, you agree that for
two years following termination of employment, you 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 Enterprise or its
affiliates and subsidiaries at any time during the term of your employment with
PSE&G by any employer other than PSE&G for any position as an employee,
independent contractor, consultant or otherwise. Further, you shall not be
entitled to pension or benefit payments related to the additional service credit
provided for herein from and after the date of commencement of any such
prohibited subsequent activity in violation of this Agreement.

      You further acknowledge and agree that in the event of a breach by you of
any of the agreements set forth above, PSE&G shall suffer irreparable harm for
which money damages are not an adequate remedy, and that, in the event of such
breach, PSE&G 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 you.

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

                                           Sincerely,

Agreed to this _____ day
of ___________________, 1999

____________________________
Lawrence R. Codey

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