PUBLIC SERVICE ELECTRIC & GAS CO, S-3, 1994-10-06

PUBLIC SERVICE ELECTRIC & GAS CO
S-3, 1994-10-06
ELECTRIC & OTHER SERVICES COMBINED

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<PAGE>

As filed with the Securities and Exchange Commission on October , 1994
Registration Nos.

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________

Public Service Electric and Gas Public Service Electric and Gas
Company Capital, L.P.
(Exact name of registrant (Exact name of registrant as specified
as specified in charter) in Limited Partnership Agreement)

New Jersey New Jersey
(State or other jurisdiction of incorporation or organization)

22-1212800 22-3325834
(I.R.S. Employer Identification No.)

80 Park Plaza 80 Park Plaza
P. O. Box 570 P. O. Box 570
Newark, New Jersey 07101 Newark, New Jersey 07101
(201) 430-7000 (201) 430-7000

(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)

Robert C. Murray c/o Robert C. Murray
Senior Vice President-Finance Senior Vice President-Finance
and Chief Financial Officer and Chief Financial Officer
80 Park Plaza, T4B 80 Park Plaza, T4B
P. O. Box 570 P. O. Box 570
Newark, New Jersey 07101 Newark, New Jersey 07101
(201) 430-5630 (201) 430-5630

(Name, address, including zip code, and telephone number, including area code,
of agents for service)

with copies to:

James T. Foran, Esquire Howard G. Godwin, Jr., Esquire
General Corporate Counsel Brown & Wood
80 Park Plaza, T5B One World Trade Center
P.O. Box 570 New York, NY 10048
Newark, New Jersey 07101
<PAGE>
Approximate date of commencement of proposed sale to the public: After
the Registration Statement becomes effective, as determined by market
conditions and other factors.
____________________

If the only securities being registered on this Form are being offered
pursuant to dividendor interest reinvestment plans, please check the following
box.

If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box.
____________________

<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
Title of Each Proposed Proposed
Class of Amount Maximum Offering Maximum Aggregate Amount of
Securities To To Be Price Per Offering Registration
Be Registered Registered Unit (2) (3) Price (2) (3) Fee (4)
- ------------- ------------- ---------------- ------------------ ------------
<S> <C> <C> <C> <C>
Public Service
Electric and Gas
Capital, L.P.
Cumulative
Monthly
Income
Preferred
Securities
- ---------------------------------------------------------------------------------------
Public Service
Electric and Gas
Company
Guarantees with
respect to
Public Service
Electric and Gas
Capital, L.P.
Preferred
Securities
- ---------------------------------------------------------------------------------------
Public Service
Electric and Gas
Company
Deferrable
Interest
Subordinated
Debentures
- ---------------------------------------------------------------------------------------
Total $210,000,000 100% $210,000,000 $42,000

(1) There are being registered hereunder a presently indeterminate number of Cumulative
Monthly Income Preferred Securities of Public Service Electric and Gas Capital, L.P.
with an aggregate initial public offering price not to exceed $210,000,000 and related
Guarantees and Deferrable Interest Subordinated Debentures of Public Service Electric
and Gas Company for which no separate consideration will be received.

(2) Estimated solely for the purpose of determining the registration fee.

(3) Exclusive of accrued interest and dividends, if any.

(4) Pursuant to Rule 457(n) and (o), the registration fee is calculated on the basis of the
proposed maximum offering price of the Cumulative Monthly Income Preferred Securities.

</TABLE>
<PAGE>

The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED ______ , 1994
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED , 1994
____________________ Preferred Securities

PUBLIC SERVICE ELECTRIC AND GAS CAPITAL

_____% Cumulative Monthly Income Preferred Securities (MIPS*), Series A
(liquidation preference $25 per Preferred Security) guaranteed to the
the extent the issuer has funds as set forth herein by

PUBLIC SERVICE ELECTRIC AND GAS COMPANY
_________________________

The % Cumulative Monthly Income Preferred Securities, Series A (the
"Series A Preferred Securities"), representing the limited partner interests
offered hereby, are being issued by Public Service Electric and Gas Capital,
L.P., a limited partnership formed under the laws of the State of New Jersey
(the "Partnership"). The Partnership exists for the sole purpose of issuing
partner interests and lending the proceeds thereof to Public Service Electric
and Gas Company ("PSE&G"), the sole general partner of the Partnership (the
"General Partner"). The limited partner interests represented by the Series A
Preferred Securities will have a preference with respect to cash distributions
and amounts payable on liquidation over the General Partner's interest in the
Partnership.

Holders of the Series A Preferred Securities will be entitled to receive
cumulative preferential cash distributions ("Dividends") at an annual rate of
% of the stated liquidation preference of $25 per Series A Preferred Security,
accruing from the date of original issuance and payable monthly in arrears on
the last day of each calendar month of each year, commencing _______, 1994.
The payment of Dividends and the payments in liquidation or redemption with
respect to the Series A Preferred Securities, in each case out of funds legally
available therefor held by the Partnership, are guaranteed by PSE&G to the
extent described herein and in the accompanying Prospectus (the "Guarantee").
See "Description of the Guarantee" in the accompanying Prospectus. If PSE&G
fails to make payments on its __% Deferrable Interest Subordinated Debentures,
Series A (the "Series A Subordinated Debentures") purchased by the Partnership
with the proceeds of the Series A Preferred Securities, the Partnership will
not have sufficient funds to make the related payments, including Dividends, on
the Series A Preferred Securities. The Guarantee does not cover such payments
when the Partnership does not have sufficient funds. In such event, the remedy
of a holder of Series A Preferred Securities is to enforce the rights of the
Partnership under the Series A Subordinated Debentures. See "Certain Terms of
the Series A Subordinated Debentures" herein and "Description of the
Subordinated Debentures" in the accompanying Prospectus.

The obligations of PSE&G under the Guarantee are subordinate and junior in
right of payment to all general liabilities of PSE&G and its obligations under
the Series A Subordinated Debentures are subordinate and junior in right of
payment to all present and future Senior Indebtedness of PSE&G. At June 30,
1994, the Senior Indebtedness of PSE&G aggregated approximately $5.624 billion.
<PAGE>
The Series A Preferred Securities are subject to redemption at the option
of the General Partner, in whole or in part, from time to time, on or after
_______________, 1999, at $25 per Series A Preferred Security plus accumulated
and unpaid Dividends to the date fixed for redemption (the "Redemption Price"),
and will be redeemed from the proceeds of any redemption or payment at maturity
of the Series A Subordinated Debentures. See "Certain Terms of the Series A
Preferred Securities Optional Redemption" and " Mandatory Redemption"
herein. In addition, the Series A Preferred Securities will be subject to
redemption at the option of the General Partner upon the occurrence of certain
special events described under "Certain Terms of the Series A Preferred
Securities Optional Redemption" and " Special Event Redemption or
Distribution" herein, provided that upon the occurrence of certain special
events, the General Partner may dissolve the Partnership and cause the Series A
Subordinated Debentures to be distributed to the holders of the Series A
Preferred Securities in liquidation of their interests in the Partnership. If
the Series A Subordinated Debentures are so distributed, PSE&G will use its
best efforts to list them on the New York Stock Exchange.

In the event of the liquidation of the Partnership, holders of Series A
Preferred Securities will be entitled to receive for each Series A Preferred
Security a liquidation preference of $25 plus accumulated and unpaid Dividends
to the date of payment, unless, in connection with such liquidation, the Series
A Subordinated Debentures are distributed to the holders of the Series A
Preferred Securities. See "Description of the Preferred Securities Liquidation
Distribution" in the accompanying Prospectus.

See "Certain Investment Considerations" for certain information relevant to
an investment in the Series A Preferred Securities, including the period during
which and circumstances under which payment of Dividends on the Series A
Preferred Securities may be deferred and the related federal income tax
consequences.

Application has been made to list the Series A Preferred Securities on the
New York Stock Exchange.
__________________________________________________

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

Initial Public Underwriting Proceeds to the
Offering Price Commission (1) Partnership
-------------- ------------- ---------------

Per Series A
Preferred
Security... $ (2) $

Total.......$ (2) $
_______________________

(1) The Partnership and PSE&G have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting" herein.
<PAGE>
(2) As the proceeds of the sale of the Series A Preferred Securities will
be loaned to PSE&G, under the Underwriting Agreement PSE&G has agreed to pay to
the Underwriters $ per Series A Preferred Security (or $ in
the aggregate); provided that such compensation will be $ per Series
A Preferred Security sold to certain institutions. Therefore, to the extent
that Series A Preferred Securities are sold to such institutions, the actual
amount of Underwriters' compensation will be less than the amount specified
above. See "Underwriting."

(3) Expenses of the offering, excluding underwriting commissions which are
payable by PSE&G, are estimated to be $325,000.
____________________

The Series A Preferred Securities offered hereby are offered severally by
the Underwriters, as specified herein, subject to receipt and acceptance by
them and subject to their right to reject any order in whole or in part. It is
expected that delivery of the Series A Preferred Securities will be made only
in book-entry form through the facilities of The Depository Trust Company on or
about , 1994.
_______________________

* An application has been filed by Goldman, Sachs & Co. with the United
States Patent and Trademark Office for the registration of the MIPS
servicemark.

GOLDMAN, SACHS & CO.
BEAR, STEARNS & CO. INC.
DEAN WITTER REYNOLDS INC.
MORGAN STANLEY & CO.
INCORPORATED
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
____________________

The date of this Prospectus Supplement is , 1994.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES
APREFERRED SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
The following information supplements and should be read in
conjunction with the information contained in the accompanying Prospectus.
Each of the capitalized terms used in this Prospectus Supplement has the
meaning set forth in this Prospectus Supplement or in the accompanying
Prospectus.

CERTAIN INVESTMENT CONSIDERATIONS

Prospective purchasers of the Series A Preferred Securities should
carefully review the information contained elsewhere in this Prospectus
Supplement and in the accompanying Prospectus and should particularly consider
the following matters:

Subordinate Obligations under the Guarantee and the Series A Subordinated
Debentures

PSE&G's obligations under the Guarantee are subordinate and junior in
right of payment to all general liabilities of PSE&G and its obligations under
the _____% Deferrable Interest Subordinated Debentures, Series A (the "Series A
Subordinated Debentures") are subordinate and junior in right of payment to all
Senior Indebtedness (as defined in the accompanying Prospectus) of PSE&G. At
June 30, 1994, the Senior Indebtedness of PSE&G aggregated approximately $5.624
billion. There are no terms in the Series A Preferred Securities, the Series A
Subordinated Debentures or the Guarantee that limit PSE&G's ability to incur
additional indebtedness, including indebtedness that ranks senior to the Series
A Subordinated Debentures and the Guarantee. The Guarantee guarantees payment
to the holders of the Series A Preferred Securities of accumulated and unpaid
monthly Dividends, amounts payable on redemption, and amounts payable on
liquidation of the Partnership, in each case, however, only to the extent that
the Partnership has funds on hand legally available therefor and payment
thereof does not otherwise violate applicable law. If PSE&G were to default on
its obligation to pay interest or amounts payable on redemption or maturity of
the Series A Subordinated Debentures, the Partnership would lack legally
available funds for the payment of Dividends or amounts payable on redemption
of the Series A Preferred Securities, and in such event, holders of the Series
A Preferred Securities would not be able to rely upon the Guarantee for payment
of such amounts. Instead, holders of the Series A Preferred Securities would
be required to seek enforcement of the Partnership's rights against PSE&G
pursuant to the terms of the Indenture (as defined below). See "Description of
the Guarantee Status of the Guarantee" and "Description of the Subordinated
Debentures Subordination" in the accompanying Prospectus.

Option to Extend Interest Payment Period

So long as an Event of Default (as defined in the Indenture) has
notoccurred and is continuing, PSE&G has the right under the Indenture at any
time and from time to time to extend interest payment periods on the
Subordinated Debentures (as defined below), including the Series A Subordinated
Debentures, for up to 60 consecutive months, and, as a consequence, monthly
<PAGE>
Dividends on the Series A Preferred Securities can be deferred by the
Partnership during any such extended interest payment period. Dividends in
arrears after the monthly payment date therefor will accumulate additional
distributions thereon at the rate per annum of _____% thereof. The term
"Dividends" as used herein includes, as applicable, monthly distributions,
distributions on monthly distributions in arrears and Additional Amounts (as
defined below). In the event PSE&G exercises its right to extend the interest
payment periods on the Subordinated Debentures, PSE&G may not declare or pay
dividends on or redeem, purchase, acquire, or make a liquidation payment with
respect to, any shares of its capital stock during such extension period.
PSE&G currently believes that the extension of an interest payment period is
unlikely. See "Description of the Preferred Securities Dividends" and
"Description of the Subordinated Debentures Option to Extend Interest Payment
Period" in the accompanying Prospectus.

Should an extended interest payment period occur, the Partnership will
continue to accrue income for United States federal income tax purposes which
will be allocated, but not distributed, to holders of the Series A Preferred
Securities. As a result, the owner of Series A Preferred Securities will
include such interest in gross income for United States federal income tax
purposes in advance of the receipt of cash, and will not receive the cash
related to such income if the owner disposes of the Series A Preferred
Securities prior to the record date for the payment of Dividends. See "United
States Taxation Potential Extension of Interest Payment Period" herein.

Special Event Redemption or Distribution

Upon the occurrence and continuation of certain special events arising
from a change in law or a pronouncement or decision interpreting or applying
any applicable law, the General Partner may dissolve the Partnership and cause
the Series A Subordinated Debentures to be distributed to the holders of the
Series A Preferred Securities in liquidation of such holders' interests in the
Partnership. See "Certain Terms of the Series A Preferred Securities Special
Event Redemption or Distribution" herein.

THE PARTNERSHIP

The Partnership is a limited partnership formed under the laws of the
State of New Jersey. All of its general partner interests are owned by PSE&G.
As a limited partnership, all of the business and affairs of the Partnership
will be managed by the General Partner. The Partnership has been created
solely for the purpose of issuing partner interests, including its Cumulative
Monthly Income Preferred Securities (the "Preferred Securities"), and lending
the proceeds thereof to PSE&G. Such loans will be evidenced by the Deferrable
Interest Subordinated Debentures (the "Subordinated Debentures") issued by
PSE&G under an Indenture dated as of , 1994 (the "Indenture") between
<PAGE>
PSE&G and First Fidelity Bank, National Association, as trustee (the
"Trustee"), including the Series A Subordinated Debentures to be issued
concurrently with the issuance of the Series A Preferred Securities. The
Subordinated Debentures will be the only assets of the Partnership and the only
revenues of the Partnership will be the interest on the Subordinated
Debentures.

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

PSE&G is an operating public utility company engaged in the
generation, transmission, distribution and sale of electric energy service and
in the production, transmission, distribution and sale of gas service in New
Jersey. PSE&G supplies electric and gas service in areas of New Jersey in
which approximately 5,500,000 persons reside, approximately 70% of the State's
population. PSE&G is the principal subsidiary of Public Service Enterprise
Group Incorporated ("Enterprise"), which owns all of PSE&G's common stock.

PSE&G's service area is a corridor of approximately 2,600 square miles
running diagonally across the State of New Jersey from Bergen County in the
northeast to an area below the City of Camden in the southwest. This heavily
populated, commercialized and industrialized territory encompasses most of New
Jersey's largest municipalities, including its six largest cities, in addition
to approximately 300 suburban and rural communities.

As of December 31, 1993, PSE&G had approximately 1,868,000 electric
customers and 1,498,000 gas customers. For the year ended December 31, 1993,
PSE&G's operating revenues were approximately $5.287 billion and PSE&G's
earnings available to Enterprise were approximately $577 million.

COVERAGE RATIOS

PSE&G's Ratio of Earnings to Fixed Charges for each of the periods
indicated is as follows:

12 Months Ended
Years Ended December 31, June 30, 1994
1989 1990 1991 1992 1993
- ---------------------------------------------- ---------------
3.21 3.10 3.20 2.70 3.30 3.49

The Ratio of Earnings to Fixed Charges represents, on a pre-tax basis,
the number of times earnings cover fixed charges. Earnings consist of net
income, to which has been added fixed charges and taxes based on income of
PSE&G and its subsidiaries. Fixed charges consist of interest charges and an
interest factor in rentals.
<PAGE>
PSE&G's Ratio of Earnings to Fixed Charges plus Preferred Stock
DividendRequirements for each of the periods indicated is as follows:

12 Months Ended
Years Ended December 31, June 30, 1994
1989 1990 1991 1992 1993
- ----------------------------------------------- ---------------
2.88 2.79 2.86 2.43 2.89 3.03

The Ratio of Earnings to Fixed Charges plus Preferred Stock Dividend
Requirements represents, on a pre-tax basis, the number of times earnings cover
fixed charges plus preferred stock dividend requirements. Earnings consist of
net income, to which has been added fixed charges and taxes based on income of
PSE&G and its subsidiaries. Fixed Charges consist of interest charges and an
interest factor in rentals. Preferred Stock Dividend Requirements represent
the pre-tax earnings necessary to pay such dividends, computed at the effective
tax rates for the applicable periods.

CERTAIN TERMS OF THE SERIES A PREFERRED SECURITIES

Dividends

The Series A Preferred Securities will be entitled to Dividends out of
funds legally available therefor held by the Partnership at the annual rate of
____% of the stated liquidation preference of $25, payable monthly in arrears
on the last day of each calendar month. The General Partner may make
distributions on the general partner interests of the Partnership only after
payment in full of all Dividends accrued on the Series A Preferred Securities
and any other outstanding Preferred Securities of the Partnership. The first
Dividend payment date for the Series A Preferred Securities will be ,
1994, and such Dividends will be cumulative from the date of original issuance.

The Series A Preferred Securities will rank pari passu with all other
series of Preferred Securities which may be issued by the Partnership. No
otherseries of Preferred Securities has been issued by the Partnership.

So long as an Event of Default has not occurred and is continuing,
PSE&G has the right under the Indenture at any time and from time to time to
extend the interest payment period on the Subordinated Debentures, including
the Series A Subordinated Debentures, to a period not exceeding 60 consecutive
months, provided that such extended interest payment period shall not extend
beyond the stated maturity date or redemption date of any Subordinated
Debentures. As a consequence, monthly Dividends on the Series A Preferred
Securities would be deferred (but would continue to accumulate with Dividends
thereon) by the Partnership during any such extended interest payment period.
Dividends in arrears after the monthly payment date therefor will accumulate
additional distributions thereon at the rate per annum of ___% thereof. In
the event that PSE&G exercises its right to extend the interest payment period
<PAGE>
on the Subordinated Debentures, PSE&G may not declare or pay dividends on, or
redeem, purchase, acquire or make a liquidation payment with respect to, any
shares of its capital stock during such extension period. PSE&G currently
believes that the extension of an interest payment period is unlikely. Prior to
the termination of any such extension period, PSE&G may further extend the
interest payment period, provided that such extension period together with all
such previous and further extensions thereof may not exceed 60 consecutive
months. Upon the termination of any extension period and the payment of all
amounts then due on the Subordinated Debentures, PSE&G may elect to extend the
interest payment period again, subject to the above requirements. See "United
States Taxation Potential Extension of Interest Payment Period" herein and
"Description of the Preferred Securities Dividends" and "Description of the
Subordinated Debentures Option to Extend Interest Payment Period" in the
accompanying Prospectus. Payments received by the Partnership with respect to
the Series A Subordinated Debentures and other series of PSE&G's Subordinated
Debentures will not be segregated by the Partnership for the benefit of the
holders of the Series A Preferred Securities or holders of any other particular
series of Preferred Securities.

Optional Redemption

The Series A Preferred Securities are subject to redemption, at the
option of the General Partner, in whole or in part, from time to time, on or
after , 1999, at $25 per Series A Preferred Security, plus
accumulated and unpaid Dividends, if any, to the date fixed for redemption (the
"Redemption Price").

In addition, if at any time after the issuance of the Series A
Preferred Securities, the Partnership is or would be required to pay Additional
Amounts as described below or PSE&G is or would be required to pay Additional
Interest on the Series A Subordinated Debentures, as described under
"Description of the Subordinated Debentures Additional Interest" in the
accompanying Prospectus, then the Series A Preferred Securities will be subject
to redemption at the Redemption Price, at the option of the General Partner, in
whole, or in part if such requirement relates only to certain Series A
Preferred Securities.

Mandatory Redemption

If at any time the Series A Subordinated Debentures are redeemed by
PSE&G upon the occurrence of certain events which also cause the Series A
Preferred Securities to become redeemable or PSE&G pays the Series A
Subordinated Debentures at maturity as described under "Certain Terms of the
Series A Subordinated Debentures" herein, the Series A Preferred Securities
will be subject to mandatory redemption at the Redemption Price.
<PAGE>
The Series A Preferred Securities will not be entitled to any sinking
fund.

Special Event Redemption or Distribution

If a Tax Event or an Investment Company Act Event (each, as defined
below, and, each, a "Special Event") shall occur and be continuing, the General
Partner may elect, at its option, to (i) redeem the Series A Preferred
Securities in whole (but not in part), at the Redemption Price within 90 days
following the occurrence of such Special Event, or (ii) dissolve the
Partnership and cause the Series A Subordinated Debentures to be distributed to
the holders of the Series A Preferred Securities in liquidation of the
Partnership within 90 days following the occurrence of such Special Event,
provided that the General Partner shall have received an opinion of counsel
(which may be regular tax counsel to the General Partner or an affiliate but
not an employee thereof) to the effect that the holders of the Series A
Preferred Securities will not recognize any gain or loss for federal income tax
purposes as a result of such dissolution and distribution. See "United States
Taxation Receipt of Series A Subordinated Debentures Upon Liquidation of the
Partnership" herein. If the General Partner does not elect either option (i)
or (ii) above, the Series A Preferred Securities will remain outstanding.

"Tax Event" means that the Partnership shall have received an opinion
of counsel (which may be regular counsel to PSE&G or an affiliate but not an
employee thereof) experienced in such matters to the effect that, as a result
of any amendment to, or change (including any announced prospective change) in,
the laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein affecting taxation, or as a
result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or such interpretation or pronouncement is announced on or after the
date of original issuance of the Series A Preferred Securities, there is more
than an insubstantial risk that (i) the Partnership is subject to United States
federal income tax with respect to interest received on the Subordinated
Debentures, (ii) interest payable by PSE&G on the Subordinated Debentures will
not be deductible for United States federal income tax purposes or the
Partnership will otherwise not be taxed as a partnership or (iii) the
Partnership is subject to more than a de minimis amount of other taxes, duties,
assessments or other governmental charges.

"Investment Company Act Event" means the occurrence of a change in law
or regulation or a change in official interpretation of law or regulation by
any legislative body, court, governmental agency or regulatory authority (a
"Change in 1940 Act Law") to the effect that the Partnership is or will be
considered an "investment company" which is required to be registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), which Change in
1940 Act Law becomes effective on or after the date of original issuance of the
Series A Preferred Securities; provided, that no Investment Company Act Event
shall be deemed to have occurred if the Partnership has received an opinion of
counsel (which may be regular counsel to PSE&G or any affiliate but not an
<PAGE>
employee thereof) experienced in such matters, to the effect that the
Partnership and/or PSE&G has taken reasonable measures, in its discretion, to
avoid such Change in 1940 Act Law so that notwithstanding such Change in 1940
Act Law, the Partnership is not required to be registered as an "investment
company" within the meaning of the 1940 Act.

Additional Amounts

If, as a result of (i) the Series A Subordinated Debentures not being
treated as indebtedness for United States federal income tax purposes or (ii)
the Partnership not being treated as a partnership for United States federal
income tax purposes, the Partnership is required to withhold or deduct from
payments on the Series A Preferred Securities for or on account of any present
or future taxes imposed by the United States which would not otherwise be
required to be withheld or deducted, the Partnership will pay such additional
amounts as may be necessary in order that the net amounts received by the
holders of the Series A Preferred Securities after such withholding or
deduction will equal the amounts which would have been received in respect of
such Series A Preferred Securities in the absence of such withholding or
deduction ("Additional Amounts"), except that no such Additional Amounts will
be payable to a holder of Series A Preferred Securities (or a third party on
such holder's behalf) with respect to Series A Preferred Securities if:

(a) such holder is liable for such taxes by reason of such holder
having a connection with the United States, other than being a holder
of Series A Preferred Securities; or

(b) the Partnership has notified such holder of the obligation to
withhold or deduct taxes and requested but not received from such
holder a valid declaration of non-residence, a valid taxpayer
identification number or other claim for exemption in such form or
content as may be required by the United States Internal Revenue
Service ("IRS") and such withholding or deduction would not have been
required had such declaration, taxpayer identification number or claim
been received.

Liquidation Value

The amount per share payable on the Series A Preferred Securities in
the event of any liquidation of the Partnership is $25 plus accumulated and
unpaid Dividends, unless, in connection with such liquidation, the Series A
Subordinated Debentures are distributed to the holders of the Series A
Preferred Securities.
<PAGE>
CERTAIN TERMS OF THE SERIES A SUBORDINATED DEBENTURES

In exchange for, and to evidence the loan of, the proceeds of the sale
of the Series A Preferred Securities and the General Partner's related
investment in the Partnership, PSE&G will issue the Series A Subordinated
Debentures to the Partnership in the principal amount of $________ and with
interest payment provisions which correspond to the distribution provisions of
the Series A Preferred Securities. The Series A Debentures are redeemable
prior to maturity at the option of PSE&G (i) at any time if PSE&G is required
to pay Additional Interest on the Series A Debentures, in whole or in part,
(ii) at any time on or after __________, 1999, in whole or in part, and (iii)
if a Tax Event occurs and is continuing, in whole (but not in part), in any
case at 100% of the principal amount thereof plus accrued interest to the
redemption date. The Series A Debentures are subject to mandatory redemption
prior to maturity at 100% of the principal amount thereof plus accrued interest
to the redemption date in whole or in part upon a redemption of the Series A
Preferred Securities, but if in part, in an aggregate principal amount equal to
the aggregate stated liquidation preference of the Series A Preferred
Securities redeemed. In addition, the Series A Subordinated Debentures will be
subject to mandatory redemption upon the dissolution and winding up of the
Partnership, unless, following the occurrence of a Special Event, the General
Partner elects to distribute the Series A Subordinated Debentures to the
holders of the Series A Preferred Securities. In the event the Series A
Subordinated Debentures were issued to the holders of the Series A Preferred
Securities, such Series A Subordinated Debentures would be in denominations of
$25.00 and integral multiples thereof. The Series A Subordinated Debentures
will mature on __________, 2043.

The Series A Subordinated Debentures will rank junior and be
subordinatein right of payment to all Senior Indebtedness of PSE&G. See
"Description of the Subordinated Debentures Subordination" in the accompanying
Prospectus.

UNITED STATES TAXATION

General

This section is a summary of certain United States federal income tax
considerations that may be relevant to prospective purchasers of Series A
Preferred Securities and represents the opinion of Ballard Spahr Andrews &
Ingersoll, special tax counsel to PSE&G and the Partnership, insofar as it
relates to matters of law and legal conclusions. This section is based upon
current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed regulations thereunder and current
administrative rulings and court decisions, all of which are subject to change.
Subsequent changes may cause tax consequences to vary substantially from the
consequences described below.
<PAGE>
No attempt has been made in the following discussion to comment on all
United States federal income tax matters affecting purchasers of Series A
Preferred Securities. Moreover, the discussion focuses on holders of Series A
Preferred Securities who are individual citizens or residents of the United
States who are owners of Series A Preferred Securities for United States
federal tax purposes and has only limited application to corporations, estates,
trusts or non-resident aliens. Accordingly, each prospective purchaser of
Series A Preferred Securities should consult, and should depend on, his or her
own tax adviser in analyzing the federal, state, local and foreign tax
consequences of the purchase, ownership or disposition of Series A Preferred
Securities.

In April 1994, the IRS issued certain notices generally addressing the
characteristics which distinguish debt from equity for various purposes under
the United States federal income tax laws. In these notices, the IRS indicated
that transactions involving securities that, like the Series A Preferred
Securities, have both debt and equity characteristics would be reviewed with
scrutiny to determine how they would be treated for tax purposes. Based on the
advice of Ballard Spahr Andrews & Ingersoll, PSE&G believes that interest on
the Series A Subordinated Debentures will be deductible under the tests
referred to in these notices. If, however, the IRS should subsequently issue a
further official pronouncement, or should there be a judicial decision, as a
result of which there is more than an insubstantial risk that interest on the
Series A Subordinated Debentures would not be deductible, the General Partner
would have the option to redeem the Series A Preferred Securities or to
dissolve and cause Series A Subordinated Debentures to be distributed to the
holders of the Series A Preferred Securities, as described herein.

Income from Series A Preferred Securities

In the opinion of Ballard Spahr Andrews & Ingersoll, the Partnership
will be treated as a partnership for United States federal income tax purposes.
Accordingly, each owner of Series A Preferred Securities will be required to
include in gross income such owner's distributive share of the net income of
the Partnership. Such income should not exceed Dividends received on such
Series A Preferred Securities, except in limited circumstances as described
below under "Potential Extension of Interest Payment Period." No portion of
such income will be eligible for the dividends received deduction.

Disposition of Series A Preferred Securities

Gain or loss will be recognized on a sale, including a redemption for
cash, of Series A Preferred Securities in an amount equal to the difference
between the amount realized and the tax basis of the owner of the Series A
Preferred Securities sold. Gain or loss recognized by an owner of a Series A
Preferred Security on the sale or exchange of a Series A Preferred Security
held for more than one year will generally be taxable as long-term capital gain
or loss.
<PAGE>
Receipt of Series A Subordinated Debentures Upon Liquidation of the Partnership

Under certain circumstances described in "Certain Terms of the Series
A Preferred Securities Special Event Redemption or Distribution" herein, the
General Partner may dissolve and wind up the Partnership and cause the Series A
Subordinated Debentures to be distributed to the holders of Series A Preferred
Securities in liquidation of such holders' interests in the Partnership,
providedthat the General Partner shall have received an opinion of counsel
(which may be regular tax counsel to the General Partner or an affiliate but
not an employee thereof) to the effect that the holders of the Series A
Preferred Securities will not recognize any gain or loss for federal income tax
purposes as a result of such dissolution and distribution. Under current
United States federal income tax law, such a distribution would be treated as a
non-taxable exchange to each holder of Series A Preferred Securities. Such a
tax-free transaction would result in the holder of Series A Preferred
Securities receiving an aggregate tax basis in the Series A Subordinated
Debentures equal to such holder's aggregate tax basis in the holder's Series A
Preferred Securities. A holder's holding period for such Series A Subordinated
Debentures would include the period for which the Series A Preferred Securities
were held by such holder.

Partnership Information Returns and Audit Procedures

The General Partner will furnish each owner of a Series A Preferred
Security with a schedule K-1 each year setting forth such owner's allocable
share of income for the prior calendar year. The General Partner is required
to furnish such schedules as soon as practicable following the end of the year,
but in any event prior to March 31.

Any person who holds Series A Preferred Securities as a nominee for
another person is required to furnish to the Partnership (a) the name, address
and taxpayer identification number of the beneficial owner and the nominee; (b)
information as to whether the beneficial owner is (i) a person that is not a
United States person, (ii) a foreign government, an international organization
or any wholly owned agency or instrumentality of either of the foregoing, or
(iii) a tax-exempt entity; (c) the amount and description of Series A Preferred
Securities held, acquired or transferred for the beneficial owner; and (d)
certain information including the dates of acquisitions and transfers, means of
acquisitions and transfers, and acquisition cost for purchases, as well as the
amount of net proceeds from sales. Brokers and financial institutions are
required to furnish additional information, including whether they are United
States persons, and certain information on Series A Preferred Securities they
acquire, hold or transfer for their own accounts. A penalty of $50 per failure
(up to a maximum of $100,000 per calendar year) is imposed by the Code for
failure to report such information to the Partnership. The nominee is required
to supply the beneficial owners of the Series A Preferred Securities with the
information furnished to the Partnership.
<PAGE>
Potential Extension of Interest Payment Period

In the event that the interest payment period on the Series A
Preferred Securities is extended (as provided under "Certain Terms of the
Series A Preferred Securities Dividends" herein), the Partnership will continue
to accrue income, generally equal to the amount of the interest payment due at
the end of the extended interest payment period, over the length of the
extended interest payment period.

Accrued income will be allocated, but not distributed, to holders of
record on the Business Day preceding the last day of each calendar month. As a
result, owners of Series A Preferred Securities during an extended interest
paymentperiod will be required to include interest in gross income in advance
of the receipt of cash, and any such owners who dispose of Series A Preferred
Securities prior to the record date for the payment of Dividends following such
extended interest payment period will include interest in gross income but will
not receive any cash related thereto. The tax basis of a Series A Preferred
Security will be increased by the amount of any interest that is included in
income without a receipt of cash, and will be decreased again when and if such
cash is subsequently received from the Partnership. The subsequent receipt of
such cash will not be included in gross income.

United States Alien Holders

For purposes of this discussion, a "United States Alien Holder" is any
holder or beneficial owner who or which is (i) a nonresident alien individual
or (ii) a foreign corporation, partnership or estate or trust, in either case
not subject to United States federal income tax on a net income basis in
respect of a Series A Preferred Security.

Under present United States federal income tax law, subject to the
discussion below with respect to backup withholding, and assuming satisfaction
by the Partnership of its withholding tax obligations, if any:

(i) payments by the Partnership or any of its paying agents to any
United States Alien Holder will not be subject to United States federal
withholding tax provided that (a) the beneficial owner of the Series A
Preferred Security does not actually or constructively own 10% or more of
the total combined voting power of all classes of stock of PSE&G, (b) the
beneficial owner of the Series A Preferred Security is not a controlled
foreign corporation that is related to PSE&G through stock ownership, and
(c) either (A) the beneficial owner of the Series A Preferred Security
certifies to the Partnership or its agent, under penalties of perjury,
that it is a United States Alien Holder and provides its name and address
or (B) the holder of the Series A Preferred Security is a securities
clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"financial institution"), and such holder certifies to the Partnership or
its agent under penalties of perjury that such statement has been received
from the beneficial owner by it or by a financial institution between it
and the beneficial owner and furnishes the payor with a copy thereof; and
<PAGE>
(ii) a United States Alien Holder of a Series A Preferred Security
will generally not be subject to United States federal income or
withholding tax on any gain realized on the sale or exchange of a Series A
Preferred Security unless such person is present in the United States for
183 days or more in the taxable year of sale and such person has a "tax
home" in the United States or certain other requirements are met.

Backup Withholding and Information Reporting

In general, information reporting requirements will apply to payments
to noncorporate United States holders of the proceeds of the sale of Series A
Preferred Securities within the United States and "backup withholding" at a
rate of31% will apply to such payments if the seller fails to provide a correct
taxpayer identification number.

Payments of the proceeds from the sale by a United States Alien Holder
of Series A Preferred Securities made to or through a foreign office of a
brokerwill not be subject to information reporting or backup withholding,
except that, if the broker is a United States person, a controlled foreign
corporation for United States tax purposes or a foreign person 50% or more of
whose gross income is effectively connected with a United States trade or
business for a specified three-year period, information reporting may apply to
such payments. Payments of the proceeds from the sale of Series A Preferred
Securities to or through the United States office of a broker is subject to
information reporting and backup withholding unless the holder or beneficial
owner certifies as to its non-United States status or otherwise establishes an
exemption from information reporting and backup withholding.

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement
among the Partnership, PSE&G and the underwriters named below (the
"Underwriters"), for whom Goldman, Sachs & Co., Bear, Stearns & Co. Inc., Dean
Witter Reynolds Inc., Morgan Stanley & Co. Incorporated, PaineWebber
Incorporated, Prudential Securities Incorporated and Smith Barney Inc. are
acting as Representatives, the Partnership has agreed to sell to each of the
Underwriters and each of the Underwriters has severally agreed to purchase from
<PAGE>
the Partnership the respective number of Series A Preferred Securities set
forth opposite its name below:

Number of Series A
Underwriter Preferred Securities
-----------

Goldman, Sachs & Co. . . . . . . . . .
Bear, Stearns & Co. Inc. . . . . . . .
Dean Witter Reynolds Inc.. . . . . . .
Morgan Stanley & Co. Incorporated. . .
PaineWebber Incorporated . . . . . . .
Prudential Securities Incorporated . .
Smith Barney Inc.. . . . . . . . . . .

_________________
Total
=================

Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all such Series A Preferred
Securities offered hereby, if any are taken.

The Underwriters propose to offer the Series A Preferred Securities
inpart directly to the public at the initial public offering price set forth on
the cover page of this Prospectus Supplement, and in part to certain securities
dealers at such price less a concession of $______ per Series A Preferred
Security. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $_____ per Series A Preferred Security to certain
brokers and dealers. After the Series A Preferred Securities are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the Representatives.

In view of the fact that the proceeds from the sale of the Series A
Preferred Securities will be loaned to PSE&G, under the Underwriting Agreement
PSE&Ghas agreed to pay to the Underwriters $______ per Series A Preferred
Security ($_____ per Series A Preferred Security sold to certain institutions)
for the accounts of the several Underwriters.

Prior to this offering, there has been no public market for the Series
A Preferred Securities. In order to meet one of the requirements for listing
theSeries A Preferred Securities on the New York Stock Exchange, the
Underwriters have undertaken to sell the Series A Preferred Securities to a
minimum of 400 beneficial owners.

PSE&G and the Partnership have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities ct of 1933, as amended.
<PAGE>
PSE&G and the Partnership have agreed, during the period beginning on
the date of the Underwriting Agreement and continuing to and including the
earlier of (i) the date, after the closing date, on which the distribution of
the Series A Preferred Securities ceases, as determined by Goldman, Sachs &
Co., or (ii) 30 days after the closing date, not to offer, sell, contract to
sell, or otherwise dispose of any Series A Preferred Securities, any limited
partner interests of the Partnership, or any preferred stock or any other
securities of the Partnership or PSE&G which are substantially similar to the
Series A Preferred Securities, including the related Guarantee, or any
securities convertible into or exchangeable for Series A Preferred Securities,
limited partner interests, preferred stock or other substantially similar
securities of either the Partnership or PSE&G, without the prior written
consent of Goldman, Sachs & Co.
<PAGE>
SUBJECT TO COMPLETION, DATED , 1994

PUBLIC SERVICE ELECTRIC AND GAS CAPITAL

Cumulative Monthly Income Preferred Securities (MIPS*)
guaranteed to the extent the issuer has funds as set forth herein by

PUBLIC SERVICE ELECTRIC AND GAS COMPANY
__________________

Public Service Electric and Gas Capital, L.P. (the "Partnership"), a New
Jersey special purpose limited partnership in which Public Service Electric and
Gas Company ("PSE&G") is the sole general partner (the "General Partner"), may
offer from time to time, in one or more series, its cumulative monthly income
preferred securities representing limited partner interests (the "Preferred
Securities"). See "Description of the Preferred Securities." The payment of
periodic cash distributions ("Dividends") with respect to the Preferred
Securities of each series and payments on liquidation or redemption with
respect to such Preferred Securities, in each case out of funds on hand legally
available therefor held by the Partnership, are guaranteed by PSE&G to the
extent described herein (the "Guarantee"). The obligations of PSE&G under the
Guarantee will be subordinate and junior in right of payment to all general
liabilities of PSE&G. See "Description of the Guarantee." Concurrently with
the issuance of each series of Preferred Securities, the Partnership will loan
the proceeds thereof to PSE&G and to evidence such loan, PSE&G will issue and
deliver to the Partnership a series of PSE&G's deferrable interest subordinated
debentures (the "Subordinated Debentures") with terms corresponding to that
series of Preferred Securities. The Subordinated Debentures will be unsecured
and subordinate and junior in right of payment to Senior Indebtedness (as
defined herein) of PSE&G. See "Description of the Subordinated Debentures."
The Subordinated Debentures will be the sole asset of the Partnership and the
interest on the Subordinated Debentures will be the only revenue of the
Partnership. Upon the occurrence of certain events as may be described in the
accompanying Prospectus Supplement (the "Prospectus Supplement"), the General
Partner may dissolve the Partnership and cause the Subordinated Debentures to
be distributed to the holders of the Preferred Securities in liquidation of
their interest in the Partnership.

The Preferred Securities may be offered in amounts, at prices and on terms
to be determined at the time of offering, provided, however, that the aggregate
initial public offering price of all Preferred Securities issued pursuant to
the Registration Statement of which this Prospectus forms a part shall not
exceed $210,000,000. Certain specific terms of the particular series of
Preferred Securities in respect of which this Prospectus is being delivered
will be set forth in an accompanying Prospectus Supplement, including where
applicable and to the extent not set forth herein, the specific title, the
series, the aggregate amount, the Dividend rate (or the method for determining
such rate), the stated liquidation preference, redemption provisions, other
rights, the initial public offering price, and any other special terms, as well
as any planned listing of such Preferred Securities on a securities exchange.

The Preferred Securities may be sold in a public offering to or through
underwriters or dealers designated from time to time. See "Plan of
Distribution." The names of any such underwriters or dealers involved in the
sale of the Preferred Securities of the particular series in respect of which
this Prospectus is being delivered, the number of Preferred Securities to be
purchased by any such underwriters or dealers and any applicable commissions or
discounts will be set forth in the Prospectus Supplement. The net proceeds to
the Partnership will also be set forth in the Prospectus Supplement.

The Prospectus Supplement will also contain information concerning United
States federal income tax considerations applicable to the series of Preferred
Securities offered.
___________________
____________________

* An application has been filed by Goldman, Sachs & Co. with the United
States Patent and Trademark Office for the registration of the MIPS
servicemark.
____________________

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
____________________

The date of this Prospectus is , 1994.
<PAGE>
STATEMENT OF AVAILABLE INFORMATION

PSE&G is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission ("SEC"). Such reports and other information can be inspected and
copied at the public reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. and at its regional offices at 500 West Madison
Street, Chicago, Illinois and 7 World Trade Center, New York, New York. Copies
of such reports and other information may also be obtained from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549-1004 at prescribed rates. Such reports and other information can also be
inspected at the New York Stock Exchange, Inc. where certain of PSE&G's
securities are listed.

No separate financial statements of the Partnership have been included
herein. PSE&G and the Partnership do not consider that such financial
statements would be material to holders of Preferred Securities offered hereby
because the Partnership is a newly formed special purpose entity, has no
operating history or independent operations and is not engaged in, and does not
propose to engage in, any activity other than as set forth below. See "The
Partnership."
____________________

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by PSE&G with the SEC pursuant to the
Exchange Act are incorporated herein by reference:

1. PSE&G's Annual Report on Form 10-K for the year ended December
31, 1993;

2. PSE&G's Quarterly Reports on Form 10-Q for the periods ended
March 31, 1994 and June 30, 1994; and

3. PSE&G's Current Reports on Form 8-K dated January 21, 1994, June
15, 1994 and October 6, 1994.

Each document filed subsequent to the date of this Prospectus pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to the
termination of the offering shall be deemed to be incorporated by reference in
this Prospectus and the accompanying Prospectus Supplement and shall be a part
hereof and thereof from the date of filing of such document. Any statement
contained herein or therein or in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein and therein shall
be deemed to be modified or superseded for purposes of this Prospectus and the
accompanying Prospectus Supplement to the extent that a statement contained
herein or therein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein and therein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus or the accompanying Prospectus Supplement.
<PAGE>
PSE&G undertakes to provide without charge to each person, including
any beneficial owner, to whom this Prospectus and the accompanying Prospectus
Supplement are delivered, upon written or oral request of such person, a copy
of any or all documents described above under "Incorporation of Certain
Documents by Reference," other than exhibits to such documents not specifically
incorporated by reference therein. Such requests should be directed to the
Director Investor Relations, Public Service Electric and Gas Company, 80 Park
Plaza, T6B, P. O. Box 570, Newark, New Jersey 07101, telephone (201) 430-6503.

THE PARTNERSHIP

The Partnership is a limited partnership formed under the laws of the
State of New Jersey. All of its general partner interests are owned by PSE&G
(the "General Partner"). As a limited partnership, all of the business and
affairs of the Partnership will be managed by the General Partner pursuant to
the Amended and Restated Limited Partnership Agreement of the Partnership (the
"Limited Partnership Agreement"). Under the Limited Partnership Agreement, the
general partner of the Partnership must (i) at all times maintain a "fair
market net worth" of at least 10% of the total capital contributions (less
redemptions) to the Partnership, (ii) contribute capital equal to 3% of the
aggregate capital contributed to the Partnership, and (iii) use its reasonable
efforts to cause the Partnership to remain a limited partnership and otherwise
continue to be treated as a partnership for United States federal income tax
purposes.

The Partnership has been created solely for the purpose of issuing
partner interests, including the Preferred Securities, and lending the proceeds
thereof to PSE&G. Such loans will be evidenced by the Subordinated Debentures
issued by PSE&G under an Indenture dated as of ______, 1994 (the "Indenture")
between PSE&G and First Fidelity Bank, National Association, as trustee (the
"Trustee"). The Subordinated Debentures will be the only assets of the
Partnership and the only revenues of the Partnership will be interest on the
Subordinated Debentures. The General Partner will pay all of the Partnership's
operating expenses and will have general liability for all of the Partnership's
obligations.

Assuming a holder of Preferred Securities acts in conformity with the
Limited Partnership Agreement, such holder will not be liable for the debts,
obligations and liabilities of the Partnership, whether arising in contract,
tort or otherwise, solely by reason of being a limited partner of the
Partnership, subject to the obligation of a limited partner to repay any funds
wrongfully distributed to it.

The place of business of the Partnership is the principal executive
offices of the General Partner at 80 Park Plaza, Newark, New Jersey 07101 and
its telephone number is 201-430-7000.
<PAGE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY

PSE&G's executive offices are located at 80 Park Plaza, Newark, New
Jersey 07101-0570, telephone (201) 430-7000.

USE OF PROCEEDS

Unless otherwise specified in the accompanying Prospectus Supplement,
the proceeds to be received by the Partnership from the sale of the Preferred
Securities offered hereby will be loaned to PSE&G and will be added to the
general funds of PSE&G and used for general corporate purposes, including the
refunding and redemption of certain of its higher cost redeemable preferred
stock, the payment of construction expenditures and the reimbursement of its
treasury of funds expended therefor and/or the payment of its short-term
obligations incurred for such purposes.

DESCRIPTION OF THE PREFERRED SECURITIES

The following is a summary of certain terms and provisions of the
Preferred Securities and the Limited Partnership Agreement. The summary is
subject to, and qualified in its entirety by reference to, the Limited
Partnership Agreement, the Preferred Securities and the New Jersey Uniform
Limited Partnership Law (1976). The Limited Partnership Agreement and the form
of the Preferred Securities are filed as exhibits to the Registration Statement
of which this Prospectus forms a part.

General

Under the Limited Partnership Agreement, the Partnership is authorized
to issue two classes of partner interests, Preferred Securities representing
limited partner interests, including the Preferred Securities offered hereby,
and general partner interests. All of the general partner interests of the
Partnership are owned by PSE&G. The Limited Partnership Agreement authorizes
the General Partner to establish various series of Preferred Securities in an
unlimited amount having such designations, rights, privileges, restrictions and
<PAGE>
other terms and provisions as the General Partner may determine. Dividends on
all series of Preferred Securities must be paid in full before the General
Partner may participate in the profits or assets of the Partnership. All of
the Preferred Securities will rank pari passu in participation in the assets
and income of the Partnership.

Dividends

Dividends on each series of Preferred Securities will be cumulative,
will accrue from the date of original issuance and will be payable monthly in
arrears on the last day of each calendar month of each year, except as
otherwise described below. The rate of Dividends (or method of calculation
thereof) payable on a series of Preferred Securities offered hereby will be
specified in the Prospectus Supplement related thereto. Unless otherwise
specified in the applicable Prospectus Supplement, the amount of Dividends
payable for any period will be computed on the basis of twelve 30-day months
and a 360-day year and, for any period shorter than a full monthly distribution
period, will be computed on the basis of the actual number of days elapsed in
such period.

So long as an Event of Default under the Indenture has not occurred
and is continuing, PSE&G has the right under the Indenture at any time and from
time to time, to extend the interest payment period on the Subordinated
Debentures to a period not exceeding 60 consecutive months, provided that such
extended interest payment period shall not extend beyond the stated maturity
date or redemption date of any series of Subordinated Debentures (an "Extension
Period"). As a consequence, monthly Dividends on the Preferred Securities
would be deferred by the Partnership during any Extension Period. The term
"Dividends" as used herein includes, as applicable, monthly distributions,
distributions on monthly distributions in arrears and Additional Amounts (as
defined in the applicable Prospectus Supplement). In the event that PSE&G
exercises this right, PSE&G may not declare or pay dividends on or redeem,
purchase, acquire, or make a liquidation payment with respect to, any of its
capital stock during an Extension Period. Prior to the termination of any such
Extension Period, PSE&G may further extend the interest payment period,
provided that such Extension Period together with all such previous and further
extensions thereof may not exceed 60 consecutive months. Upon the termination
of any Extension Period and the payment of all amounts then due, PSE&G may
elect to extend the interest payment period again, subject to the above
requirements. See "Description of the Subordinated Debentures Option to
Extend Interest Payment Period." Any tax consequences resulting from the
extension of the interest payment period to a holder of Preferred Securities
will be described in the applicable Prospectus Supplement.

Dividends on the Preferred Securities must be paid by the Partnership
in any calendar year or portion thereof to the extent the Partnership has funds
on hand legally available therefor. The Partnership's revenues will be limited
to interest payments on the Subordinated Debentures issued by PSE&G to the
Partnership. See "Description of the Subordinated Debentures."
<PAGE>
Dividends on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of the Partnership on the
relevant record dates, which, so long as the Preferred Securities remain in
book-entry-only form, will be one Business Day (as defined below) prior to the
relevant payment dates. Subject to any applicable laws and regulations and the
provisions of the Limited Partnership Agreement, each such payment will be made
as described under " Book-Entry-Only Issuance The Depository Trust Company"
below. In the event that the Preferred Securities do not remain in
book-entry-only form, the record dates will be the fifteenth day of each month.
In the event that any date on which Dividends are payable on the Preferred
Securities is not a Business Day, then payment of the Dividend payable on such
date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay) except
that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on such date. A "Business Day" shall
mean any day other than a Saturday, Sunday or other day on which banking
institutions in The City of New York or the State of New Jersey are authorized
or required by law or executive order to close.

Certain Restrictions on the Partnership

If Dividends have not been paid in full on any series of Preferred
Securities, the Partnership shall not:

(i) pay any Dividends on any other series of Preferred
Securities, unless Dividends are paid on all Preferred Securities then
outstanding on a pro rata basis in proportion to the full Dividends to
which each series of Preferred Securities would be entitled if paid in
full;

(ii) pay any distribution on the general partner interests; or

(iii) redeem, purchase or otherwise acquire any Preferred
Securities or the general partner interests;

until, in each case, such time as all accumulated and unpaid Dividends on all
series of Preferred Securities shall have been paid in full for all prior
distribution periods. As of the date of this Prospectus, there are no
Preferred Securities outstanding.

Redemption Provisions

The redemption provisions with respect to each series of the Preferred
Securities offered hereby will be set forth in the Prospectus Supplement
related thereto.

The Partnership may not redeem any Preferred Securities unless all
accumulated and unpaid Dividends have been paid on all Preferred Securities for
all monthly distribution periods terminating on or prior to the date of
redemption. If a partial redemption would result in a delisting of such series
of Preferred Securities from any national securities exchange on which such
series of Preferred Securities is then listed, the Partnership may only redeem
such series of Preferred Securities in whole.
<PAGE>
Notice of any redemption of the Preferred Securities will be given not
less than 30 days nor more than 60 days prior to the redemption date to the
holders thereof. So long as The Depository Trust Company ("DTC") or its
nominee is the sole holder of the Preferred Securities of any series, any
failure on the part of DTC or a participant in the book entry system to notify
a beneficial owner of such Preferred Securities of such redemption shall not
affect the validity of the redemption. See " Book-Entry-Only Issuance The
Depository Trust Company" below. If notice of redemption shall have been given
and payment shall have been made by the Partnership to DTC, then, upon the date
of such payment, all rights in respect of the Preferred Securities so called
for redemption will cease. In the event that any date fixed for redemption of
Preferred Securities is not a Business Day, then payment of the redemption
price payable on such date will be made on the next succeeding day which is a
Business Day (and without any interest or other payment in respect of any such
delay), except that if such Business Day falls in the next succeeding calendar
year, such payment will be made on the immediately preceding Business Day (in
each case with the same force and effect as if made on such day).

Subject to applicable law and except as provided under "Description of
the Subordinated Debentures Certain Covenants of PSE&G," PSE&G or its
affiliates may at any time and from time to time purchase outstanding Preferred
Securities by tender, in the open market or by private agreement.

Liquidation Distribution

In the event of any voluntary or involuntary dissolution and winding
up of the Partnership, other than in connection with the distribution of
Subordinated Debentures to holders of the Preferred Securities upon the
occurrence of certain events as may be described in the accompanying Prospectus
Supplement, the holders of the Preferred Securities at the time outstanding
will be entitled to receive out of the assets of the Partnership after
satisfaction of liabilities to creditors as required by New Jersey law and
before any distribution of assets is made to holders of its general partner
interests, the aggregate of the stated liquidation preference and all
accumulated and unpaid Dividends to the date of payment (the "Liquidation
Distribution"). All assets of the Partnership remaining after payment of the
Liquidation Distribution will be distributed to the General Partner.

If, upon a liquidation of the Partnership, the Liquidation
Distribution can be paid only in part because the Partnership has insufficient
assets available to pay in full the aggregate Liquidation Distribution on all
Preferred Securities, then the amounts payable on each series of Preferred
Securities shall be paid on a pro rata basis in proportion to the full
Liquidation Distribution to which each series of Preferred Securities would be
entitled.

Pursuant to the Limited Partnership Agreement, the Partnership shall
be dissolved and its affairs shall be wound up upon the occurrence of any of
the following events: (i) the expiration of the term of the Partnership, which
is 99 years, (ii) the withdrawal, removal or bankruptcy of the General Partner
or the occurrence of any other event that under applicable law causes PSE&G to
<PAGE>
cease to be the General Partner, except for a transfer to a permitted successor
or assignee of the General Partner as set forth in the Limited Partnership
Agreement, (iii) the entry of a decree of judicial dissolution, (iv) the
election of the General Partner upon the occurrence of certain special events
as may be set forth in the Prospectus Supplement, or (v) the written consent of
the General Partner and all of the holders of the Preferred Securities. Upon
any dissolution and winding up other than under (iv) above, PSE&G is required
to redeem the Subordinated Debentures to fund the Liquidation Distribution.

Merger, Consolidation, etc. of the Partnership

The Partnership may not consolidate, amalgamate, merge with or into,
or be replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any corporation or other entity,
except with the approval of the General Partner and the holders of 66-2/3% in
aggregate stated liquidation preference of the outstanding Preferred Securities
or as otherwise described below. The General Partner may, without the consent
of the holders of the Preferred Securities, cause the Partnership to
consolidate, amalgamate, merge with or into, or be replaced by, or convey,
transfer or lease its properties and assets as an entirety or substantially as
an entirety to, a corporation, a limited liability company or a limited
partnership, a trust or other entity organized as such under the laws of any
state of the United States of America or the District of Columbia, provided
that (i) such successor entity either (x) expressly assumes all of the
obligations of the Partnership under the Preferred Securities or (y)
substitutes for the Preferred Securities other securities having substantially
the same terms as the Preferred Securities (the "Successor Securities") so long
as the Successor Securities rank, as regards participation in the profits and
assets of the successor entity, at least as high as the Preferred Securities
rank, as regards participation in the profits and assets of the Partnership,
(ii) PSE&G confirms its obligations under the Guarantee with regard to the
Successor Securities, if any, (iii) such consolidation, amalgamation, merger,
replacement, conveyance, transfer or lease does not cause any series of
Preferred Securities or Successor Securities to be delisted by any national
securities exchange on which such series of Preferred Securities is then
listed, (iv) such consolidation, amalgamation, merger, replacement, conveyance,
transfer or lease does not cause the Preferred Securities or Successor
Securities to be downgraded by any "nationally recognized statistical rating
organization," as that term is defined by the SEC for purposes of Rule
436(g)(2) under the Securities Act of 1933, as amended (the "Securities Act"),
(v) such consolidation, amalgamation, merger, replacement, conveyance, transfer
or lease does not adversely affect the powers, preferences and other special
rights of holders of Preferred Securities or Successor Securities in any
material respect, (vi) such successor entity has a purpose substantially
identical to that of the Partnership, (vii) prior to such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease, PSE&G has
received an opinion of counsel (which may be regular tax or other counsel to
PSE&G or an affiliate, but not an employee thereof) experienced in such matters
to the effect that (w) holders of outstanding Preferred Securities will not
recognize any gain or loss for United States federal income tax purposes as a
result of the consolidation, amalgamation, merger, replacement, conveyance,
transfer or lease, (x) such successor entity will be treated as a partnership
for United States federal income tax purposes, (y) following such
consolidation, amalgamation, merger, replacement, conveyance, transfer or
lease, PSE&G and such successor entity will be in compliance with the
Investment Company Act of 1940, as amended (the "1940 Act") without registering
thereunder as an investment company, and (z) such consolidation, amalgamation,
merger, replacement, conveyance, transfer or lease will not adversely affect
the limited liability of holders of Preferred Securities or Successor
Securities.
<PAGE>
Voting Rights

Except as provided below and under " Merger, Consolidation, etc. of
the Partnership" and "Description of the Guarantee Amendments", and as
otherwise required by law and the Limited Partnership Agreement, the holders of
the Preferred Securities will have no voting rights.

If (i) the Partnership fails to pay Dividends in full on the Preferred
Securities for 18 consecutive monthly distribution periods, (ii) an Event of
Default (as defined in the Indenture and described below) occurs and is
continuing, or (iii) PSE&G is in default on any of its payment or other
obligations under the Guarantee, then the holders of the Preferred Securities,
acting as a single class, will be entitled by a vote of the majority of the
aggregate stated liquidation preference of all outstanding Preferred Securities
having a right to vote to appoint and authorize a special representative
("Special Representative") to enforce the Partnership's rights against PSE&G
under the Subordinated Debentures and the Indenture and the obligations
undertaken by PSE&G under the Guarantee, including, after failure to pay
Dividends for 60 consecutive monthly distribution periods on the Preferred
Securities, the payment of Dividends on the Preferred Securities. The Special
Representative shall not be admitted as a partner of the Partnership or
otherwise be deemed a partner of the Partnership and shall have no liability
for the debts, obligations or liabilities of the Partnership.

For purposes of determining whether the Partnership has failed to pay
Dividends in full for 18 consecutive monthly distribution periods, Dividends
shall be deemed to remain in arrears, notwithstanding any payments in respect
thereof, until full cumulative Dividends on all Preferred Securities have been
or contemporaneously are paid with respect to all monthly distribution periods
terminating on or prior to the date of payment of such full cumulative
Dividends. Subject to the requirements of applicable law, not later than 30
days after the right to appoint a Special Representative arises, the General
Partner will convene a general meeting. If the General Partner fails to convene
a meeting within such 30-day period, the holders of 10% of the aggregate stated
liquidation preference of the Preferred Securities will be entitled to convene
such meeting. The provisions of the Limited Partnership Agreement relating to
the convening and conduct of the general meetings of security holders will
apply with respect to any such meeting. Any Special Representative so appointed
shall vacate office immediately if the Partnership (or PSE&G pursuant to the
Guarantee) shall have paid in full all accumulated and unpaid Dividends on the
Preferred Securities or the Event of Default under the Indenture or the default
under the Guarantee, as the case may be, shall have been cured.
Notwithstanding the appointment of any such Special Representative, PSE&G
retains all rights under the Indenture, including the right to extend the
interest payment period as provided under "Description of the Subordinated
Debentures Option to Extend Interest Payment Period."

If any proposed amendment to the Limited Partnership Agreement
provides for, or the General Partner otherwise proposes to effect, any action
which would materially adversely affect the powers, preferences or special
rights attached to any series of Preferred Securities, whether by way of
<PAGE>
amendment to the Limited Partnership Agreement or otherwise, then the holders
of such series of Preferred Securities will be entitled to vote on such
amendment or action of the General Partner (but not on any other amendment or
action) and, in the case of an amendment or action which would equally
adversely affect the rights or preferences of any other Preferred Securities,
such Preferred Securities shall vote together as a class on such amendment or
action of the General Partner (but not on any other amendment or action), and
such amendment or action shall not be effective except with the approval of the
holders of not less than 66-2/3% of the aggregate stated liquidation preference
of such series of Preferred Securities. In addition to the circumstances
described under " Liquidation Distribution" above, the Partnership may be
dissolved and wound up with the consent of the holders of all Preferred
Securities then outstanding.

The powers, preferences or special rights attached to any Preferred
Securities will be deemed not to be adversely affected by the creation or issue
of, and no vote will be required for the creation or issue of, any additional
series of Preferred Securities or additional general partner interests.
Holders of Preferred Securities have no preemptive rights.

So long as any Subordinated Debentures are held by the Partnership,
the General Partner, unless so directed by the Special Representative, shall
not (i) direct the time, method and place of conducting any proceeding for any
remedy available to the holders of the Subordinated Debentures or the Trustee
under the Indenture, or executing any trust or power conferred on the Trustee,
(ii) waive any default under the Indenture, (iii) exercise any right to rescind
or annul a declaration that the principal of all the Subordinated Debentures
shall be due and payable or (iv) consent to any amendment, modification or
termination of the Indenture, where consent by the holder of the Subordinated
Debentures shall be required, without, in each case, obtaining the prior
approval of the holders of at least 66-2/3% in aggregate stated liquidation
preference of all series of Preferred Securities, acting as a single class;
provided, however, that where a consent under the Indenture would require the
consent of each holder of the Subordinated Debentures affected thereby, no such
consent shall be given by the General Partner without the prior consent of each
holder of all series of Preferred Securities. The General Partner shall not
revoke any action previously authorized or approved by a vote of any series of
Preferred Securities. The General Partner shall notify all holders of the
Preferred Securities of any notice of default received from the Trustee with
respect to the Subordinated Debentures.

Any required approval of holders of Preferred Securities may be given
at a separate meeting of such holders convened for such purposes, at a meeting
of all partners of the Partnership or pursuant to written consent. The
Partnership will cause a notice of any meeting at which holders of any series
of Preferred Securities are entitled to vote, or of any matter upon which
action by written consent of such holders is to be taken, to be mailed to each
holder of record of such series of Preferred Securities. Each such notice will
include a statement setting forth (i) the date of such meeting or the date by
which such action is to be taken, (ii) a description of any resolution proposed
for adoption at such meeting on which such holders are entitled to vote or of
such matter upon which written consent is sought, and (iii) instructions for
the delivery of proxies or consents.
<PAGE>
No vote or consent of the holders of the Preferred Securities will be
required for the Partnership to redeem and cancel Preferred Securities in
accordance with the Limited Partnership Agreement.

Notwithstanding that holders of Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by PSE&G or any entity owned more than 50%
by PSE&G, either directly or indirectly, shall not be entitled to so vote or
consent and shall, for the purposes of such vote or consent, be treated as if
they were not outstanding.

The holders of the Preferred Securities will have no rights to remove
or replace the General Partner. PSE&G may, without the consent of any holder
of Preferred Securities, transfer its general partner interests in the
Partnership to any direct or indirect wholly owned subsidiary of PSE&G.

Book-Entry-Only Issuance The Depository Trust Company

DTC will act as securities depository for the Preferred Securities
offered hereby. Each series of Preferred Securities offered hereby will be
issued only as fully registered securities registered in the name of Cede & Co.
(DTC's nominee). One or more fully registered global Preferred Security
certificates will be issued, representing in the aggregate the total number of
Preferred Securities of each series, and will be deposited with DTC.

DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC holds securities that its participants ("Participants") deposit with
DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations ("Direct Participants").
DTC is owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc., and the National Association
of Securities Dealers, Inc. Access to the DTC system is also available to
others such as securities brokers and dealers, banks and trust companies that
clear through or maintain a custodial relationship with a Direct Participant,
either directly or indirectly ("Indirect Participants"). The rules applicable
to DTC and its Participants are on file with the SEC.

Purchases of Preferred Securities under the DTC system must be made by
or through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser
of each Preferred Security ("Beneficial Owner") is in turn to be recorded on
the Direct and Indirect Participants' records. Beneficial Owners will not
receive written confirmation from DTC of their purchases, but Beneficial Owners
are expected to receive written confirmations providing details of the
<PAGE>
transactions, as well as periodic statements, of their holdings, from the
Direct or Indirect Participants through which the Beneficial Owners purchased
the Preferred Securities. Transfers of ownership interests in the Preferred
Securities are to be accomplished by entries made on the books of Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in Preferred Securities,
except in the event that use of the book-entry system for the Preferred
Securities is discontinued.

DTC has no knowledge of the actual Beneficial Owners of the Preferred
Securities. DTC's records reflect only the identity of the Direct Participants
to whose accounts such Preferred Securities are credited, which may or may not
be the Beneficial Owners. The Participants will remain responsible for keeping
account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
and Indirect Participants to Beneficial Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.

Redemption notices shall be sent to Cede & Co. If less than all of a
series of Preferred Securities are being redeemed, DTC's practice is to
determine by lot the amount of the interest of each Direct Participant in such
series to be redeemed.

Although voting with respect to the Preferred Securities is limited,
in those cases where a vote is required, neither DTC nor Cede & Co. will
consent or vote with respect to Preferred Securities. Under its usual
procedure, DTC would mail an Omnibus Proxy to the Partnership as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
Preferred Securities are credited on the record date (identified in a listing
attached to the Omnibus Proxy).

Payments on the Preferred Securities will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the relevant payment
date in accordance with their respective holdings shown on DTC's records unless
DTC has reason to believe that it will not receive payments on such payment
date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customer practices and will be the responsibility of
such Participant and not of DTC, the Partnership or PSE&G, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of distributions to DTC is the responsibility of the Partnership,
disbursement of such payments to Direct Participants is the responsibility of
DTC, and disbursement of such payments to the Beneficial Owners is the
responsibility of Direct and Indirect Participants.

The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that PSE&G and the Partnership believe to
be reliable, but neither PSE&G nor the Partnership takes responsibility for the
accuracy thereof.
<PAGE>
DTC may discontinue providing its services as securities depository
with respect to any series of the Preferred Securities at any time by giving
reasonable notice to the Partnership. Under such circumstances, in the event
that a successor securities depository is not obtained, certificates
representing such Preferred Securities are required to be printed and
delivered. Additionally, the General Partner may decide to discontinue use of
the system of book-entry transfers through DTC (or a successor depository),
including for the purpose of effectuating a partial redemption of a series of
Preferred Securities in which only the Preferred Securities of certain holders
will be redeemed.

In the event that the book-entry-only system is discontinued, the
General Partner will appoint a registrar, transfer agent and paying agent for
the Preferred Securities. Registration of transfers of Preferred Securities
will be effected without charge by or on behalf of the Partnership, but upon
payment of any tax or other governmental charges which may be imposed in
relation to it. The Partnership will not be required to register or cause to
be registered the transfer of Preferred Securities after such Preferred
Securities have been called for redemption.

Miscellaneous

The General Partner is authorized and directed to use its best efforts
to manage the affairs of the Partnership in such a way that the Partnership
would not be deemed to be an "investment company" required to be registered
under the 1940 Act or taxed as a corporation for United States federal income
tax purposes and so that the Subordinated Debentures will be treated as
indebtedness of PSE&G for federal income tax purposes. In this connection, the
General Partner is authorized to take any action that is not inconsistent with
applicable law, the Certificate of Limited Partnership of the Partnership or
the Limited Partnership Agreement, that does not materially adversely affect
the interests of holders of Preferred Securities and that the General Partner
determines in its discretion to be necessary or desirable for such purposes.

The Partnership may not borrow money or issue debt or mortgage or
pledge any of its assets.

DESCRIPTION OF THE GUARANTEE

The following is a summary of certain provisions of the Guarantee
which will be executed and delivered by PSE&G concurrently with the issuance of
each series of Preferred Securities offered hereby for the benefit of the
holders from time to time of that series of the Preferred Securities. The
summary is subject to, and qualified by reference to the Payment and Guarantee
Agreement, which is filed as an exhibit to the Registration Statement of which
this Prospectus forms a part. Reference in the summary to Preferred Securities
means the series of the Preferred Securities to which a Guarantee relates.

General

PSE&G will irrevocably and unconditionally agree, to the extent set
forth herein, to pay in full, to the holders of the Preferred Securities, the
<PAGE>
Guarantee Payments (as defined below) (except to the extent paid by the
Partnership), as and when due, regardless of any defense, right of set-off or
counterclaim which the Partnership may have or assert. The following payments,
to the extent not paid by the Partnership (the "Guarantee Payments"), will be
subject to the Guarantee (without duplication): (i) any accumulated and unpaid
Dividends on the Preferred Securities to the extent that the Partnership has
funds on hand legally available therefor, (ii) the redemption price with
respect to any Preferred Securities called for redemption to the extent that
the Partnership has funds on hand legally available therefor, (iii) upon
liquidation of the Partnership (unless the Subordinated Debentures are
distributed to holders of the Preferred Securities), the lesser of (a) the
Liquidation Distribution and (b) the amount of assets of the Partnership
legally available for distribution to holders of Preferred Securities, and (iv)
any Additional Amounts payable with respect to a particular series of Preferred
Securities. PSE&G's obligation to make a Guarantee Payment may be satisfied by
direct payment of the required amounts by PSE&G to the holders of Preferred
Securities or by causing the Partnership to pay such amounts to such holders.
While the assets of the General Partner will not be available for making
distributions on the Preferred Securities, they will be available for payment
of the expenses of the Partnership. Accordingly, the Guarantee, together with
the related covenants contained in the Limited Partnership Agreement and
PSE&G's obligations under the Indenture and the Subordinated Debentures,
provide for PSE&G's full and unconditional guarantee of the Preferred
Securities as set forth above.

Status of the Guarantee

The Guarantee will constitute an unsecured obligation of PSE&G and
will rank subordinate and junior in right of payment to all general liabilities
of PSE&G. The Limited Partnership Agreement provides that each holder of
Preferred Securities by acceptance thereof agrees to the subordination
provisions and other terms of the Guarantee.

The Guarantee related to a series of Preferred Securities will rank
pari passu with all other Guarantees issued by PSE&G in connection with other
series of Preferred Securities.

The Guarantee will constitute a guarantee of payment and not of
collection. The Guarantee will be held for the benefit of the holders of the
Preferred Securities. In the event of the appointment of a Special
Representative, the Special Representative may enforce the Guarantee. The
holders of not less than 10% in aggregate stated liquidation preference of the
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding to enforce the Guarantee, including the giving of
directions to the General Partner or the Special Representative, as the case
may be. If the General Partner or the Special Representative fails to enforce
the Guarantee, any holder of Preferred Securities may institute a legal
proceeding directly against PSE&G to enforce its rights under the Guarantee
without first instituting a legal proceeding against the Partnership or any
other person or entity. The Guarantee will not be discharged except by payment
of the Guarantee Payments in full to the extent not paid by the Partnership.
<PAGE>
Certain Covenants of PSE&G

Under the Guarantee, PSE&G will covenant that, so long as any
Preferred Securities remain outstanding, PSE&G may not declare or pay any
dividend on, or redeem, purchase, acquire or make a liquidation payment with
respect to, any shares of its capital stock (i) during an Extension Period,
(ii) if PSE&G shall be in default with respect to its payment or other
obligations under the Guarantee or (iii) if there shall have occurred and is
continuing any event that, with giving of notice or the lapse of time or both,
would constitute an Event of Default under the Indenture.

Amendments

Except with respect to any changes which do not materially adversely
affect the rights of holders of Preferred Securities (in which case no vote
will be required), the Guarantee may be changed only with the prior approval of
the holders of not less than 66-2/3% of the aggregate stated liquidation
preference of the outstanding Preferred Securities. The manner of obtaining
any such approval of holders of the Preferred Securities will be as set forth
under "Description of the Preferred Securities Voting Rights."

Merger of PSE&G

So long as any Preferred Securities remain outstanding, PSE&G will
maintain its corporate existence; provided that PSE&G may consolidate with or
merge with or into any other person or sell, convey, transfer or lease its
properties and assets as an entirety or substantially as an entirety to any
person if the successor person shall be organized and existing under the laws
of the United States or any state thereof or the District of Columbia and shall
expressly assume the obligations of PSE&G under the Guarantee.

Termination of the Guarantee

The Guarantee will terminate and be of no further force and effect
upon full payment of the redemption price of the Preferred Securities or upon
full payment of the amounts payable upon liquidation of the Partnership. The
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of Preferred Securities must restore payment of
any sums paid under the Preferred Securities or the Guarantee.

DESCRIPTION OF THE SUBORDINATED DEBENTURES

The following is a summary of certain terms and provisions of the
Subordinated Debentures and the Indenture. The summary is subject to, and is
qualified by reference to the form of the Subordinated Debentures and the
Indenture, the forms of which are filed as exhibits to the Registration
Statement of which this Prospectus forms a part.
<PAGE>
General

Concurrently with the issuance of each series of the Preferred
Securities, the Partnership will loan the proceeds thereof and the General
Partner's concurrent investment in the Partnership to PSE&G. The loan will be
evidenced by a separate series of Subordinated Debentures issued by PSE&G to
the Partnership. The Subordinated Debentures will be unsecured subordinated
obligations of PSE&G issued under the Indenture. Each series of Subordinated
Debentures will be in the principal amount equal to the aggregate stated
liquidation preference of the related series of Preferred Securities plus the
General Partner's concurrent investment in the Partnership, will bear interest
at a rate equal to the Dividend rate or manner of calculation thereof on such
series of Preferred Securities payable on the Dividend dates and will rank pari
passu with all other series of Subordinated Debentures.

Option to Extend Interest Payment Period

Under the Indenture, PSE&G shall have the right at any time and from
time to time, so long as an Event of Default under the Indenture has not
occurred and is continuing, to extend the interest payment period for all
Subordinated Debentures for up to 60 consecutive months; provided that no
Extension Period shall extend beyond the stated maturity date or date of
redemption of any series of Subordinated Debentures. At the end of the
Extension Period, PSE&G is obligated to pay all interest then accrued and
unpaid (together with interest thereon to the extent permitted by applicable
law). During any Extension Period, PSE&G may not declare or pay any dividend
on, or redeem, purchase, acquire, or make a liquidation payment with respect
to, any of its capital stock. Prior to the termination of any Extension
Period, PSE&G may further extend the interest payment period, provided that
such Extension Period, together with all such previous and further extensions
thereof, may not exceed 60 consecutive months. Upon the termination of any
Extension Period and the payment of all amounts then due, PSE&G may select a
new Extension Period subject to the above requirements. PSE&G is required to
give the Partnership, or the holders of the Subordinated Debentures if the
Subordinated Debentures have been distributed to the holders of the Preferred
Securities, notice of its selection of such extended interest payment period
one Business Day prior to the date the Partnership or the Company is required
to give notice to any national securities exchange on which any series of the
Preferred Securities or Subordinated Debentures are listed or other applicable
self-regulatory organization or to holders of the Preferred Securities of the
record date or the date such Dividend is payable, but in any event not less
than two Business Days prior to such record date. PSE&G shall cause the
Partnership to give such notice of PSE&G's selection of such extended interest
payment period to the holders of the Preferred Securities.

If during any Extension Period, PSE&G fails to pay dividends upon any
shares of PSE&G's preferred stock for four consecutive quarterly periods,
pursuant to PSE&G's Restated Certificate of Incorporation, as amended, the
holders of PSE&G's preferred stock, voting separately as a single class, are
entitled to elect a majority of PSE&G's Board of Directors. Such voting rights
of the holders of preferred stock to elect directors shall continue until all
accumulated and unpaid dividends thereon have been paid.
<PAGE>
Additional Interest

In connection with the issuance of any series of Preferred Securities,
the Partnership may agree to pay the holders of such series certain additional
amounts ("Additional Amounts") relating to certain tax events or tax treatment
of the Subordinated Debentures or the Partnership. Such Additional Amounts
will be described in the Prospectus Supplement for such series. If at any time
the Partnership shall be required to pay any Additional Amounts in respect of
the Preferred Securities pursuant to the terms thereof, then PSE&G will pay as
interest on the Subordinated Debentures ("Additional Interest") an amount equal
to such Additional Amounts. In addition, if the Partnership would be required
to pay any taxes, duties, assessments or other governmental charges of whatever
nature (other than withholding taxes) imposed by the United States, or any
other taxing authority, PSE&G also will pay as Additional Interest such amounts
as shall be required so that the net amounts received and retained by the
Partnership after paying any such taxes, duties, assessments or governmental
charges will be not less than the amounts the Partnership would have received
had no such taxes, duties, assessments or governmental charges been imposed.

Redemption

If the Partnership redeems any series of the Preferred Securities, in
whole or in part, in accordance with the terms thereof, PSE&G shall redeem
Subordinated Debentures of the corresponding series, in a principal amount
equal to the aggregate stated liquidation preference of the Preferred
Securities so redeemed, at a redemption price equal to 100% of the aggregate
principal amount of such Subordinated Debentures to be redeemed, plus any
accrued but unpaid interest, including Additional Interest, if any. In
addition, unless otherwise provided in the applicable Prospectus Supplement,
PSE&G will have the right to redeem the Subordinated Debentures of any series,
in whole or in part, at any time on or after the first date on which the
corresponding series of Preferred Securities becomes redeemable, and upon such
other events as may be specified in the applicable Prospectus Supplement, at a
redemption price equal to 100% of the aggregate principal amount of such
Subordinated Debentures to be redeemed, plus any accrued but unpaid interest,
including Additional Interest, if any, to the date fixed for redemption, upon
not less than 30 nor more than 60 days' notice.

The Subordinated Debentures shall be subject to mandatory redemption
upon the dissolution and winding up of the Partnership, unless in connection
with such dissolution and winding up, the Subordinated Debentures are
distributed to the holders of the Preferred Securities.

Subordination

The Indenture provides that all payments by PSE&G in respect of the
Subordinated Debentures shall be subordinated to the prior payment in full of
all amounts payable on Senior Indebtedness. The term "Senior Indebtedness"
means (i) the principal of and premium (if any) in respect of (A) indebtedness
of PSE&G for money borrowed and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments issued by PSE&G; (ii) all
capital lease obligations of PSE&G; (iii) all obligations of PSE&G issued or
<PAGE>
assumed as the deferred purchase price of property, all conditional sale
obligations of PSE&G and all obligations of PSE&G under any title retention
agreement (but excluding trade accounts payable arising in the ordinary course
of business); (iv) certain obligations of PSE&G for the reimbursement of any
obligor on any letter of credit, banker's acceptance, security purchase
facility or similar credit transaction entered into in the ordinary course of
business of PSE&G; (v) all obligations of the type referred to in clauses (i)
through (iv) of other persons and all dividends of other persons (other than
Preferred Securities) for the payment of which, in either case, PSE&G is
responsible or liable as obligor, guarantor or otherwise; and (vi) all
obligations of the type referred to in clauses (i) through (v) of other persons
secured by any lien on any property or asset of PSE&G (whether or not such
obligation is assumed by PSE&G), except for any such indebtedness that is by
its terms subordinated to or pari passu with the Subordinated Debentures and
for indebtedness between or among PSE&G and its affiliates.

Upon any payment or distribution of assets or securities of PSE&G,
upon any dissolution or winding up or total or partial liquidation or
reorganization of PSE&G, whether voluntary or involuntary, or in bankruptcy,
insolvency, receivership or other proceedings, all amounts payable on Senior
Indebtedness (including any interest accruing on such Senior Indebtedness
subsequent to the commencement of a bankruptcy, insolvency or similar
proceeding) shall be paid in full before the holders of the Subordinated
Debentures or the Trustee on behalf of the holders shall be entitled to receive
from PSE&G any payment of principal of, premium, if any, or interest on the
Subordinated Debentures or distributions of any assets or securities.

No direct or indirect payment by or on behalf of PSE&G of principal
of, premium, if any, or interest on the Subordinated Debentures, whether
pursuant to the terms of the Subordinated Debentures or upon acceleration or
otherwise, shall be made if, at the time of such payment, there exists (i) a
default in the payment of all or any portion of any Senior Indebtedness or (ii)
any other default pursuant to which the maturity of Senior Indebtedness has
been accelerated and, in either case, requisite notice has been given to PSE&G
and the Trustee and such default shall not have been cured or waived by or on
behalf of the holders of such Senior Indebtedness.

If the Trustee or the holders of the Subordinated Debentures shall
have received any payment on account of the principal of, premium, if any, or
interest on the Subordinated Debentures when such payment is prohibited and
before all amounts payable on Senior Indebtedness are paid in full, then such
payment shall be received and held in trust for the holders of Senior
Indebtedness and shall be paid over or delivered to the holders of the Senior
Indebtedness remaining unpaid to the extent necessary to pay such Senior
Indebtedness in full.

Nothing in the Indenture shall limit the right of the Trustee or the
holders of the Subordinated Debentures to take any action to accelerate the
maturity of the Subordinated Debentures or to pursue any rights or remedies
against PSE&G; provided that all Senior Indebtedness shall be paid before
holders of the Subordinated Debentures are entitled to receive any payment from
PSE&G of principal of or interest on the Subordinated Debentures.
<PAGE>
Upon the payment in full of all Senior Indebtedness, the holders of
the Subordinated Debentures shall be subrogated to the rights of the holders of
such Senior Indebtedness to receive payments or distributions of assets of
PSE&G made on such Senior Indebtedness until the Subordinated Debentures shall
be paid in full.

The Indenture does not limit the aggregate amount of Senior
Indebtedness which PSE&G may issue.

Book-Entry System in the Event of Distribution of Subordinated Debentures

In the event that the Subordinated Debentures are to be distributed to
the holders of the Preferred Securities, it is anticipated that such
distribution would occur in book-entry form and that DTC, or any successor
depositary for the Preferred Securities, would act as depositary for the
Subordinated Debentures and that the depositary arrangements for the
Subordinated Debentures would be substantially identical to those in effect for
the Preferred Securities. For a description of DTC and the terms of the
depositary arrangements relating to payments, transfers, voting rights,
redemption and other notices and other matters, see "Description of the
Preferred Securities Book-Entry-Only Issuance The Depository Trust
Company".

Except under certain limited circumstances as described under
"Description of the Preferred Securities Book-Entry-Only Issuance The
Depository Trust Company" for delivery of certificates evidencing beneficial
ownership in the Preferred Securities, the Subordinated Debentures would not be
issuable as, or exchangeable for, Subordinated Debentures in definitive
certificated form. In the event that Subordinated Debentures were to be issued
in certificated form, principal and interest on such Subordinated Debentures
would be payable at, and transfers or exchanges of such Subordinated Debentures
would be effected at, the office or agency of PSE&G designated for such
purposes. In addition, if the Subordinated Debentures are issued in
certificated form, the record dates for payment of interest will be the
fifteenth day of each month.

Certain Covenants of PSE&G

PSE&G will covenant that may it not declare or pay any dividend on, or
redeem, purchase, acquire or make a liquidation payment with respect to, any of
its capital stock (i) during an Extension Period, (ii) if there shall have
occurred and is continuing any event that, with the giving of notice or the
lapse of time or both, would constitute an Event of Default under the Indenture
or (iii) if PSE&G shall be in default with respect to its payment or other
obligations under the Guarantee. PSE&G will covenant under the Indenture that,
in the event that it transfers its general partner interests in the Partnership
to a direct or indirect wholly owned subsidiary, PSE&G will (i) maintain direct
or indirect 100% ownership of the General Partner and cause the General Partner
to maintain 100% ownership of the general partner interests of the Partnership,
(ii) cause the General Partner to at all times maintain a "fair market net
worth" of at least 10% of the total capital contributions (less redemptions) to
the Partnership and to contribute capital equal to at least 3% of the aggregate
capital contributed to the Partnership, (iii) cause the General Partner to
<PAGE>
timely perform all of its duties as general partner of the Partnership
(including the duty to pay Dividends on the Preferred Securities to the extent
the Partnership has funds legally available therefor), and (iv) to use its
reasonable efforts to cause the Partnership to remain a limited partnership and
otherwise continue to be treated as a partnership for United States federal
income tax purposes.

The Partnership may not waive compliance or waive any default in
compliance by PSE&G with any covenant or other term in the Indenture without
the approval of the Special Representative or without the direction of the
holders of 66-2/3% of the aggregate stated liquidation preference of the
Preferred Securities, provided, however, that a default in the payment of
principal of or interest on the Subordinated Debentures may be waived only with
the consent of all of the holders of the Preferred Securities. In the event
that the Subordinated Debentures are distributed to the holders of the
Preferred Securities, any waiver of compliance or any default in compliance by
PSE&G with any covenant or other term in the Indenture will require the
approval of 66-2/3% of the aggregate principal amount of the Subordinated
Debentures, provided, however, that a default in the payment of principal of or
interest on the Subordinated Debenture may be waived only with the consent of
all of the holders of the Subordinated Debentures.

Modification of the Indenture

From time to time, PSE&G and the Trustee, without notice to or the
consent of any holders of the Subordinated Debentures or the Special
Representative may amend or supplement the Indenture or the Subordinated
Debentures for any of the following purposes: (i) to cure any ambiguity, defect
or inconsistency; (ii) to comply with the provisions of the Indenture regarding
consolidation, merger or the sale, conveyance, transfer or lease of the
properties as an entirety or substantially as an entirety of PSE&G; (iii) to
provide for uncertificated Subordinated Debentures in addition to or in place
of certificated Subordinated Debentures; (iv) to make any other change that
does not in the reasonable judgment of the Company adversely affect the rights
of any holder of the Subordinated Debentures; (v) to comply with any
requirement of the SEC in connection with the qualification of the Indenture
under the Trust Indenture Act of 1939, as amended; or (vi) to set forth the
terms and conditions, which shall not be inconsistent with the Indenture, of
each series of Subordinated Debentures (other than the first series of
Subordinated Debentures) and the form of Subordinated Debentures of such
series.

The Indenture contains provisions permitting PSE&G and the Trustee to
modify the Indenture or any supplemental indenture or the rights of the holders
of the Subordinated Debentures issued under the Indenture or to waive future
compliance by PSE&G with the provisions of the Indenture, with the consent of
(i) in the event the Partnership is the sole holder of the Debentures, the
Special Representative, or, if no Special Representative has been appointed,
the Partnership at the direction of the holders of not less than 66-2/3% of the
aggregate stated liquidation preference of the Preferred Securities, or (ii) in
the event that the Subordinated Debentures have been distributed to the holders
of the Preferred Securities, the holders of 66-2/3% of the aggregate principal
amount of the Subordinated Debentures provided that no such modification,
<PAGE>
without the consent of (i) each holder of the Preferred Securities, or (ii)
each holder of the Subordinated Debentures in the event the Subordinated
Debentures have been distributed to the holders of the Preferred Securities,
may, (a) reduce the principal of the Subordinated Debentures, (b) reduce the
percentage of principal amount of outstanding Subordinated Debentures of any
series, the consent of holders of which is required for amendment of the
Indenture or for waiver of compliance with certain provisions of the Indenture
or for waiver of certain defaults, (c) change the stated maturity of the
principal of, or premium, if any, or interest on or the rate of interest of, or
Additional Interest with respect to, the Subordinated Debentures, (d) change
the obligation of PSE&G to pay Additional Interest on any Subordinated
Debenture, (e) change redemption provisions applicable to the Subordinated
Debentures adversely to the holders thereof, (f) impair the right to institute
suit for the enforcement of any payment with respect to the Subordinated
Debentures, (g) change the currency in which payments with respect to the
Subordinated Debentures are to be made or, (h) change the subordination
provisions applicable to the Subordinated Debentures adversely to the holders
thereof.

Events of Default

The following are "Events of Default" under the Indenture: (i)
default for 10 days in payment of any interest (including Additional Interest)
on any Subordinated Debentures (other than the payment of interest during an
Extension Period); (ii) default in payment of principal of (or premium, if any,
on) any Subordinated Debentures; (iii) default for 60 days after notice in the
performance of any other covenant in the Indenture or (iv) certain events of
bankruptcy, insolvency or reorganization of PSE&G. In case an Event of Default
under the Indenture shall occur and be continuing, other than an Event of
Default relating to bankruptcy, insolvency or reorganization of PSE&G, in which
case the principal of and any interest on all of the Subordinated Debentures
shall become immediately due and payable, the Trustee, the Special
Representative or the holders of not less than 25% in aggregate principal
amount of the Subordinated Debentures may declare the principal of and any
interest on all the Subordinated Debentures to be due and payable. Under
certain circumstances, any declaration of acceleration with respect to
Subordinated Debentures may be rescinded only by (i) in the event the
Partnership is the sole holder of the Debentures, the Special Representative,
or, if no Special Representative has been appointed, the Partnership at the
direction of the holders of 66-2/3% in aggregate stated liquidation preference
of Preferred Securities, or (ii) in the event that the Subordinated Debentures
have been distributed by the Partnership to the holders of the Preferred
Securities, by the vote of holders of 66- 2/3% in aggregate principal amount of
the Subordinated Debentures.

PSE&G is required to furnish to the Trustee annually a statement as to
the performance by PSE&G of its obligations under the Indenture and as to any
default in such performance.

Enforcement of Certain Rights of Holders of Preferred Securities

The holders of the Preferred Securities will have the rights referred
to under "Description of Preferred Securities Voting Rights", including the
right to appoint a Special Representative authorized to exercise the rights of
<PAGE>
the Partnership, as the holder of the Subordinated Debentures, to declare the
principal of and any interest on the Subordinated Debentures due and payable
following an Event of Default under the Indenture and to enforce the
obligations of PSE&G under the Subordinated Debentures and the Indenture
directly against PSE&G, without first proceeding against the Partnership or any
other person or entity.

Consolidation, Merger, Sale or Conveyance

The Indenture provides that PSE&G may not consolidate with or merge
with or into any other person or sell, convey, transfer or lease its properties
and assets as an entirety or substantially as an entirety to any person, unless
(i) the successor person shall be organized and existing under the laws of the
United States or any state thereof or the District of Columbia, and shall
expressly assume by a supplemental indenture all of the obligations of PSE&G
under the Subordinated Debentures and the Indenture and (ii) immediately after
giving effect to such transaction, no Event of Default, and no event which,
after notice or lapse of time or both, would become an Event of Default, shall
have occurred and be continuing.

Defeasance and Discharge

Under the terms of the Indenture, PSE&G will be discharged from any
and all obligations in respect of the Subordinated Debentures of any series if
PSE&G deposits with the Trustee, in trust, (i) cash and/or (ii) United States
Government Obligations (as defined in the Indenture), which through the payment
of interest thereon and principal thereof in accordance with their terms will
provide cash in an amount sufficient to pay all the principal of, and interest
on, the Subordinated Debentures of such series on the dates such payments are
due in accordance with the terms of such Subordinated Debentures.

Information Concerning the Trustee

Subject to the provisions of the Indenture relating to its duties, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request, order or direction of any of the holders of
the Subordinated Debentures, unless such holders shall have offered to the
Trustee reasonable indemnity. Subject to such provision for indemnification,
Subordinated Debentures then outstanding or the Special Representative if one
has been appointed or the Partnership, at the direction of the holders of
66-2/3% of the aggregate stated liquidation preference of the Preferred
Securities or the holders of a 66-2/3% in principal amount of the Subordinated
Debentures if the Subordinated Debentures have been distributed to the holders
of the Preferred Securities will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee
thereunder, or exercising any trust or power conferred on the Trustee.

The Indenture contains limitations on the right of the Trustee, as a
creditor of PSE&G, to obtain payment of claims in certain cases, or to realize
on certain property received in respect of any such claim as security or
otherwise. In addition, the Trustee may be deemed to have a conflicting
interest and may be required to resign as Trustee if at the time of default
under the Indenture (i) it is a creditor of PSE&G or (ii) if there is a default
under the Indenture referred to below.
<PAGE>
First Fidelity Bank, National Association, is the Trustee under
PSE&G's Indenture dated August 1, 1924, with respect to PSE&G's First and
Refunding Mortgage Bonds. PSE&G also maintains other normal banking
relationships with First Fidelity Bank, National Association.

First Fidelity Bank, National Association, is a subsidiary of First
Fidelity Bancorporation. E. James Ferland, Chairman of the Board, President
and Chief Executive Officer of PSE&G, is a director of First Fidelity
Bancorporation and of First Fidelity Bank, National Association.

PLAN OF DISTRIBUTION

The Partnership may offer or sell Preferred Securities offered hereby
to one or more underwriters for public offering and sale by them. The
Partnership may sell Preferred Securities as soon as practicable after
effectiveness of the Registration Statement. Any such underwriter involved in
the offer and sale of the Preferred Securities will be named in an applicable
Prospectus Supplement.

Underwriters may offer and sell the Preferred Securities at a fixed
price or prices, which may be changed, or from time to time at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. In connection with the sale of Preferred
Securities, underwriters may be deemed to have received compensation from PSE&G
and/or the Partnership in the form of underwriting discounts or commissions and
may also receive commissions. Underwriters may sell Preferred Securities to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters.

Any underwriting compensation paid by PSE&G and/or the Partnership to
underwriters in connection with the offering of Preferred Securities, and any
discounts, concessions or commissions allowed by underwriters to participating
dealers, will be set forth in an applicable Prospectus Supplement.
Underwriters and dealers participating in the distribution of the Preferred
Securities may be deemed to be underwriters, and any discounts and commissions
received by them and any profit realized by them on resale of the Preferred
Securities may be deemed to be underwriting discounts and commissions, under
the Securities Act. Underwriters and dealers may be entitled, under agreement
with PSE&G and the Partnership, to indemnification against and contribution
toward certain civil liabilities, including liabilities under the Securities
Act, and to reimbursement by PSE&G for certain expenses.

In connection with the offering of any series of Preferred Securities,
the Partnership may grant to the Underwriters an option to purchase additional
Preferred Securities of such series to cover over-allotments, if any, at the
initial public offering price (with an additional underwriting commission), as
may be set forth in the accompanying Prospectus Supplement. If the Partnership
grants any over-allotment option, the terms of such over-allotment option will
be set forth in the Prospectus Supplement for such series of Preferred
Securities.
<PAGE>
Underwriters and dealers may engage in transactions with, or perform
services for, PSE&G and/or the Partnership and/or any of their affiliates in
the ordinary course of business.

Each series of Preferred Securities will be a new issue of securities
and will have no established trading market. Any underwriters to whom
Preferred Securities are sold by the Partnership for public offering and sale
may make a market in such Preferred Securities, but such underwriters will not
be obligated to do so and may discontinue any market making at any time without
notice. The Preferred Securities may or may not be listed on a national
securities exchange. No assurance can be given as to the liquidity of or the
existence of trading markets for any Preferred Securities.

LEGAL MATTERS

Certain legal matters will be passed upon for PSE&G and the
Partnership by R. Edwin Selover, Esquire, Senior Vice President and General
Counsel of PSE&G or James T. Foran, Esquire, General Corporate Counsel of PSE&G
and by Ballard Spahr Andrews & Ingersoll, Philadelphia, Pennsylvania, special
tax counsel to PSE&G, and for the underwriters by Brown & Wood, New York, New
York, who may rely on the opinion of Mr. Selover or Mr. Foran as to matters of
New Jersey law. R. Edwin Selover, Esquire or James T. Foran, Esquire and Brown
& Wood may rely on the opinion of Ballard Spahr Andrews & Ingersoll as to
matters of Pennsylvania law.

EXPERTS

The consolidated financial statements and schedules of PSE&G
incorporated by reference in this Prospectus have been audited by Deloitte &
Touche, independent auditors, for the periods indicated in their report thereon
which is included in the Annual Report on Form 10-K for the year ended December
31, 1993. The consolidated financial statements and schedules audited by
Deloitte & Touche have been incorporated herein by reference in reliance on
their report given on their authority as experts in accounting and auditing.
<PAGE>

No person has been authorized to give
any information or to make any
representations other than those
contained in this Prospectus Supplement
or the Prospectus and, if given or made,
such information or representations must
not be relied upon as having been
authorized. This Prospectus Supplement
and the Prospectus do not constitute an
offer to sell or the solicitation of any
offer to buy any securities other than
the securities described in this
Prospectus Supplement and the Prospectus
or an offer to sell or the solicitation
of an offer to buy such securities in
any circumstances in which such offer or
solicitation is unlawful. Neither the
delivery of this Prospectus Supplement
or the Prospectus nor any sale made
hereunder or thereunder shall, under any
circumstances, create any implication
that the information contained herein or
therein is correct as of any time
subsequent to the date of such
information.

_______________

TABLE OF CONTENTS

- Page-
----
Prospectus Supplement

Certain Investment
Considerations . . . . .
The Partnership. . . . .
Public Service Electric and
Gas Company. . . . . .
Coverage Ratios .. . . .
Certain Terms of the Series A
Preferred Securities .
Certain Terms of the Series A
Subordinated Debentures. .
United States Taxation .
Underwriting . . . . . .

Prospectus

Statement of Available
Information. . . . . . .
Incorporation of Certain Documents
by Reference . . . . .
The Partnership. . . . .
Public Service Electric and
Gas Company. . . . . .
Use of Proceeds. . . . .
Description of the Preferred
Securities . . . . . . .
Description of the Guarantee
Description of the Subordinated
Debentures
Plan of Distribution
Legal Matters
Experts

Preferred Securities

Public Service
Electric and
Gas Capital

% Cumulative
Monthly Income Preferred
Securities, Series A

guaranteed to the extent the
issuer has funds as set forth
herein by

Public Service
Electric and Gas
Company
________________

PROSPECTUS SUPPLEMENT
____________________

Goldman, Sachs & Co.
Bear, Stearns & Co. Inc.
Dean Witter Reynolds Inc.
Morgan Stanley & Co.Incorporated
PaineWebber Incorporated
Prudential Securities Incorporated
Smith Barney Inc.

Representatives of the Underwriters

<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution.*

Filing fees - Securities and Exchange
Commission . . . . . . . . . . . . . . . . $ 42,000
Printing . . . . . . . . . . . . . . . . . . . 16,000
New York Stock Exchange listing fee. . . . . . 51,650
Legal fees and Blue Sky fees and expenses. . .125,000
Accounting fees. . . . . . . . . . . . . . . . 30,000
Transfer Agent and Registrar . . . . . . . . . 10,000
Indenture Trustee fees and expenses. . . . . . 15,000
Rating agencies fees and expenses. . . . . . .120,000
Miscellaneous. . . . . . . . . . . . . . . . . 35,415
-------
Total . . . . . . . . . . . . . . . . . $445,065
========
* Estimated

Item 15. Indemnification of Directors and Officers.

Under Section 14A:3-5 of the New Jersey Business Corporation Act, PSE&G

(1) has power to indemnify each director and officer of PSE&G
(as well as its employees and agents) against expenses and liabilities in
connection with any proceeding involving him by reason of his being or
having been such director or officer, other than a proceeding by or in the
right of PSE&G, if (a) such director of officer acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best
interest of PSE&G, and (b) with respect to any criminal proceeding, such
director or officer had no reasonable cause to believe his conduct was
unlawful;

(2) has power to indemnify each director and officer of PSE&G
against expenses in connection with any proceeding by or in the right of
PSE&G to procure a judgment in its favor which involves such director or
officer by reason of his being or having been such director or officer, if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interest of PSE&G; however, in such proceeding no
indemnification may be provided in respect to any claim, issue or matter
as to which such director or officer shall have been adjudged to be liable
to PSE&G, unless and only to the extent that the court determines that the
director or officer is fairly and reasonably entitled to indemnity for
such expenses as the court shall deem proper;

(3) must indemnify each director and officer against expenses to
the extent that he has been successful on the merits or otherwise in any
proceeding referred to in (1) and (2) above or in defense of any claim,
issue or matter therein; and
<PAGE>
(4) has power to purchase and maintain insurance on behalf of a
director or officer against any expenses incurred in any proceeding and
any liabilities asserted against him by reason of his being or having been
a director or officer, whether or not PSE&G would have the power to
indemnify him against such expenses and liabilities under the statute.

As used in the statute, "expenses" means reasonable costs, disbursements
and counsel fees, "liabilities" means amounts paid or incurred in satisfaction
of settlements, judgments, fines and penalties, and "proceedings" means any
pending, threatened or completed civil, criminal, administrative or arbitrative
action, suit or proceeding, and any appeal therein and any inquiry or
investigation which could lead to such action, suit or proceeding.

Indemnification may be awarded by a court under (1) or (2) as well as under
(3) above, notwithstanding a prior determination by PSE&G that the director or
officer has not met the applicable standard of conduct.

Indemnification under the statute does not exclude any other rights to
which a director or officer may be entitled under a certificate of
incorporation, by-law, or otherwise.

Subdivision 1 of Article VI of PSE&G's Restated Certificate of
Incorporation, as amended, provides as follows:

1. Indemnification of Directors, Officers and
Employees:

The corporation shall indemnify to the full extent from time to
time permitted by law any person made, or threatened to be made, a party to any
pending, threatened or completed civil, criminal, administrative or arbitrative
action, suit or proceeding and any appeal therein (and any inquiry or
investigation which could lead to such action, suit or proceeding) by reason of
the fact that he is or was a director, officer or employee of the corporation
or serves or served any other enterprise as a director, officer or employee at
the request of the corporation. Such right of indemnification shall inure to
the benefit of the legal representative of any such person.

Subdivision 5 of Article VI of PSE&G's Restated Certificate of
Incorporation, as amended, provides as follows:

5. Limitation of Liability:

To the full extent from time to time permitted by law, directors
and officers of the corporation shall not be personally liable to the
corporation or its shareholders for damages for breach of any duty owed to the
corporation or its shareholders. No amendment or repeal of this provision
shall adversely affect any right or protection of a director or officer of the
corporation existing at the time of such amendment or repeal.
<PAGE>
The directors and officers of PSE&G are insured under policies of
insurance, within the limits and subject to the limitations of the policies,
against claims made against them for acts in the discharge of their duties, and
PSE&G is insured to the extent that it is required or permitted by law to
indemnify the directors and officers for such loss. The premiums for such
insurance are paid by PSE&G.

Pursuant to the Limited Partnership Agreement, to the fullest extent
permitted by applicable law, the Partnership shall indemnify and hold harmless
the General Partner or any Special Representative, any affiliate of the General
Partner or any Special Representative or any officers, directors, shareholders,
partners, employees, representatives or agents of the General Partner or any
Special Representative, or any employee or agent of the Partnership or its
affiliates (each, an "Indemnified Person") from and against any loss, damage or
claim incurred by such Indemnified Person by reason of any act or omission
performed or omitted by such Indemnified Person in good faith on behalf of the
Partnership and in a manner reasonably believed to be within the scope of
authority conferred on such Indemnified Person by the Limited Partnership
Agreement, except that no Indemnified Person shall be entitled to be
indemnified in respect of any loss, damage or claim incurred by such
Indemnified Person by reason of gross negligence, willful misconduct or fraud
with respect to such acts or omissions; provided, however, that any such
indemnity shall be provided out of and to the extent of the Partnership's
assets only, and no General Partner or limited partner (collectively,
"Partners"), any affiliate of a Partner or any officers, directors,
shareholders, partners, employees, representatives or agents of a Partner or
its respective affiliates, or any employee or agent of the Partnership or its
affiliates or any Special Representative shall have any personal liability on
account thereof. To the fullest extent permitted by applicable law, expenses
(including legal fees) incurred by an Indemnified Person in defending any
claim, demand, action, suit or proceeding shall, from time to time, be advanced
by the Partnership prior to the final disposition of such claim, demand,
action, suit or proceeding pursuant to an undertaking by or on behalf of the
Indemnified Person to repay such amount if it shall be determined that the
Indemnified Person is not entitled to be indemnified.

<PAGE>
Item 16. Exhibits

Exhibit
Numbers

1 Form of Underwriting Agreement.

3-1 Certificate of Limited Partnership for the Partnership.

3-2 Form of Action of the General Partner.

3-3 Limited Partnership Agreement of Public Service Electric and Gas Capital,
L.P.

3-4 Form of Amended and Restated Limited Partnership Agreement of Public
Service Electric and Gas Capital, L.P.

4-1 Form of Preferred Security Certificate (included in Exhibit 3-4).

4-2 Form of Deferrable Interest Subordinated Debenture (included in Exhibit
4-3).
4-3 Form of Deferrable Interest Subordinated Debenture Indenture.

4-4 Form of Deferrable Interest Subordinated Debenture Supplemental Indenture.

4-5 Form of Payment and Guarantee Agreement.

5 Opinion of James T. Foran, Esquire relating to the legality of the
Preferred Securities, Subordinated Debentures and Guarantees, including
consent.

8 Opinion of Ballard Spahr Andrews & Ingersoll as to tax matters and certain
matters of Pennsylvania law.

12-1 Computations of PSE&G's Ratio of Earnings to Fixed Charges (incorporated
by reference to Exhibit 12-1 of PSE&G's 1993 Report on Form 10-K and
PSE&G's Quarterly Report on Form 10-Q for the period ended June 30, 1994).

12-2 Computations of PSE&G Ratio of Earnings to Combined Fixed Charges plus
Preferred Stock Dividend Requirements (incorporated by reference to
Exhibit 12-2 of PSE&G's 1993 Report on Form 10-K and PSE&G's Quarterly
Report on Form 10-Q for the period ended June 30, 1994).

23-1 Consent of Independent Accountants.

23-2 Consent of James T. Foran, Esquire (included in Exhibit 5).

23-3 Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 8).

24 Power of Attorney.
<PAGE>
25 Statement of Eligibility under the Trust Indenture Act of 1939 of First
Fidelity Bank, National Association, designated to act as Trustee.

27 Financial Data Schedule

Item 17. Undertakings

A. To Update Annually

The Registrants hereby undertake (1) to file, during any period in
which offers or sales are being made, a post-effective amendment to this
registration statement: (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the registration statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement; provided, however, that paragraphs (1)(i) and (1)(ii)
do not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by PSE&G
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration statement; (2) that for
the purpose of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; and (3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

B. Incorporation by Reference

The Registrants hereby undertake that, for purposes of determining any
liability under the Securities Act of 1933, each filing of PSE&G's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934 that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

C. Indemnification

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrants, the Registrants have been advised that in the
opinion of the SEC such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrants of expenses incurred or paid by a director, officer
or controlling person of the Registrants in the successful defense of any
<PAGE>
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrants will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.

D. Equity Offerings of Nonreporting Registrants

The Partnership hereby undertakes to provide to the underwriter at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
<PAGE>
EXHIBIT 24

POWER OF ATTORNEY

Each Director of Public Service Electric and Gas Company whose
signature appears below hereby appoints Robert C. Murray the agent for service
named in this registration statement, as attorney-in-fact, to execute in the
name of each such person and to file with the Securities and Exchange
Commission any and all amendments, including post-effective amendments to this
registration statement.
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
registrant, Public Service Electric and Gas Capital, L.P., certifies that it
hasreasonable grounds to believe it meets all of the requirements for filing on
Form S-3 and has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Newark,
State of New Jersey, on this 6th day of October, 1994.

Public Service Electric and Gas Capital, L.P.

By: Public Service Electric and Gas Company,
its general partner

By /s/ E. James Ferland

E. James Ferland, Chairman of the
Board and Chief Executive Officer

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
registrant, Public Service Electric and Gas Company, certifies that it has
reasonable grounds to believe it meets all of the requirements for filing on
Form S-3 and has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Newark,
State of New Jersey, on the 6th day of October, 1994.

Public Service Electric and Gas Company

By /s/ E. James Ferland
E. James Ferland, Chairman of the
Board and Chief Executive Officer
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.

Signature Title Date

/s/ E. James Ferland Chairman of the Board and October 6, 1994
E. James Ferland Chief Executive Officer
and Director
(Principal Executive Officer)

/s/ Lawrence R. Codey President and Chief Operating October 6, 1994
Lawrence R. Codey Officer and Director

/s/ Robert C. Murray Senior Vice President-Finance October 6, 1994
Robert C. Murray and Chief Financial Officer
(Principal Financial Officer)

/s/ Patricia A. Rado Vice President and Controller October 6, 1994
Patricia A. Rado (Principal Accounting Officer)

/s/ Raymond V. Gilmartin Director October 6, 1994
Raymond V. Gilmartin

/s/ Shirley A. Jackson Director October 6, 1994
Shirley A. Jackson

/s/ Irwin Lerner Director October 6, 1994
Irwin Lerner

/s/ James C. Pitney Director October 6, 1994
James C. Pitney
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.

[INSERT ON SIDE OF PAGE 1]

<PAGE>
EXHIBIT 1

Public Service Electric and Gas Capital, L.P.
__% Cumulative Monthly Income Preferred Securities, Series __
(liquidation preference $__ per security)
guaranteed by

Public Service Electric and Gas Company

______________________

Underwriting Agreement
______________________

__________, 1994
Goldman, Sachs & Co.,
[Names of Other Representatives]
As representatives (the "Representatives") of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.

Dear Sirs:

Public Service Electric and Gas Capital, L.P., a New Jersey limited
partnership (the "Partnership") and Public Service Electric and Gas Company, a
New Jersey corporation (PSE&G), as general partner of the Partnership and
guarantor, propose, subject to the terms and conditions stated herein, that the
Partnership issue and sell to the Underwriters named in Schedule I hereto (the
"Underwriters") an aggregate of __________ shares (the "Firm Shares") and, at
the election of the Underwriters, up to __________ additional shares (the
"Optional Shares"), of __% Cumulative Monthly Income Preferred Securities,
Series __ (liquidation preference $__ per security), representing limited
partnership interests (the "Preferred Securities") of the Partnership
guaranteed by PSE&G on a limited basis as to the payment of dividends, as, if
and when declared and as to payments on liquidation or redemption, and
benefitting from certain additional undertakings of PSE&G pursuant to a Payment
and Guarantee Agreement entered into by PSE&G dated as of ______________, 1994
(the "Guarantee"). The Firm Shares and any Optional Shares which the
Underwriters elect to purchase pursuant to Section 2 hereof are referred to
herein collectively as the "Shares". Concurrently with the issuance of the
Series __ Preferred Securities, the Partnership will loan the proceeds thereof
to PSE&G and, to evidence such loan, PSE&G will issue and deliver to the
Partnership PSE&G's __% Deferrable Interest Subordinated Debentures, Series __
(the "Subordinated Debentures"). The Subordinated Debentures will be issued
<PAGE>
under an Indenture to be dated as of the First Time of Delivery (as defined in
Section 4 hereof) (the "Indenture"), between PSE&G and First Fidelity Bank,
National Association, as trustee (the "Trustee").

i. Each of the Partnership and PSE&G, jointly and severally,
represents and warrants to, and agrees with, each of the Underwriters that:

(1) A registration statement on Form S-3 (File No. _________) in
respect of, among other things, the Shares, the Guarantee and the
Subordinated Debentures (collectively, the "Registered Securities") has
been filed with the Securities and Exchange Commission (the "Commission")
pursuant to Rule 415 under the Securities Act of 1933, as amended (the
"Act"), and delivered to the Representatives; such registration statement
and any post-effective amendment thereto, each in the form heretofore
delivered to the Representatives and, excluding exhibits thereto but
including all documents incorporated by reference in the prospectus
contained therein, to the Representatives for each of the other
Underwriters, have been declared effective by the Commission In such form;
no other document with respect to such registration statement or document
incorporated by reference therein has heretofore been filed, or
transmitted for filing, with the Commission; and no stop order suspending
the effectiveness of such registration statement has been issued and no
proceeding for that purpose has been initiated or threatened by the
Commission (any preliminary prospectus included in such registration
statement or thereafter filed with the Commission pursuant to Rule 424(a)
of the rules and regulations of the Commission under the Act is referred
to herein as a "Preliminary Prospectus"; the various parts of such
registration statement, including all exhibits thereto and the documents
incorporated by reference in the prospectus contained in the registration
statement at the time such part of the registration statement became
effective, each as amended at the time such part of the registration
statement became effective, are referred to herein collectively as the
"Registration Statement"; the final prospectus, as supplemented by the
related prospectus supplement, in the form first filed pursuant to Rule
424(b) under the Act, is referred to herein collectively as the
"Prospectus"; any reference herein to any Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under
the Act, as of the date of such Preliminary Prospectus or Prospectus, as
the case may be; and any reference to any amendment or supplement to any
Preliminary Prospectus or the Prospectus shall be deemed to refer to and
include any documents filed after the date of such Preliminary Prospectus
or Prospectus, as the case may be, under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and incorporated by reference in
such Preliminary Prospectus or Prospectus, as the case may be; and any
reference to any amendment to the Registration Statement shall be deemed
to refer to and include any annual report of PSE&G filed pursuant to
Section 13(a) or 15(d) of the Exchange Act after the effective date of the
Registration Statement that is incorporated by reference in the
Registration Statement);
<PAGE>
(2) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Partnership or PSE&G by an
Underwriter through the Representatives expressly for use therein;

(3) The documents incorporated by reference in the Prospectus, when
they were filed with the Commission, conformed in all material respects to
the requirements of the Exchange Act, as applicable, and the rules
and regulations of the Commission thereunder, and none of such documents
included an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; and any further documents so filed and
incorporated by reference in the Prospectus or any further amendment or
supplement thereto, when such documents are filed with the Commission,
as the case may be, will conform in all material respects to the
requirements of the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder and will not include an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that this representation and warranty shall not apply
to any statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Partnership or PSE&G by an
Underwriter through the Representatives expressly for use therein;

(4) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and
do not and will not, (i) as of the applicable effective date as to the
Registration Statement and any amendment thereto and (ii) as of the
applicable filing date as to the Prospectus and any amendment or
supplement thereto, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; provided, however, that
this representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information
furnished in writing to the Partnership or PSE&G by an Underwriter
through the Representatives expressly for use therein;
<PAGE>
(5) Deloitte and Touche LLP are independent public accountants with
respect to PSE&G as required by the Act and the rules and regulations of
the Commission thereunder;

(6) Neither the Partnership nor PSE&G has sustained since the date
of the latest audited financial statements included or incorporated by
reference in the Prospectus any material loss from fire, explosion,
flood, accident or other calamity not fully covered by insurance,
otherwise than as set forth or contemplated in the Prospectus; and,
since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any
material increase in long-term debt of PSE&G and its subsidiaries,
considered as a whole, or any material adverse change in or affecting
the general affairs, financial position, or partners' capital of the
Partnership or the general affairs, financial position stockholders'
equity or results of operations of PSE&G and its subsidiaries,
considered as a whole, or any material transaction (other than one
entered into in the ordinary course of business) entered into by the
Partnership or PSE&G, in each case otherwise than as set forth in or
contemplated by the Prospectus;

(7) The Partnership has been duly formed and is validly existing as
a limited partnership in good standing under the laws of the State of
New Jersey; the Partnership is a special purpose limited partnership
with authority to conduct its business as described in or contemplated
by the Prospectus; and the Partnership is not a party to or subject to
any legal or governmental action, suit or proceeding and no such action,
suit or proceeding is threatened or contemplated by governmental
authorities or threatened by others;

(8) PSE&G has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of New Jersey,
with due corporate authority to own and operate its properties and
conduct its business as described in the Prospectus;

(9) As of the date hereof, PSE&G has been and is the sole general
partner in the Partnership, ________ is the sole limited partner in the
Partnership and there are no other partners in the Partnership; and, as
of the First Time of Delivery, the holders of the Preferred Securities
will become limited partners of the Partnership and _____ will withdraw
as a limited partner;

(10) The issuance and sale of the Shares by the Partnership, the
compliance by the Partnership with all of the provisions of this
Agreement, the purchase of the Subordinated Debentures by the
Partnership, and the consummation by the Partnership of the transactions
contemplated herein, will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any agreement or instrument to which the Partnership is a party
or by which the Partnership is bound or to which any of the property or
assets of the Partnership is subject, nor will such action result in any
violation of the provisions of the Amended and Restated Limited
<PAGE>
Partnership Agreement of the Partnership, dated as of __________, 1994
(the "Partnership Agreement"), or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction
over the Partnership or any of its properties;

(11) The issuance and sale of the Shares by the Partnership, the
compliance by the Partnership and PSE&G with all of the provisions of
this Agreement, the execution, delivery and performance by PSE&G of the
Guarantee, the Subordinated Debentures, the Partnership Agreement and
the Indenture (collectively, the "PSE&G Agreements"), and the
consummation of the transactions herein and therein contemplated, will
not conflict with or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, any agreement or
instrument to which PSE&G is a party or by which it is bound or to which
any of the property or assets of PSE&G is subject, nor will such action
result in any violation of the provisions of the charter or by-laws of
PSE&G or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over PSE&G or any of its
properties;

(12) no consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body having
jurisdiction over the Partnership or PSE&G or any of their properties is
required for the issuance and sale of the Shares by the Partnership, the
purchase by the Partnership of the Subordinated Debentures from PSE&G,
the execution, delivery and performance by PSE&G of the PSE&G
Agreements, or the consummation of the transactions contemplated herein
or therein, except the approval, consent and order of the Board of
Regulatory Commissioners of the State of New Jersey with respect to the
issuance by PSE&G of the Guarantee and the Subordinated Debentures,
registration of the Registered Securities under the Act, registration of
the Shares under the Exchange Act, the qualification of the Indenture
under the Trust Indenture Act and such consents, approvals,
authorizations, registrations or qualifications as may be required under
state securities or Blue Sky laws in connection with the issuance and
sale, as the case may be, of the Registered Securities;

(13) Other than as set forth in or contemplated by the Prospectus,
there are no legal or governmental proceedings pending to which PSE&G is
a party or of which any property of PSE&G is the subject which is
reasonably likely to have a material adverse effect on the consolidated
financial position, stockholders' equity or results of operations of
PSE&G and its subsidiaries; and, to the best of PSE&G's knowledge, no
such proceedings are threatened or contemplated by governmental
authorities or threatened by others; and

(14) None of the Partnership, PSE&G or any of PSE&G's affiliates
does business with the Government of Cuba or with any person or
affiliate located in Cuba.
<PAGE>
ii. Subject to the terms and conditions herein set forth, (a) the
Partnership agrees to issue and sell to each of the Underwriters, and each of
the Underwriters agrees, severally and not jointly, to purchase, at a purchase
price per share of $__ per share, the number of Firm Shares set forth opposite
the name of such Underwriter in Schedule I hereto and (b) in the event and to
the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Partnership agrees to issue and sell to
each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase at a purchase price per share of $__ per share, that
portion of the number of Optional Shares as to which such election shall have
been exercised (to be adjusted by the Representatives so as to eliminate
fractional shares) determined by multiplying such number of Optional Shares by
a fraction the numerator of which is the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the total number of the Firm Shares.

The Partnership hereby grants to the Underwriters the right to purchase at
their election up to ________ Optional Shares at the purchase price per share
set forth in the preceding paragraph, for the sole purpose of covering
overallotments, if any, in the sale of the Firm Shares. Any such election to
purchase Optional Shares may be exercised only by written notice from the
Representatives to the Partnership, given within a period of 30 calendar days
after the date of this Agreement, setting forth the aggregate number of
Optional Shares to be purchased and the date on which such Optional Shares are
to be delivered, as determined by the Representatives but in no event earlier
than the First Time of Delivery or, unless the Representatives and the
Partnership otherwise agree in writing, earlier than two or later than ten
business days after the date of such notice.

As compensation to the Underwriters for their commitments hereunder, and in
view of the fact that the proceeds of the sale of the Shares will be used by
the Partnership to purchase the Subordinated Debentures of PSE&G, PSE&G hereby
agrees to pay at each Time of Delivery to Goldman, Sachs & Co., for the
accounts of the several Underwriters, an amount equal to $_____ per share for
the Shares to be delivered at such Time of Delivery, unless such Shares are
sold to _________, in which case such amount will be equal to $_______ per
share for such Shares.

iii. Upon the authorization by the Representatives of the release of
the Firm Shares, the several Underwriters propose to offer the Firm Shares for
sale upon the terms and conditions set forth in the Prospectus.

iv. The Shares to be purchased by each Underwriter hereunder will
be represented by a global certificate or certificates in book-entry form which
will be deposited by or on behalf of the Partnership with The Depository Trust
Company ("DTC") or its designated custodian and registered in the name of Cede
& Co., as nominee of DTC. The Partnership will deliver the Shares to Goldman,
Sachs & Co., for the account of each Underwriter, against payment by or on
behalf of such Underwriter of the purchase price therefor by check in New York
Clearing House (next day) funds payable to the order of the Partnership, by
causing DTC to credit the Shares to the account of Goldman, Sachs & Co. at DTC.
The time, date and location of such delivery and payment shall be, with respect
to the Firm Shares, 10:00 a.m., New Jersey time, on ___________, 1994, or at
<PAGE>
such other time and date as the Representatives, the Partnership and PSE&G may
agree upon in writing at the office of the Partnership, 80 Park Plaza, Newark,
New Jersey and, with respect to the Optional Shares, 10:00 a.m., New Jersey
time, on the date specified by Representatives in the written notice given
by Representatives of the Underwriters' election to purchase such Optional
Shares, or at such other time and date as Representatives, the Partnership and
PSE&G may agree upon in writing at the above-referenced office of the
Partnership. Such time and date for delivery of the Firm Shares is herein
called the "First Time of Delivery," such time and date for delivery of the
Optional Shares, if not the First Time of Delivery, is herein called the
"Second Time of Delivery," and each such time and date for delivery is herein
called a "Time of Delivery."

At each Time of Delivery, PSE&G will pay, or cause to be paid, the
compensation payable at such Time of Delivery to the Underwriters under Section
2 hereof by check in Newark or New York Clearing House (next day) funds payable
to the order of Goldman, Sachs & Co., on behalf of the Underwriters.

v. The Partnership and PSE&G, jointly and severally, agree with
each of the Underwriters:

(1) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b)
under the Act not later than the Commission's close of business on the
second business day following the execution and delivery of this
Agreement, or, if applicable, such earlier time as may be required by
Rule 424(b) under the Act; to make no further amendment or any
supplement to the Registration Statement or the Prospectus prior to the
last Time of Delivery which shall be reasonably disapproved by the
Representatives promptly after reasonable notice thereof; to advise the
Representatives, promptly after it receives notice thereof, of the time
when any amendment to the Registration Statement has been filed or
becomes effective or any supplement to the Prospectus or any amended
prospectus has been filed and to furnish the Representatives with copies
thereof; in the case of PSE&G, prior to the termination of the offering
of the Shares, to file promptly all reports and any definitive proxy or
information statements required to be filed with the Commission pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act; to advise the
Representatives, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing
or suspending the use of any Preliminary Prospectus or prospectus, of
the suspension of the qualification of the Registered Securities for
offering or sale in any jurisdiction, of the initiation or threatening
of any proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the Registration
Statement or Prospectus or for additional information; and, in the event
of the issuance of any stop order or of any order preventing or
suspending the use of any prospectus relating to the Registered
Securities or suspending any such qualification, to use promptly its
best efforts to obtain its withdrawal;
<PAGE>
(2) To use its best efforts to qualify the Registered Securities
for offering and sale under the securities laws of such jurisdictions of
the United States as the Representatives may designate and to comply
with such laws so as to permit the continuance of sales and dealings
therein in such jurisdictions for as long as may be necessary to
complete the distribution of the Shares, provided that in connection
therewith neither the Partnership nor PSE&G shall be required to qualify
as a foreign corporation or to file a general consent to service of
process in any jurisdiction;

(3) To furnish the Underwriters with copies of the Prospectus in
such quantities as the Representatives may reasonably request, and, if the
delivery of a prospectus is required in connection with the offering or
sale of the Shares and if at such time any event shall have occurred as a
result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be
necessary during such period to amend or supplement the Prospectus or to
file under the Exchange Act any document incorporated by reference in the
Prospectus in order to comply with the Act or the Exchange Act, to notify
the Representatives and upon the request of the Representatives to file
such document and to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as the
Representatives may reasonably request of an amended Prospectus or a
supplement to the Prospectus which will correct such statement or omission
or effect such compliance;

(4) In the case of PSE&G, to make generally available to its
security holders as soon as practicable, but no later than 60 days after
the close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 under the Act) covering the
12-month period beginning not later than the first day of PSE&G's fiscal
quarter next following the effective date (as defined in Rule 158) of
the Registration Statement;

(5) During the period beginning from the date hereof and
continuing to and including the earlier of (i) the date, after the last
Time of Delivery, on which the distribution of the Shares ceases, as
determined by the Representatives or (ii) 30 days after the date of such
Time of Delivery, not to offer, sell, contract to sell or otherwise
dispose of any Preferred Securities, any limited partner interests in the
Partnership, any shares of capital stock or securities of PSE&G or the
Partnership which are substantially similar to the Subordinated
Debentures, the Guarantee or the Shares, or any securities convertible
into or exchangeable for the Preferred Securities, limited partner
interests or such capital stock or securities, without the prior written
consent of the Representatives other than the Shares or securities
issued pursuant to PSE&G's stock option or other benefit or incentive
plans maintained for its officers, directors, or employees;

<PAGE>
(6) In the case of PSE&G, to issue the Guarantee and the
Subordinated Debentures concurrently with the issue and sale of the Shares
as contemplated herein; and

(7) To use its best efforts to list, subject to notice of
issuance, (i) the Shares and (ii) the Subordinated Debentures, upon any
distribution by the Partnership to holders of the Preferred Securities, in
each case on the New York Stock Exchange.

vi. The Partnership and PSE&G, jointly and severally, covenant and agree
with the several Underwriters that it will pay the following: (i) the fees,
disbursements and expenses of the Partnership's and PSE&G's counsel and
accountants in connection with the registration of the Registered Securities
under the Act and all other expenses in connection with the preparation,
printing and filing of the Registration Statement, any Preliminary Prospectus
and the Prospectus and any amendments and supplements thereto and the mailing
and delivering of copies thereof to the Underwriters and dealers; (ii) the cost
of printing or producing any Agreement Among Underwriters, this Agreement, the
Blue Sky and Legal Investment Memoranda and any other documents in connection
with the offering, purchase, sale and delivery of the Registered Securities;
(iii) all expenses in connection with the qualification of the Registered
Securities for offering and sale under state securities laws as provided in
Section 5(b) hereof, including the fees and disbursements of counsel for the
Underwriters (not to exceed $7,500) in connection with such qualification and
in connection with the Blue Sky and Legal Investment Memoranda; (iv) any fees
charged by Standard & Poor's Corporation, Moody's Investors Service, Inc. or
Duff & Phelps Credit Rating Co. (each, a "Rating Agency") for rating the
Shares; (v) the reasonable cost and charges of the transfer agent or registrar;
(vi) the cost of any depositary arrangements for the Shares with DTC or any
successor depositary; (vii) all fees and reasonable expenses of the Trustee and
its counsel; (viii) all fees and expenses in connection with the listing of the
Shares on the New York Stock Exchange and the cost of registering the Shares
under Section 12 of the Exchange Act; (ix) the printing of the Shares and the
Subordinated Debentures in certificated form, if required; and (x) all other
costs and expenses incident to the performance of obligations hereunder which
are not otherwise specifically provided for in this Section. It is understood,
however, that, except as provided in this Section, Section 8 and Section 12
hereof, the Underwriters will pay all of their own costs and expenses,
including the fees of their counsel, stock transfer taxes on resale of any of
the Shares by them, and any advertising expenses connected with any offers they
may make.

vii. The obligations of the Underwriters hereunder, as to the Shares
to be delivered at each Time of Delivery, shall be subject, in their
discretion, to the condition that all representations and warranties and
other statements of the Partnership and PSE&G herein are, at and as of such
Time of Delivery, true and correct, the condition that the Partnership and
PSE&G shall have performed all of their obligations hereunder theretofore to be
performed, and the following additional conditions:
<PAGE>
(1) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for
such filing by the rules and regulations under the Act and in accordance
with Section 5(a) hereof; and no stop order suspending the effectiveness
of the Registration Statement or any part thereof shall have been issued
and no proceeding for that purpose shall have been initiated or
threatened by the Commission;

(2) Brown & Wood, counsel for the Underwriters, shall have
furnished to the Representatives their written opinion, dated such Time of
Delivery, with respect to the matters referred to in clauses (v), (vi),
(vii), (viii), (ix), (xiv) and (xvii) of Section 7(c) hereof (it being
understood that such counsel may rely as to all matters of New Jersey law
and legal conclusions based thereon upon the opinion of counsel for PSE&G
referred to in Section 7(c) hereof and as to all matters of Pennsylvania
law and legal conclusions based thereon upon the opinion of counsel
referred to in Section 7(d) hereof); and such counsel shall have received
such papers and information as they may reasonably request to enable them
to pass upon such matters;

(3) R. Edwin Selover, Esq., Senior Vice President and
General Counsel, or James T. Foran, Esq., General Corporate Counsel, of
PSE&G, shall have furnished to the Representatives his written opinion,
dated such Time of Delivery, to the effect that:

(a) PSE&G has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the State of New Jersey, with due corporate authority to own and
operate its properties and conduct its business as described in the
Prospectus;

(b) PSE&G is a subsidiary of Public Service
Enterprise Group Incorporated, which is a public utility holding
company exempt from the provisions of the Public Utility Holding
Company Act of 1935 (except Section 9(a)(2) thereof);

(c) The Partnership has been duly formed and is validly
existing as a limited partnership in good standing under the laws of
the State of New Jersey; the Partnership is a special purpose limited
partnership with authority to conduct its business as described in or
contemplated by the Prospectus; and to the best of such counsel's
knowledge, the Partnership is not a party to or subject to any legal
or governmental action, suit or proceeding and no such action, suit
or proceeding is threatened or contemplated by governmental
authorities or threatened by others;

(d) As of such Time of Delivery, PSE&G is the sole
general partner of the Partnership and the holders of the
Shares are the sole limited partners and there are no other
partners in the Partnership; and all of the issued partnership
interests of the Partnership, other than the Shares, are owned
directly by PSE&G, free and clear of all liens, encumbrances,
equities or claims;

<PAGE>
(e) The Shares have been duly and validly authorized by
the Partnership, and, when issued and delivered against payment
therefor as provided herein, will be duly and validly issued
and fully paid and non-assessable; and the Shares have the
rights set forth in the Partnership Agreement and the terms of
the Shares are valid and binding on the Partnership;

(f) The PSE&G Agreements have each been duly
authorized, executed and delivered by PSE&G and constitute valid
instruments or obligations, as the case may be, legally binding
upon and enforceable against PSE&G (except as limited by
bankruptcy, insolvency or other laws or equitable principles
affecting creditors' rights generally); and the Subordinated
Debentures are entitled to the benefits provided by the
Indenture;

(g) The Indenture has been duly qualified under the
Trust Indenture Act of 1939, as amended;

(h) The Registered Securities conform as to legal
matters to the statements concerning them in the Prospectus and
the summaries of the Indenture and the Partnership Agreement
contained in the Prospectus constitute correct summaries
thereof for use in the Prospectus;

(i) This Agreement has been duly authorized, executed
and delivered by each of the Partnership and PSE&G;

(j) The franchises of PSE&G are sufficient authority
for it to carry on its business as described in the Prospectus;

(k) All approvals, consents and orders of the Board of
Regulatory Commissioners of the State of New Jersey legally
required for the issuance by PSE&G of the Guarantee and the
Subordinated Securities have been obtained and are in full
force and effect; no approval, consent or order of any other
commission or other governmental authority is legally required
for the issuance and sale, as the case may be, of the
Registered Securities (except that such issuance and sale may
be subject to the provisions of the securities laws of certain
states); and the issuance by PSE&G of the Guarantee and the
Subordinated Securities is in accordance with the approvals,
consents and orders obtained;

(l) The issuance and sale by the Partnership of the
Shares being delivered at such Time of Delivery, the compliance
by the Partnership with all of the provisions of this
Agreement, the purchase of the Subordinated Debentures by the
Partnership, and the consummation by the Partnership of the
transactions contemplated herein, will not conflict with or
result in a breach or violation of any of the terms or
<PAGE>
provisions of, or constitute a default under, any agreement or
instrument known to such counsel to which the Partnership is a party
or by which the Partnership is bound or to which any of the property
or assets of the Partnership is subject, nor will such action result
in any violation of the provisions of the Partnership Agreement [or
certificate of limited partnership of the Partnership] or any statute
or any order, rule or regulation known to such counsel of any court
or governmental agency or body having jurisdiction over the
Partnership or any of its properties;

(m) The issuance and sale of the Shares by the
Partnership , the compliance by Partnership and PSE&G with all
of the provisions of this Agreement, the execution, delivery
and performance by PSE&G of the PSE&G Agreements, and the
consummation of the transactions herein and therein
contemplated, will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a
default under, any agreement or instrument known to such
counsel to which PSE&G is a party or by which it is bound or to
which any of the property or assets of PSE&G is subject, nor
will such action result in any violation of the provisions of
the charter or by-laws of PSE&G or any statute or any order,
rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over PSE&G or
any of its properties;

(n) The statements set forth in the Prospectus under the
captions "Description of the Preferred Securities," "Certain
Terms of the Series A Preferred Securities," "Description of
the Guarantee," Description of the Subordinated Debentures" and
"Certain Terms of the Series A Subordinated Debentures,"
insofar as they constitute summaries or matters of law or legal
conclusions, fairly present the information set forth therein;

(o) The statements made in PSE&G's most recent annual
report on Form 10-K filed with the Commission under Section 13
of the Exchange Act (the "Form 10-K") under "Rate Matters" and
"Environmental Controls" in Item 1 Business and under Item 3
Legal Proceedings fairly present the information set forth
therein.

(p) The documents incorporated by reference in the
Prospectus or any further amendment or supplement thereto made
by the Partnership or PSE&G prior to such Time of Delivery
(other than the financial statements and related schedules
therein, as to which such counsel need express no opinion),
when they were filed with the Commission, complied as to form
in all material respects with the requirements of the Exchange
Act, as applicable, and the rules and regulations of the
Commission thereunder; and, on the basis of a general review
and discussion with certain officers and employees of the
Company but without independent check or verification, such
<PAGE>
counsel has no reason to believe that any of such documents, when
such documents were so filed, included an untrue statement of a
material fact or omitted to state a material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made when such documents were so filed, not
misleading; and

(q) The Registration Statement and the Prospectus and
any further amendments and supplements thereto made by the
Partnership or PSE&G prior to such Time of Delivery (other than
the financial statements and related schedules therein, as to
which such counsel need express no opinion) comply as to form
in all material respects with the requirements of the Act and
the rules and regulations thereunder; and on the basis of a
general review and discussion with certain officers and
employees of the Company but without independent check or
verification except as indicated in Subsections (viii) and
(xiv) of this Section 7(c), such counsel has no reason to
believe that, as of its effective date, the Registration
Statement or any further amendment thereto made by the
Partnership or PSE&G prior to such Time of Delivery (other than
the financial statements and related schedules therein, as to
which such counsel need express no opinion) contained an untrue
statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading or that, as of its date or as
of such Time of Delivery, the Prospectus or any further
amendment or supplement thereto made by the Partnership prior
to such Time of Delivery (other than the financial statements
and related schedules therein and other financial data therein,
as to which such counsel need express no opinion) included or
includes an untrue statement of a material fact or omitted or
omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they
were made, not misleading;

Such counsel may rely as to all matters of Pennsylvania law and legal
conclusions based thereon upon the opinion of such counsel referred to in
Section 7(d) hereof.

(4) Ballard Spahr Andrews & Ingersoll, special counsel for the
Partnership and PSE&G, shall have furnished to the Representatives their
written opinion, dated such Time of Delivery, in form and substance
satisfactory to the Representatives, to the effect that:

(a) Neither the Partnership nor PSE&G is an "investment
company" or an entity "controlled" by an "investment company"
required to be registered under the Investment Company Act;

(b) The statements made in the Prospectus under the
caption "United States Taxation," to the extent they constitute
matters of law or legal conclusions, have been reviewed by such
counsel and are accurate, complete and correct and fairly
present the information set forth therein.
<PAGE>
(5) On the date of this Agreement and also at each Time of
Delivery, Deloitte & Touche shall have furnished to the Representatives
a letter, dated the respective date of delivery thereof, in form and
substance satisfactory to the Representatives, to the effect that:

(a) they are independent public accountants with respect
to PSE&G and its subsidiaries within the meaning of the Act and
the applicable published rules and regulations thereunder (the
"Act Regulations");

(b) in their opinion, the audited consolidated financial
statements and financial statement schedule(s) incorporated by
reference in the Registration Statement and the Prospectus and
included in the Form 10-K comply as to form in all material
respects with the applicable accounting requirements of the
Act, the Act Regulations, the Exchange Act and the applicable
published rules and regulations thereunder (the "Exchange Act
Regulations");

(c) on the basis of (1) a reading of the consolidated
unaudited balance sheets and related unaudited statements of
income, retained earnings and cash flows of PSE&G incorporated
by reference in the Registration Statement and the Prospectus
and included in PSE&G's quarterly reports on Form 10-Q filed
with the Commission under Section 13 of the Exchange Act (the
"Form 10-Q's") subsequent to the Form 10-K, (2) a reading of
the latest available unaudited financial statements of PSE&G,
(3) a reading of the latest Consent of the Sole Shareholder in
Lieu of Annual Meeting, the minutes of Meetings of the Board of
Directors of PSE&G as set forth in the minute books for the
current year and certain draft resolutions for subsequent
meetings and (4) inquiries of the officers of PSE&G who have
responsibility for financial and accounting matters (it being
understood that the foregoing procedures do not constitute an
audit made in accordance with generally accepted auditing
standards and would not necessarily reveal matters of
significance with respect to the comments made in such letter,
and accordingly that Deloitte & Touche LLP makes no representation as
to the sufficiency of such procedures for the purposes of the several
Underwriters), nothing has come to their attention which caused them
to believe that (A) any material modifications should be made to the
unaudited consolidated financial statements included in the Form
10-Q's for them to be in conformity with generally accepted
accounting principles; (B) the unaudited consolidated financial
statements included in the Form 10-Q's do not comply as to form in
all material respects with the applicable accounting requirements
of the Exchange Act as they apply to Form 10-Q and Exchange Act
Regulations or (C) at the date of the latest available
consolidated financial statements and at a specified date not
more than five days prior to the date of such letter, there was
any change in the common stock or preferred stock or increase
<PAGE>
in long-term debt (except for such stock and long-term debt acquired
for sinking fund purposes or redeemed pursuant to optional redemption
or sinking fund provisions, or changes in capital lease obligations
incurred in the ordinary course of PSE&G's business) of PSE&G or any
decrease in the consolidated net assets of PSE&G (except as
occasioned by the declaration of dividends), in each case as compared
with the amounts shown on the most recent consolidated balance sheet
of PSE&G incorporated by reference in the Registration Statement and
the Prospectus or, during the period from the date of such balance
sheet to a specified date not more than five days prior to the date
of such letter, upon inquiries of the appropriate officers of PSE&G,
there were any decreases, as compared with the corresponding period
in the preceding year, in consolidated revenues or net income of
PSE&G, except in each such case as set forth in or contemplated by
the Registration Statement and the Prospectus or except for such
exceptions enumerated in such letter as shall have been agreed to by
the Representatives and PSE&G; and

(d) in addition to the audit referred to in their report
appearing in the Form 10-K incorporated by reference in the
Registration Statement and the Prospectus, and the limited
procedures referred to in clause (iii) above, they have carried
out certain other specified procedures, not constituting an
audit, with respect to certain amounts, percentages and
financial information which are included or incorporated by
reference in the Registration Statement and the Prospectus and
which are specified by the Representatives, and have found such
amounts, percentages and financial information to be in
agreement with the relevant accounting, financial and other
records of PSE&G and its subsidiaries identified in such
letter, provided that said letter may vary from the
requirements specified above in such manner as you may deem not
to be material or as may be acceptable to the Representatives
with the consent of Underwriters who have agreed to purchase in
the aggregate 50% or more of the Shares.

(6) The Partnership Agreement, the Guarantee and the Indenture
shall have been executed and delivered, in each case in a form reasonably
satisfactory to the Representatives;

(7) Neither the Partnership nor PSE&G shall have sustained since
the date of the latest audited financial statements included or incorporated by
reference in the Prospectus any loss from fire, explosion, flood, accident or
other calamity not fully covered by insurance, otherwise than as set forth or
contemplated in the Prospectus, and (ii) since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there
shall not have been any increase in long-term debt of PSE&G and its
subsidiaries, considered as a whole, or any change in or affecting the general
affairs, financial position or partners' capital of the Partnership or the
general affairs, consolidated financial position, stockholders' equity or
results of operations of PSE&G and its subsidiaries, considered as a whole, or
<PAGE>
any transaction (other than one entered into in the ordinary course of
business) entered into by the Partnerships or PSE&G, in each case otherwise
than as set forth or contemplated in the Prospectus, the effect of which, in
any such case described in clause (i) or (ii), is in the reasonable judgment of
the Representatives so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering of the Shares or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;

(8) The Shares to be sold by the Partnership at such Time of
Delivery shall have been duly listed, subject to notice of issuance, on
the New York Stock Exchange; and

(9) At such Time of Delivery, the Representatives shall have
received certificates of duly authorized officers of the Partnership and
PSE&G, dated such Time of Delivery, to the effect that:

(a) the Prospectus has been filed with the Commission
pursuant to Rule 424(b) within the applicable time period
prescribed for such filing by the rules and regulations under
the Act and in accordance with the provisions of this
Agreement; and no stop order suspending the effectiveness of
the Registration Statement or any part thereof has been issued
and no proceeding for that purpose has been initiated or
threatened by the Commission;

(b) the representations and warranties of the
Partnership and PSE&G contained herein are true and correct as
if made at and as of such Time of Delivery;

(c) the Partnership and PSE&G have performed all
agreements contained herein to be performed by them at or prior
to such Time of Delivery; and

(d) Neither the Partnership nor PSE&G has sustained the date
of the latest audited financial statements included or incorporated
by reference in the Prospectus any material loss from fire,
explosion, flood, accident or other calamity not fully covered by
insurance, otherwise than as set forth or contemplated in the
Prospectus, and since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall
not have been any material increase in long-term debt of PSE&G and
its subsidiaries, considered as a whole, or any material adverse
change in or affecting the general affairs, financial position
or partners' capital of the Partnership or the general affairs,
consolidated financial position, stockholders' equity or
results of operations of PSE&G and its subsidiaries, considered
as a whole, or any transaction (other than one entered into in
the ordinary course of business) entered into by the
Partnerships or PSE&G, in each case otherwise than as set forth
or contemplated in the Prospectus.
<PAGE>
viii. The Partnership and PSE&G, jointly and severally, agree to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Act, as
follows:

(a) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of any untrue
statement or alleged statement of a material fact contained in the
Registration Statement (or any amendment thereto), or the omission or
alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement of a
material fact included in any Preliminary Prospectus or the
Prospectus (or any amendment or supplement thereto) or the omission
or alleged omission therefrom of a material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading, unless such untrue
statement or omission or such alleged untrue statement or omission
was made in reliance upon and in conformity with written information
furnished to the Partnership or PSE&G by an Underwriter through the
Representatives expressly for use in the Registration Statement, such
Preliminary Prospectus or the Prospectus, or any amendment or
supplement thereto;

(b) against and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, commenced or
threatened, or of any claim whatsoever based upon any such
untrue statement or omission or any alleged untrue statement or
omission, if such settlement is effected with the written
consent of the Partnership and PSE&G; and

(c) against any and all expense whatsoever reasonably
incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever
based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any
such expense is not paid under (i) or (ii) above.

The Partnership and PSE&G shall not be liable for indemnity under
this Section 8(a) with respect to any Preliminary Prospectus to the extent
that any such loss, claim, damage or liability of such Underwriter results
solely from the fact that such Underwriter sold Shares to a person to whom
it is established that there was not sent or given, at or prior to the
written confirmation of such sale, a copy of the Prospectus (excluding
documents incorporated by reference) in any case where such delivery is
required by the Act, if the Partnership and PSE&G has previously furnished
to the Representatives on behalf of the Underwriters, including such
Underwriter, the copies thereof theretofore requested by the
Representatives, and the loss, claim, damage or liability of such
Underwriter results from an untrue statement or omission of a material
<PAGE>
fact contained in the Preliminary Prospectus that was corrected in the
Prospectus.

(1) In no case shall the Partnership or PSE&G be liable under the
indemnity agreement set forth in Section 8(a) hereof with respect to any
claim made against any Underwriter or any such controlling person unless
such party shall be notified in writing of the nature of the claim
promptly after the assertion thereof, but failure to so notify such
party shall not relieve it from any liability which it may have
otherwise than on account of said indemnity agreement. The Partnership
or PSE&G, as the case may be, shall be entitled to participate at its
own expense in the defense, or, if it so elects, within a reasonable
time after receipt of such notice, to assume the defense of any suit
brought to enforce any such claim, but if it so elects to assume the
defense shall be conducted by counsel chosen by it and approved by the
Underwriter or Underwriters or controlling person or persons, defendant
or defendants in any suit so brought, which approval shall not be
unreasonably withheld. In the event that the Partnership or PSE&G, as
the case may be, elects to assume the defense of any such suit and
retains such counsel, the Underwriter or Underwriters or controlling
person or persons, defendant or defendants in the suit, shall bear the
fees and expenses of any additional counsel thereafter retained by them.
In the event that the parties to any such action (including impleaded
parties) include both the Partnership or PSE&G, as the case may be, and
one or more Underwriters and any such Underwriter shall have been
advised by counsel chosen by it and satisfactory to the Partnership or
PSE&G, as the case may be, that there may be one or more legal defenses
available to it which are different from or additional to those
available to the Partnership or PSE&G, as the case may be, neither the
Partnership nor PSE&G shall have the right to assume the defense of such
action on behalf of such Underwriter and the Partnership or PSE&G, as
the case may be, will reimburse such Underwriter and any person
controlling such Underwriter as aforesaid for the reasonable fees and
expenses of any counsel retained by them, it being understood that
neither the Partnership nor PSE&G shall, in connection with any one
action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more
than one separate firm of attorneys for all such Underwriters and
controlling persons, which firm shall be designated by the
Representatives in writing. The Partnership and PSE&G agree to notify
the Representatives promptly after the assertion of any claim against
them, any of their directors, any of their officers who signed the
Registration Statement, or any person who controls them within the
meaning of Section 15 of the Act, in connection with the issuance and
sale, as the case may be, of the Shares, the Guarantee and the
Subordinated Debentures.

(2) Each Underwriter severally agrees that it will indemnify and
hold harmless the Partnership and PSE&G, their directors, and each of
their officers who signed the Registration Statement and each person, if
<PAGE>
any, who controls them within the meaning of Section 15 of the Act to the
same extent as the indemnity agreement set forth in Section 8(a) hereof,
but only with respect to statements or omissions made in the Registration
Statement, any Preliminary Prospectus or the Prospectus, or any amendment
or supplement thereto, in reliance upon and in conformity with written
information furnished to the Partnership or PSE&G by such Underwriter
expressly for use in the Registration Statement, such Preliminary
Prospectus, or the Prospectus, or any amendment or supplement thereto. In
case any action shall be brought against the Partnership or any person so
indemnified based on the Registration Statement, such Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto and
in respect of which indemnity may be sought against any Underwriter, such
Underwriter shall have the rights and duties given to the Partnership and
PSE&G, and the Partnership and PSE&G and each person so indemnified shall
have the rights and duties
given to the Underwriters by the provisions of Section 8(a) and (b)
hereof.

(3) The indemnity agreements contained in Section 8 shall remain
operative and in full force and effect, regardless of any investigation
made by or on behalf of the Partnership or PSE&G, or any Underwriter or
any controlling person, and shall survive the delivery of the Shares to
the Underwriters.

(4) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreements provided for in Section
8 is for any reason held to be unenforceable by the indemnified parties
although applicable in accordance with its terms, the Partnership, PSE&G
and the Underwriters shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by
said indemnity agreements incurred by the Partnership, PSE&G and one or
more of the Underwriters, in such proportions that the Underwriters are
responsible for that portion represented by the percentage that the
underwriting discount appearing on the cover page of the Prospectus
relating to the Shares bears to the initial public offering price
appearing thereon and the Partnership and PSE&G, jointly and severally,
is responsible for the balance; provided, however, that no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this
Section, each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act shall have the same rights to
contribution as such Underwriter, and each director of the Partnership
or PSE&G, each officer of the Partnership or PSE&G who signed the
Registration Statement, and each person, if any, who controls the
Partnership or PSE&G within the meaning of Section 15 of the Act shall
have the same rights to contribution as the Partnership and PSE&G.
<PAGE>
ix. If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at a Time
of Delivery, the Representatives may in their discretion arrange for the
Underwriters or another party or other parties to purchase such Shares on the
terms contained herein. If within thirty-six hours after such default by any
Underwriter the Representatives do not arrange for the purchase of such Shares,
then the Partnership and PSE&G shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
satisfactory to the Representatives to purchase such Shares on such terms. In
the event that, within the respective prescribed periods, the Representatives
notify the Partnership and PSE&G that they have so arranged for the purchase of
such Shares, or the Partnership or PSE&G notifies the Representatives that it
has so arranged for the purchase of such Shares, the Representatives or the
Partnership and PSE&G shall have the right to postpone such Time of Delivery
for a period of not more than seven days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Partnership and PSE&G agree
to file promptly any amendments to the Registration Statement or the Prospectus
which in the opinion of the Representatives may thereby be made necessary. The
term "Underwriter", as used in this Agreement, shall include any person
substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.

(1) If, after giving effect to any arrangements for the purchase
of the Shares of a defaulting Underwriter or Underwriters by the
Representatives and the Partnership and PSE&G as provided in Section 9(a)
hereof, the aggregate number of such Shares which remains unpurchased does not
exceed one-tenth of the aggregate number of all the Shares to be purchased at
such Time of Delivery, then the Partnership and PSE&G shall have the right to
require each non-defaulting Underwriter to purchase the number of shares which
such Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.

(2) If, after giving effect to any arrangements for the purchase
of the Shares of a defaulting Underwriter or Underwriters by the
Representatives and the Partnership and PSE&G as provided in Section 9(a)
hereof, the aggregate number of such Shares which remains unpurchased exceeds
one-tenth of the aggregate number of all the Shares to be purchased at such
Time of Delivery, or if the Partnership and PSE&G shall not exercise the right
described in Section 9(b) hereof to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this
Agreement (or, with respect to the Second Time of Delivery, the obligations of
the Underwriters to purchase and of the Partnership and PSE&G to sell the
Optional Shares) shall thereupon terminate, without liability on the part of
any non-defaulting Underwriter, the Partnership or PSE&G, except for the
expenses to be borne by the Partnership, PSE&G and the Underwriters as provided
in Section 6 hereof and the indemnity and contribution agreements in Section 8
hereof; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
<PAGE>
x. This Agreement may be terminated by notice to the Partnership
and PSE&G by the Representatives at any time prior to the applicable Time of
Delivery if (a) (i) a general banking moratorium shall have been declared by
either Federal or New York authorities, or (ii) there shall have occurred any
new outbreak or unforeseen escalation of hostilities or other national or
international calamity or crisis, or (iii) there shall have occurred a
suspension or material limitation in (x) trading in securities generally on the
New York Stock Exchange or (y) trading in any of PSE&G's securities on the New
York Stock Exchange, and the effect of the occurrence of any event referred to
in clause (i), (ii) or (iii) above is, in the reasonable judgment of the
Representatives, so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering of the Shares or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus, or (ii) the rating accorded the Shares
or any of PSE&G's debt securities or preferred stock by any Rating Agency shall
have been lowered since the time this Agreement was executed or if any Rating
Agency shall have publicly announced since the time this Agreement was executed
that it has placed its rating of the Shares or any of PSE&G's debt securities
or preferred stock under surveillance or review, with possible negative
implications.

xi. The respective indemnities, agreements, representations,
warranties and other statements of the Partnership, PSE&G and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any Underwriter or any controlling person of
any Underwriter, or the Partnership, PSE&G or any officer or director or
controlling person of the Partnership or PSE&G, and shall survive delivery of
and payment for the Shares.

xii. If this Agreement shall be terminated pursuant to Section 9
hereof, neither the Partnership nor PSE&G shall be under any liability to any
Underwriter except as provided in Section 6 and Section 8 hereof; but if, for
any other reason the transactions contemplated herein are not consummated, the
Partnership and PSE&G will reimburse the Underwriter for all out-of-pocket
expenses, including fees and disbursements of counsel, reasonably incurred by
the Underwriter in making preparations for the purchase, sale and delivery of
the Shares, but the Partnership and PSE&G shall then be under no further
liability to the Underwriter in respect of the Shares not so delivered
except as provided in Section 6 and Section 8 hereof. Except as provided
above, neither the Partnership nor PSE&G shall be liable to the Underwriters
for damages on account of any other consequential damages or loss of
anticipated profits.
<PAGE>
In all dealings hereunder, the Representatives shall act on behalf of
each of the Underwriters, and the parties hereto shall be entitled to act and
rely upon any statement, request, notice or agreement on behalf of any
Underwriter made or given by the Representatives jointly or by Goldman, Sachs &
Co. on behalf of the Representatives.

xiii. All statements, requests, notices and agreements hereunder
shall be in writing, and if to the Underwriters shall be delivered or sent by
mail, telex or facsimile transmission to the Representatives in care of
Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004, Attention:
Registration Department; and if to the Partnership or PSE&G by mail to it at
the address of the Partnership or PSE&G at 80 Park Plaza, P.O. Box 570, Newark,
New Jersey 07101, Attention: Mr. F.J. Riepl. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.

xiv. This Agreement shall be binding upon, and inure solely to
the benefit of, the Underwriters, the Partnership, PSE&G and, to the extent
provided in Sections 8 and 11 hereof, the officers and directors of the
Partnership or PSE&G and each person who controls the Partnership or PSE&G or
any Underwriter, and their respective heirs, executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign by reason merely of such
purchase.

xv. Time shall be of the essence of this Agreement. As used herein,
the term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.

xvi. This Agreement shall be governed by and construed in accordance
with the laws of the State of New Jersey.

17. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to us two counterparts hereof, and upon the acceptance hereof by the
Representatives, on behalf of each of the Underwriters, this letter and such
acceptance hereof shall constitute a binding agreement between each of the
Underwriters, on the one hand, and the Partnership and PSE&G, on the other
hand. It is understood that your acceptance of this letter on behalf of each
of the Underwriters is pursuant to the authority set forth in a form of
Agreement Among Underwriters, but without warranty on your part as to the
authority of the signers thereof.

Very truly yours,

Public Service Electric and Gas Capital, L.P.

By: Public Service Electric and Gas Company,
as General Partner

By:
-------------------------------
Name:
Title:

Public Service Electric and Gas Company

By:
--------------------------------
Name:
Title:

Accepted as of the date hereof:

Goldman, Sachs & Co.
[Names of Other Representatives]

By:
--------------------
Goldman, Sachs & Co.

By:
--------------------
(Goldman, Sachs & Co.)

On behalf of themselves and each of the Underwriters
<PAGE>
SCHEDULE I

Number of
Optional Shares
Total Number of to Be Purchased if
Firm Shares Maximum Option
Underwriter To Be Purchased Exercised
- ------------------------ ---------------- ------------------

Goldman, Sachs & Co. . .

Total . . . . . . . .
=============== ==================

<PAGE>
EXHIBIT 3-1

FILED
SEP 30 1994
LONNA R. HOOKS
Secretary of State

CERTIFICATE OF LIMITED PARTNERSHIP
OF
PUBLIC SERVICE ELECTRIC AND GAS CAPITAL, L.P.

1. The name of the limited partnership is Public
Service Electric and Gas Capital, L.P. (the "Partnership").
2. The general character of the business shall be to
issue and sell partner interests in the Partnership and to loan
the proceeds thereof to Public Service Electric and Gas Company,
a New Jersey corporation.
3. The address of the original registered office and
the name and address of the original registered agent for service
of process is Robert S. Smith, Vice President and Secretary,
Public Service Electric and Gas Company, 80 Park Plaza, T4B, P.O.
Box 570, Newark, New Jersey 07101.
4. The name and business address of the general
partner is Public Service Electric and Gas Company, 80 Park
Plaza, T4B, P.O. Box 570, Newark, New Jersey 07101.
5. The aggregate amount of cash and a description and
statement of the agreed value of the other property or services
contributed by all partners and which all partners have agreed to
contribute in the future are as follows: Public Service Electric
and Gas Company, as the sole general partner of the Partnership
(the "General Partner"), will make an initial $1,000 capital
contribution to the Partnership; Fred F. Saunders, as the initial
limited partner (the "Class A Limited Partner") will make a $100
capital contribution to the Partnership. In addition, the
General Partner will contribute capital to the Partnership, from
time to time, such that the aggregate capital contribution of the
General Partner will be sufficient to equal 3% of the aggregate
capital contributed by all partners.
6. The times at which, or events on the happening of
which, any additional contributions agreed to be made by any
partner or partners are to be made are as follows: the
Partnership's preferred limited partner interests (the "Preferred
Interests") will be offered from time to time to the public on or
after the effectiveness of a registration statement to be filed
with the Securities and Exchange Commission registering the
Partnership's Preferred Interests. Additional limited partners
(the "Preferred Partners") will be admitted to the Partnership by
purchasing each Preferred Interest for an amount not less than
<PAGE>

the liquidation preference of such Preferred Interest. No Preferred Partner
shall be required to make any additional contributions or advances to the
Partnership except as provided by law. Whenever any Preferred Partner makes a
capital contribution, the General Partner shall immediately make a capital
contribution sufficient to cause the aggregate capital contribution of the
General Partner to equal 3% of the aggregate capital contributed by all
partners.
7. The power of a limited partner to grant the right
to become a limited partner to an assignee of any part of his
partnership interest, and the terms and conditions of the power
are as follows: (i) the Class A Limited Partner may transfer all
or part of his limited partner interests only with the consent of
the General Partner, and any transferee of the Class A Limited
Partner may be admitted as a substitute limited partner of the
Partnership only with the consent of the General Partner, whose
consent in either case may be withheld in the sole discretion of
the General Partner; and (ii) Preferred Partners may assign their
Preferred Interest to another person at any time, provided that
any person who has been assigned one or more Preferred Interests
shall provide the Partnership with a completed Form W-8 or such
other documents or information as are requested by the
Partnership for tax reporting purposes. Upon effective
assignment, the assignee shall be entitled to all distributions
on the Preferred Interests subject to such assignment, and
accordingly, the assignor shall no longer be entitled to such
distributions.
8. The time at which or the events on the happening
of which a partner may terminate his membership in the limited
partnership and the amount of, or the method of determining, the
distribution to which he may be entitled respecting his
partnership interest, and the terms and conditions of the
termination and distribution are as follows: (i) upon the
admission of at least one Preferred Partner in the Partnership,
the Class A Limited Partner shall be deemed to have withdrawn
from the Partnership, and upon such withdrawal, the Class A
Limited Partner shall have its capital contribution returned to
it without any interest or deduction and shall have no further
interest in the Partnership; and (ii) a Preferred Partner may not
withdraw from the Partnership prior to the dissolution and
winding up of the Partnership except upon the assignment of its
Preferred Interests (including any redemption, repurchase,
exchange or other acquisition by the Partnership), as the case
may be. Any person who has been assigned one or more Preferred
Interests shall provide the Partnership with a completed Form W-8
or such other documents or information as are requested by the
Partnership for tax reporting purposes. A withdrawing Preferred
Partner shall not be entitled to receive any further distribution
and shall not otherwise be entitled to receive the fair value of
its Preferred Interests except that such terminating Preferred
Partner will be entitled to any cash distributions declared but
unpaid prior to his effective withdrawal from the Partnership.
<PAGE>
9. The right of a partner to receive distributions of
property, including cash from the Partnership is as follows:
Preferred Partners are entitled to receive when, as and if
declared by the General Partner out of funds held by the
Partnership to the extent that the Partnership has cash on hand
sufficient to permit such payments and funds legally available
therefor, cumulative cash distributions at a rate per annum to be
established by the General Partner. Such distributions will
accrue and be cumulative from the original date of issue whether
or not they have been declared and whether or not there are
profits, surplus or other funds of the Partnership legally
available for the payment of distributions or whether they are
deferred. In the discretion of the General Partner, Preferred
Partners may in some cases receive a distribution of assets of
the Partnership. The General Partner may receive distributions,
if any, as may be declared by the General Partner subject to the
rights of the Preferred Partners to receive distributions.
10. The right of a partner to receive, or of a general
partner to make, distributions to a partner which include a
return of all or any part of the partner's contribution is as
follows: upon the admission of any Preferred Partner, the Class
A Limited Partner will withdraw from the Partnership and receive
back its initial capital contribution in the Partnership without
interest or deduction and shall have no further interest in the
Partnership. Upon dissolution and liquidation of the
Partnership, the Preferred Partners may receive a cash
distribution equal to the liquidation preference per Preferred
Interest and a pro rata distribution along with all other
partners in accordance with their respective positive capital
account balances in the Partnership after giving effect to all
contributions, distributions and allocations.
11. The Partnership will be dissolved and its affairs
wound up upon the occurrence of the following events: (i) upon
the expiration of the term of the Partnership, which is 99 years;
(ii) the withdrawal, removal or bankruptcy of the General Partner
or transfer (other than a grant of a security interest) by the
General Partner of its entire interest in the Partnership when
the assignee is not admitted to the Partnership, as an additional
or successor general partner, as discussed below in Section 12,
or the occurrence of any other event that results in the General
Partner ceasing to be a general partner of the Partnership under
the New Jersey Uniform Limited Partnership Law (1976); (iii) the
entry of a decree of judicial dissolution; (iv) upon the written
consent of the General Partner and all Preferred Partners; and
(v) in the discretion of the General Partner, upon the occurrence
of certain specified events under the tax laws or the Investment
Company Act of 1940.
<PAGE>
12. The right of the remaining general partners to
continue the business on the happening of an event of withdrawal
of a general partner is as follows: (i) if at the time of such
withdrawal, there is a remaining general partner, that general
partner can continue the business of the Partnership; or (ii)
within ninety (90) days after the occurrence of such events as
described in Section 11(iii) above, a majority in interest of the
remaining Preferred Partners and general partners, if any, (or
such greater percentage in interest as is required by the New
Jersey Uniform Limited Partnership Law (1976)) agree in writing
to continue the business of the Partnership and to the
appointment, effective as of the date of such event, if required,
of one or more additional general partners of the Partnership.
13. The address of the principal office is 80 Park
Plaza, T4B, P.O. Box 570, Newark, New Jersey 07101.
14. This Certificate shall take effect upon the filing
thereof with the Secretary of State.

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

General Partner

By: /s/FRANCIS J. RIEPL

Title: Vice President and Treasurer

<PAGE>

Exhibit 3-2

Action by the General Partner of
Public Service Electric and Gas Capital, L.P.
Creating the ___% Cumulative Monthly Income
Preferred Securities, Series ___

Pursuant to Section 13.01 of the Amended and Restated Limited
Partnership Agreement of Public Service Electric and Gas Capital, L.P. dated as
of __________, 1994 (as amended from time to time, the "Partnership
Agreement"), Public Service Electric and Gas Company as general partner (the
"General Partner") of Public Service Electric and Gas Capital, L.P. (the
"Partnership"), desiring to state the designations, rights, privileges,
restrictions, preferences, voting rights and other terms and conditions of a
new series of Preferred Securities, hereby authorizes and establishes such new
series of Preferred Securities according to the following terms and conditions
(each capitalized term used but not defined herein shall have the meaning set
forth in the Partnership Agreement):

(a) Designation. ____________________ (__________) interests with an
aggregate liquidation preference of $__________ of the Preferred Securities of
the Partnership, liquidation preference $25 per Preferred Security, are hereby
designated as "___% Cumulative Monthly Income Preferred Securities, Series ___"
(hereinafter the "Series ___ Preferred Securities.")

(b) Distributions.

(i) Holders of the Series ___ Preferred Securities shall be
entitled to receive, when, as and if declared by the General Partner out of
funds on hand held by the Partnership and legally available therefor,
cumulative cash distributions at a rate per annum of ___% of the stated
liquidation preference of $25 per Series ___ Preferred Security calculated on
the basis of a 360-day year consisting of twelve (12) months of thirty (30)
days each, and for any period shorter than a full monthly distribution period,
distributions will be computed on the basis of the actual number of days
elapsed in such period. Distributions on the Series ___ Preferred Securities
will accrue from the date of original issuance and shall be payable commencing
on __________, 1994.
<PAGE>
(ii) Distributions on the Series ___ Preferred Securities
must be declared by the General Partner in any calendar year or portion thereof
to the extent that the General Partner reasonably anticipates that at the time
of payment the Partnership will have, and must be paid by the Partnership to
the extent that at the time of proposed payment it has, funds legally available
therefor sufficient to permit such payments. Distributions on the Series ___
Preferred Securities will be deferred if and for so long as Public Service
Electric and Gas Company ("PSE&G") defers payments to the Partnership on the
Series ___ Debentures (as defined below). Accrued and unpaid distributions on
the Series ___ Preferred Securities will accrue additional distributions
("Additional Distributions") in respect thereof, to the extent permitted by
law, at the distribution rate per annum for the Series ___ Preferred
Securities. Such Additional Distributions shall be payable at the time the
related deferred distribution is paid, but in any event by the end of such
deferral period. Distributions declared on the Series ___ Preferred Securities
will be payable to the Series ___ Preferred Partners as they appear on the
books and records of the Partnership on the relevant record dates, which will
be one Business Day prior to the relevant payment dates, provided that in the
event the Series ___ Preferred Securities do not remain in book-entry-only
form, the record dates will be the fifteenth day of each month.

(i) The Series ___ Preferred Securities are subject to
redemption at the option of the General Partner, in whole or in part, from time
to time, on or after __________, 1999, at the Redemption Price (as defined
below).

(ii) Upon redemption or payment at maturity of the ___%
Deferrable Interest Subordinated Debentures due 2043, Series ___ (the "Series
___ Debentures") issued by PSE&G pursuant to an Indenture dated as of
__________, 199_ between PSE&G and First Fidelity Bank, National Association,
as Trustee (as supplemented from time to time, the "Indenture"), which Series
___ Debentures were purchased by the Partnership from PSE&G with the proceeds
from the issuance and sale of the Series ___ Preferred Securities and the
related capital contribution of the General Partner, the proceeds from such
redemption or payment of the Series ___ Debentures shall be applied to redeem
the Series ___ Preferred Securities at the redemption price of $25 per
Preferred Security plus accumulated and unpaid distributions (whether or not
declared) and Additional Amounts (as defined below) to the date fixed for
redemption, together with any accrued Additional Distributions thereon (the
"Redemption Price").

(iii) If at any time after the issuance of the Series ___
Preferred Securities, the Partnership is or would be required to pay Additional
Amounts or if PSE&G would be required to pay Additional Interest (as defined in
the Indenture) on the Series ___ Debentures then, the Series ___ Preferred
Securities will be subject to redemption, at the option of the General Partner,
in whole or, if such requirement relates only to certain of the Series ___
Preferred Securities, in part as to that portion of the Series ___ Preferred
Securities subject to such requirement, in each case at any time thereafter at
the Redemption Price.
<PAGE>
(iv) If an Investment Company Act Event shall occur and be
continuing, the Partnership shall elect to either: (1) redeem the Series ___
Preferred Securities in whole but not in part at the Redemption Price within
ninety (90) days following the occurrence of such Investment Company Act

Event; (2) dissolve the Partnership and after satisfaction
of liabilities to creditors, cause the Series ___ Debentures (and any rights to
interest on such Series ___ Debentures) with an aggregate principal amount
equal to the aggregate stated liquidation preference of the outstanding Series
___ Preferred Securities to be distributed to the holders of the Series ___
Preferred Securities in liquidation of such holders' Interests in the
Partnership, within ninety (90) days following the occurrence of such
Investment Company Act Event, provided, however, that the Partnership shall
have received an opinion of counsel (which may be regular tax counsel to PSE&G
or an Affiliate but not an employee thereof) to the effect that the holders of
the Series ___ Preferred Securities will not recognize any gain or loss for
federal income tax purposes as a result of such dissolution and distribution;
or (3) have the Series ___ Preferred Securities remain outstanding.

(v)If a Tax Event shall occur and be continuing, the
Partnership shall elect to: (1) redeem the Series ___ Preferred Securities in
whole (but not in part) at the Redemption Price within ninety (90) days
following the occurrence of such Tax Event; (2) dissolve the Partnership and,
after satisfaction of liabilities to creditors, cause the Series ___ Debentures
(and any rights to interest on such Series ___ Debentures) with an aggregate
principal amount equal to the aggregate stated liquidation preference of the
outstanding Series ___ Preferred Securities to be distributed to the holders of
the Series ___ Preferred Securities in liquidation of such holders' Interests
in the Partnership, within ninety (90) days following the occurrence of such
Tax Event, provided, however, that the Partnership shall have received an
opinion of counsel (which may be regular tax counsel to PSE&G or an Affiliate
but not an employee thereof) to the effect that the holders of the Series ___
Preferred Securities will not recognize any gain or loss for federal income tax
purposes as a result of such dissolution and distribution; or (3) have the
Series ___ Preferred Securities remain outstanding.

(d) Liquidation Distribution. In the event of any voluntary or
involuntary dissolution and winding up of the Partnership, other than in
connection with the distribution of the Series ___ Debentures upon the
occurrence of a Special Event, holders of the Series ___ Preferred Securities
at the time outstanding will be entitled to receive out of the assets of the
Partnership available for distribution to holders of Preferred Securities,
after satisfaction of liabilities to creditors as required by the New Jersey
Law and before any distribution of assets is made to holders of the general
partner interests, but together with holders of every other series of Preferred
Securities outstanding, an amount equal to, in the case of holders of Series
___ Preferred Securities, the aggregate of the stated liquidation preference of
$25 per Series ___ Preferred Security plus accumulated and unpaid distributions
and Additional Distributions to the date of payment and Additional Amounts, if
any (the "Liquidation Distribution").
<PAGE>
(e) Voting Rights. The holders of the Series ___ Preferred
Securities shall have no voting rights except as provided in the Partnership
Agreement.

(f) Additional Amounts. If, as a result of (i) the Series ___
Debentures not being treated as indebtedness for United States federal income
tax purposes or (ii) the Partnership not being treated as a partnership for
United States federal income tax purposes, the Partnership is required to
withhold or deduct from payments on the Series ___ Preferred Securities for or
on account of any present or future taxes imposed by the United States which
would not otherwise be required to be withheld or deducted, the Partnership
will pay such additional amounts as may be necessary in order that the net
amounts received by the holders of the Series ___ Preferred Securities after
such withholding or deduction will equal the amount which would have been
receivable in respect of such Series ___ Preferred Securities in the absence of
such withholding or deduction ("Additional Amounts"), except that no such
Additional Amounts will be payable to a holder of Series ___ Preferred
Securities (or a third party on such holder's behalf) with respect to Series
___ Preferred Securities if:

(a) such holder is liable for such taxes by reason of such
holder having a connection with the United States, other than being a holder of
Series ___ Preferred Securities; or

(b) the Partnership has notified such holder of the obligation
to withhold or deduct taxes and requested but not received from such holder a
declaration of non-residence, a valid taxpayer identification number or other
claim for exemption in such form or content as may be required by the United
States Internal Revenue Service, and such withholding or deduction would not
have been required had such declaration, taxpayer identification number or
claim been received.

(g) Subordination. The holders of Series ___ Preferred
Securities are deemed, by acceptance of such Securities, to have (i) agreed
that the Debentures issued pursuant to the Indenture are subordinate and junior
in right of payment to all general liabilities as and to the extent provided in
the Indenture and (ii) agreed that the Guarantee relating to the Series ___
Preferred Securities is subordinate and junior in right of payment to all
general liabilities of PSE&G.

IN WITNESS WHEREOF, the General Partner has executed this Action as of
the day and year first above written.

PUBLIC SERVICE ELECTRIC AND
GAS COMPANY

By: ________________________
Name:
Title:

<PAGE>
EXHIBIT 3-3

LIMITED PARTNERSHIP AGREEMENT

PUBLIC SERVICE ELECTRIC AND GAS CAPITAL, L.P.

The undersigned General Partner and Class A Limited Partner (jointly,
the "Partners") hereby form a limited partnership pursuant to and in accordance
with the New Jersey Uniform Limited Partnership Law (1976) (N.J.S.A. 42:2A-1,
et seq.) (the "New Jersey Law"), and hereby agree as follows:

1. Name. The name of the limited partnership formed hereby is
PUBLIC SERVICE ELECTRIC AND GAS CAPITAL, L.P. (the "Partnership").

2. Purpose. The purpose and business of the Partnership shall
be to issue and sell partner interests in the Partnership.

3. Registered Office. The registered office of the Partnership
in the State of New Jersey is Public Service Electric and Gas Company, T4B, 80
Park Plaza, P.O. Box 570, Newark, New Jersey 07101.

4. Registered Agent. The name and address of the registered
agent of the Partnership for service of process on the Partnership in the State
of New Jersey is Robert S. Smith, Vice President and Secretary, Public Service
Electric and Gas Company, 80 Park Plaza, T4B, P.O. Box 570, Newark, New Jersey
07101.

5. Partners. The names and mailing addresses of the General
Partner and the Class A Limited Partner are as follows:

General Partner: Public Service Electric and Gas Company
80 Park Plaza, P.O. Box 570
Newark, New Jersey 07101

Class A Limited Partner: Fred F. Saunders
c/o Public Service
Electric and
Gas Company
80 Park Plaza, P.O.Box 570
Newark, New Jersey 07101

<PAGE>
6. Powers. The powers of the General Partner include
all powers, statutory and otherwise, possessed by general partners under the
laws of the State of New Jersey.

7. Dissolution. The Partnership shall dissolve, and its
affairs shall be wound up upon: (i) the expiration of the term of the
Partnership on September 30, 2093; (ii) the withdrawal, removal or bankruptcy
of the General Partner or transfer (other than a grant of a security interest)
by the General Partner of its entire interest in the Partnership when the
assignee is not admitted to the Partnership as an additional or successor
general partner, as set forth in Section 12 hereof, or the occurrence of any
other event that results in the General Partner ceasing to be a general partner
of the Partnership under the New Jersey Law; provided however, if (a) at the
time of such event of withdrawal, there is at least one (1) other general
partner of the Partnership who carries on the business of the Partnership (any
remaining general partner being hereby authorized to carry on the business of
the Partnership), or (b) within ninety (90) days after the occurrence of such
event of withdrawal, all remaining partners agree in writing to continue the
business of the Partnership and to the appointment, effective as of the date of
the event of withdrawal, of one (1) or more additional general partners of the
Partnership; (iii) the entry of a decree of judicial dissolution; (iv) upon the
written consent of all Partners; or (v) in the discretion of the General
Partner, upon the occurrence of certain specified events under the tax laws or
the Investment Company Act of 1940. Upon dissolution and liquidation of the
Partnership, the limited partners holding a Partnership interest ("Preferred
Interest") with a liquidation preference (the "Preferred Partners") may receive
a cash distribution equal to the aggregate liquidation preference for each
Preferred Interest held and a pro rata distribution along with all other
partners in accordance with their respective positive capital account balances
in the Partnership after giving effect to all contributions, distributions and
allocations.

8. Capital Contributions. The Partners have contributed or
will contribute the following amounts, in cash, property or services rendered,
or in a promissory note or other obligation to contribute cash or to perform
services:
General Partner . . . . . . .$1,000
Class A Limited Partner $100

In addition, the General Partner will contribute capital to the
Partnership, from time to time, such that the aggregate capital contribution of
the General Partner will be sufficient to equal 3% of the aggregate capital
contributed by all partners.

9. Allocations of Profit and Losses. The Partnership's profits
and losses shall be allocated in proportion to the capital contributions of the
Partners which shall be reflected in a capital account for each of the
Partners.
<PAGE>
10. Distributions. Preferred Partners are entitled to receive
when, as and if declared by the General Partner out of funds held by the
Partnership to the extent that the Partnership has cash on hand sufficient to
permit such payments and funds legally available therefor, cumulative cash
distributions at a rate per annum to be established by the General Partner.
Such distributions will accrue and be cumulative from the original date of
issue whether or not they have been declared and whether or not there are
profits, surplus or other funds of the Partnership legally available for the
payment of distributions or whether they are deferred. In the discretion of
the General Partner, Preferred Partners may in some cases receive a
distribution of assets of the Partnership. The General Partner may receive
distributions, if any, as may be declared by the General Partner subject to the
rights of the Preferred Partners to receive distributions.

11. Assignments.
(a) The Class A Limited Partner may transfer all or any
part of his or its partnership interest only with the consent of the General
Partner, and any transferee may be admitted as a substitute limited partner of
the Partnership only with the consent of the General Partner, whose consent in
either case may be withheld in the sole discretion of the General Partner.

(b) The General Partner may not transfer all or any part of
his or its partnership interest without the consent of the other Partners,
provided that the General Partner may, without the consent of any Partner,
transfer its partnership interest to any direct or indirect wholly owned
subsidiary and such transferee shall have all the rights and powers of the
General Partner.
(c) Preferred Partners may assign their Preferred Interest
to another person at any time, provided that any person who has been assigned
one or more Preferred Interests shall provide the Partnership with a completed
Form W-8 or such other documents or information as are requested by the
Partnership for tax reporting purposes. Upon effective assignment, the
assignee shall be entitled to all distributions on the Preferred Interests
subject to such assignment, and accordingly, the assignor shall no longer be
entitled to such distributions.

12. Withdrawal. Except as provided in Sections 11 and 13, no
right is given to the Class A Limited Partner to withdraw from the Partnership.
A Preferred Partner may not withdraw from the Partnership prior to the
dissolution and winding up of the Partnership except upon the assignment of its
Preferred Interests (including any redemption, repurchase, exchange or other
acquisition by the Partnership), as the case may be. Any person who has been
assigned one or more Preferred Interests shall provide the Partnership with a
completed Form W-8 or such other documents or information as are requested by
the Partnership for tax reporting purposes. A withdrawing Preferred Partner
shall not be entitled to receive any further distribution and shall not
otherwise be entitled to receive the fair value of its Preferred Interests
except that such terminating Preferred Partner will be entitled to any cash
distributions declared but unpaid prior to his effective withdrawal from the
Partnership.
<PAGE>
13. Additional Partners.

(a) The General Partner may admit additional limited
partners to the Partnership. The Partnership's Preferred Interests will be
offered from time to time to the public on or after the effectiveness of a
registration statement to be filed with the Securities and Exchange Commission
registering the Partnership's Preferred Interests. Preferred Partners will be
admitted to the Partnership by purchasing each Preferred Interest for an amount
not less than the liquidation preference of such Preferred Interest. No
Preferred Partner shall be required to make any additional contributions or
advances to the Partnership except as provided by law. Immediately following
the admission of one or more additional limited partners to the Partnership,
the Class A Limited Partner shall withdraw from the Partnership and shall be
entitled to receive the return of its capital contribution, without interest or
deduction and shall have no further interest in the Partnership.

(b) The Partnership shall continue as a limited partnership
under the New Jersey Law after the admission of any additional limited partners
to the Partnership pursuant to this Section 13.

(c) The admission of additional limited partners to the
Partnership pursuant to this Section 13 may be accomplished by the amendment
and restatement of this Limited Partnership Agreement and, if required by the
New Jersey Law, the filing of an amendment and/or restatement to the
Partnership's Certificate of Limited Partnership with the Secretary of State of
the State of New Jersey.

14. Merger. The approval of the Class A Limited Partner shall
not be required with respect to any merger of an entity into the Partnership.

15. Amendment. Except as otherwise expressly provided herein or
as otherwise required by law, this Agreement may only be amended by a written
instrument executed by the General Partner, provided, however, that any
amendment which would adversely affect the powers, preferences or special
rights of any series of Preferred Interests may be effected only as permitted
by the terms of such series of Preferred Interests.
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this
Limited Partnership Agreement as of September 30, 1994.

GENERAL PARTNER:

PUBLIC SERVICE
ELECTRIC AND GAS
COMPANY, a New Jersey
corporation

___________________________________
/s/FRANCIS J. RIEPL
By: FRANCIS J. RIEPL
Title: Vice President and Treasurer

CLASS A LIMITED
PARTNER:

___________________________________
Fred F. Saunders

<PAGE>

EXHIBIT 3-4

AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF PUBLIC SERVICE ELECTRIC AND GAS CAPITAL, L.P.

This AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT, dated as of
_______, 1994, of Public Service Electric and Gas Capital, L.P., a New Jersey
limited partnership (the "Partnership"), is made by and among Public Service
Electric and Gas Company, as General Partner, Fred F. Saunders, as Class A
Limited Partner and the Persons (as defined below) who become limited partners
of the Partnership in accordance with the provisions hereof.

WHEREAS, Public Service Electric and Gas Company and Fred F. Saunders
have heretofore formed a limited partnership pursuant to the New Jersey Uniform
Limited Partnership Law by filing a Certificate of Limited Partnership (as
defined below) with the Secretary of State of the State of New Jersey on
September __, 1994, and entering into a Limited Partnership Agreement of the
Partnership dated as of September __, 1994 (the "Limited Partnership
Agreement");

WHEREAS, the parties hereto desire to continue the Partnership as a
limited partnership under the New Jersey Uniform Limited Partnership Law and to
amend and restate the Limited Partnership Agreement in its entirety.

NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree to amend and restate the Limited Partnership Agreement in its
entirety as follows:

ARTICLE I - Definitions

For purposes of this Agreement, each of the following terms shall have
the meaning set forth below (such meaning to be equally applicable to both
singular and plural forms of the terms so defined).

"Action" shall have the meaning set forth in Section 13.01(b).

"Additional Amounts" shall have the meaning set forth in Section
13.01(b)(ix).

"Affiliate" shall mean, with respect to the Person to which it refers,
a Person that directly or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, such subject
Person.

"Agreement" shall mean this Amended and Restated Limited Partnership
Agreement, as amended, modified, supplemented or restated from time to time,
including, without limitation, by any Action establishing a series of Preferred
Partner Interests.

"Book Entry Interests" shall mean a beneficial interest in the
Certificates, ownership and transfers of which shall be made through book
entries by a Clearing Agency as described in Section 14.04.

<PAGE>
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which banking institutions in The City of New York or the State of
New Jersey are authorized or required by law or executive order to close.

"Capital Account" shall have the meaning set forth in Section 4.01.

"Certificate" shall mean a certificate substantially in the form
attached hereto as Exhibit A, evidencing a Preferred Partner Interest.

"Certificate of Limited Partnership" shall mean the Certificate of
Limited Partnership of the Partnership and any and all amendments thereto and
restatements thereof filed with the Secretary of State of the State of New
Jersey.

"Class A Limited Partner" shall mean Fred F. Saunders, in his capacity
as a limited partner of the Partnership.

"Clearing Agency" shall mean an organization registered as a "Clearing
Agency" pursuant to Section 17A of the Exchange Act.

"Clearing Agency Participant" shall mean a broker dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book entry transfers and pledges of securities deposited with
the Clearing Agency.

"Code" shall mean the United States Internal Revenue Code of 1986 and
(unless the context requires otherwise) the rules and regulations promulgated
thereunder, as amended from time to time.

"Commission" shall mean the Securities and Exchange Commission.

"Covered Person" shall mean any Partner or the Special Representative,
any Affiliate thereof or any officers, directors, shareholders, partners,
members, employees, representatives or agents of a Partner, the Special
Representative or their respective Affiliates, or any employee or agent of the
Partnership or its Affiliates.

"Definitive Certificate" shall have the meaning set forth in Section
14.04.

"Economic Risk of Loss" shall mean the "economic risk of loss" that
any Partner is treated as bearing under Treasury Regulation Section 1.752-2
with respect to any Partnership liability.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

"Fiscal Year" shall have the meaning set forth in Section 7.01.

"General Partner" shall mean Public Service Electric and Gas Company,
a New Jersey Corporation, in its capacity as general partner of the
Partnership, together with any successor thereto that becomes a general partner
of the Partnership pursuant to the terms of this Agreement.

<PAGE>
"Guarantee" shall mean the Payment and Guarantee Agreement to be dated
as of _______, 1994, as amended or supplemented from time to time, of PSE&G and
any additional Payment and Guarantee Agreements entered into by PSE&G for the
benefit of the Partners.

"Indemnified Person" shall mean the General Partner or the Special
Representative, any Affiliate thereof or any officers, directors, shareholders,
partners, members, employees, representatives or agents thereof, or any
employee or agent of the Partnership or its Affiliates.

"Indenture" shall mean the Indenture dated as of ______, 1994, as
amended or supplemented from time to time, between PSE&G and First Fidelity
Bank, National Association, as Trustee and any additional Indentures entered
into by PSE&G pursuant to which Subordinated Debentures of PSE&G are to be
issued.

"Interest" shall mean the entire partnership interest of a Partner in
the Partnership at any particular time, including the right of such Partner to
any and all benefits to which a Partner may be entitled as provided in this
Agreement, together with the obligations of such Partner to comply with all of
the terms and provisions of this Agreement.

"Investment Company Act Event" shall mean the occurrence of a change
in law or regulation or a change in official interpretation of law or
regulation by any legislative body, court, governmental agency or regulatory
authority (a "Change in 40 Act Law") to the effect that the Partnership is or
will be considered an "investment company" which is required to be registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), which
Change in 40 Act Law becomes effective on or after the date of issuance of any
series of Preferred Partner Interests; provided, that no Investment Company Act
Event shall be deemed to have occurred if the Partnership has received an
opinion of counsel (which may be regular counsel to PSE&G or an Affiliate, but
not an employee thereof) experienced in such matters, to the effect that PSE&G
and/or the Partnership has taken reasonable measures, in its discretion, to
avoid such Change in 40 Act Law so that notwithstanding such Change in 40 Act
Law, the Partnership is not required to be registered as an "investment
company" within the meaning of the 1940 Act.

"Limited Partners" shall mean the Class A Limited Partner, if any, and
the Preferred Partners.

"Liquidating Distributions" shall mean distributions of Partnership
property made upon a liquidation and dissolution of the Partnership as provided
in Article XII.

"Liquidating Trustee" shall have the meaning set forth in Section
12.01.

"Liquidation Distribution" shall mean the liquidation preference of
each series of Preferred Partner Interests as set forth in the Action for such
series.

"Loss Items" shall mean, with respect to any fiscal period, items of
gross Partnership loss, deduction or expense for such period.

<PAGE>
"Net Income" or "Net Loss" shall mean, with respect to any Fiscal
Year, the sum of the Partnership's (a) net gain or loss from the sale or
exchange of the Partnership's capital assets during such Fiscal Year, and (b)
all other items of income, gain, loss, deduction and expense for such Fiscal
Year that are not included in (a). Net Income or Net Loss shall be determined
in accordance with Federal tax accounting principles rather than generally
accepted accounting principles, except that a distribution in kind of
Partnership property shall be treated as a taxable disposition of such property
for its fair market value (taking into account Section 7701(g) of the Code) on
the date of distribution. For purposes of determining the Capital Accounts as
set forth in Article IV, "Net Income" and "Net Loss" shall be computed in the
same manner as the Partnership computes its income for Federal income tax
purposes, except that adjustments shall be made in accordance with Treasury
Regulation Section 1.704-1(b)(2)(iv), which adjustments shall include any
income which is exempt from United States Federal income tax, all Partnership
losses and all expenses properly chargeable to the Partnership, whether
deductible or non-deductible and whether described in Section 705(a)(2)(B) of
the Code, treated as so described pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(i), or otherwise.

"New Jersey Law" shall mean the New Jersey Uniform Limited Partnership
Law (1976), N.J.S.A. 42:2A-1 et seq. as amended from time to time or any
successor statute thereto.

"1940 Act" shall mean the Investment Company Act of 1940, as amended.

"Partners" shall mean the General Partner and the Limited Partners.

"Partnership" shall mean Public Service Electric and Gas Capital,
L.P., a limited partnership formed under the New Jersey Law.

"Person" shall mean any individual, general partnership, limited
partnership, corporation, limited liability company, joint venture, trust,
business trust, cooperative or association and the heirs, executors,
administrators, legal representatives, successors and assigns of such Person
where the context so admits.

"Preferred Partner" shall mean a limited partner of the Partnership
who holds one or more Preferred Partner Interests.

"Preferred Partner Interest Owner" shall mean, with respect to a Book
Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Clearing Agency, or on the books of
a Person maintaining an account with such Clearing Agency (directly as a
Clearing Agency Participant or as an indirect participant, in each case in
accordance with the rules of such Clearing Agency).

"Preferred Partner Interests" shall mean the Interests described in
Article XIII.

"PSE&G" shall mean Public Service Electric and Gas Company and its
successors.

<PAGE>
"Purchase Price" shall mean the amount paid for each Preferred Partner
Interest.

"Redemption Price" shall have the meaning set forth in Section
13.01(b)(v).

"Securities Act" shall mean the Securities Act of 1933, as amended.

"Special Event" shall mean a Tax Event or an Investment Company Act
Event.

"Special Representative" shall have the meaning set forth in Section
13.02(d).

"Subordinated Debentures" shall mean the Debentures of PSE&G issued
under the Indenture.

"Tax Event" shall mean that the Partnership shall have received an
opinion of counsel (which may be regular counsel to PSE&G or an Affiliate, but
not an employee thereof) experienced in such matters to the effect that, as a
result of any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or
any political subdivision or taxing authority thereof or therein affecting
taxation, or as a result of any official administrative pronouncement or
judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or such interpretation or pronouncement is
announced on or after the date of original issuance of any series of Preferred
Partner Interests, there is more than an insubstantial risk that (i) the
Partnership is subject to United States Federal income tax with respect to
interest received on the Subordinated Debentures or the Partnership will
otherwise not be taxed as a Partnership or (ii) interest payable by PSE&G to
the Partnership on the Subordinated Debentures will not be deductible for
United States Federal income tax purposes or (iii) the Partnership is subject
to more than a de minimis amount of other taxes, duties, assessments or other
governmental charges.

"Tax Matters Partner" shall have the meaning set forth in Section
7.05.

"Transfer" shall mean any transfer, sale, assignment, gift, pledge,
hypothecation or other disposition or encumbrance of an interest in the
Partnership.

"Treasury Regulations" shall mean the final and temporary income tax
regulations, as well as the procedural and administrative regulations,
promulgated by the United States Department of the Treasury under the Code, as
amended from time to time.

"Trustee" shall mean the First Fidelity Bank, National Association or
any other trustee under the Indenture.

"Underwriting Agreement" shall mean the Underwriting Agreement entered
into on _______, 1994 among the Partnership, PSE&G and the underwriters named
therein with regard to the sale of Preferred Partner Interests and related
<PAGE>
securities and any additional Underwriting Agreements entered into by the
Partnership and PSE&G with regard to the sale of additional Preferred Partner
Interests and related securities.

ARTICLE II - Continuation; Name; Purposes; Term; Definitions

Section 2.01. Formation. The parties hereto hereby join together to
continue a limited partnership which shall exist under and be governed by the
New Jersey Law. The Partnership shall make any and all filings or disclosures
required under the laws of the State of New Jersey or otherwise with respect to
its continuation as a limited partnership, its use of a fictitious name or
otherwise as may be required. The Partnership shall be a limited partnership
among the Partners solely for the purposes specified in Section 2.03 hereof,
and this Agreement shall not be deemed to create a partnership among the
Partners with respect to any activities whatsoever other than the activities
within the business purposes of the Partnership as specified in Section 2.03.
No Partner shall have any power to bind any other Partner with respect to any
matter except as specifically provided in this Agreement. No Partner shall be
responsible or liable for any indebtedness or obligation of any other Partner
incurred either before or after the execution of this Agreement. The assets of
the Partnership shall be owned by the Partnership as an entity, and no Partner
individually shall own any direct interest in the assets of the Partnership.

Section 2.02. Name and Place of Business. The name of the
Partnership is "Public Service Electric and Gas Capital, L.P." The Partnership
may operate under the name of "Public Service Electric and Gas Capital" and
such name shall be used for no purposes other than those set forth herein. The
principal place of business of the Partnership shall be 80 Park Plaza, Newark,
New Jersey 07101, or at such other place as may be selected by the General
Partner in its sole discretion.

Section 2.03. Purposes. The sole purposes of the Partnership are to
issue and sell Interests in the Partnership, including, without limitation,
Preferred Partner Interests, and to use the proceeds of all sales of Interests
in the Partnership to purchase Subordinated Debentures issued by PSE&G pursuant
to the Indenture and to effect other similar arrangements permitted by this
Agreement, and to engage in any and all activities necessary, convenient,
advisable or incidental thereto. The Partnership shall not borrow money or
issue debt or mortgage or pledge any of its assets.

Section 2.04. Term. The Partnership was formed on September __, 1994
and shall continue without dissolution through September 30, 2093, unless
sooner dissolved as provided in Article XI hereof.

Section 2.05. Qualification in Other Jurisdictions. The General
Partner shall cause the Partnership to be qualified, formed or registered under
assumed or fictitious name statutes or similar laws in any jurisdiction in
which the Partnership transacts business. The General Partner shall execute,
deliver and file any certificates (and any amendments and/or restatements
thereof) necessary for the Partnership to qualify to do business in any
jurisdiction in which the Partnership may wish to conduct business.

<PAGE>
Section 2.06. Admission of Preferred Partners. Without execution of
this Agreement, upon receipt by a Person of a Certificate and payment for the
Preferred Partner Interest being acquired by such Person, which shall be deemed
to constitute a request by such Person that the books and records of the
Partnership reflect its admission as a Preferred Partner, such Person shall be
admitted to the Partnership as a Preferred Partner and shall become bound by
this Agreement.

Section 2.07. Records. The name and mailing address of each Partner
and the amount contributed to the capital of the Partnership shall be listed on
the books and records of the Partnership. The Partnership shall keep such
other records as are required by Section 2A-9 of the New Jersey Law. The
General Partner shall update the books and records from time to time as
necessary to accurately reflect the information therein.

Section 2.08. Withdrawal of Class A Limited Partner. Upon the
admission of at least one Preferred Partner as a limited partner of the
Partnership, the Class A Limited Partner shall be deemed to have withdrawn from
the Partnership as a limited partner of the Partnership, and upon such
withdrawal, the Class A Limited Partner shall have its capital contribution
returned to it without any interest or deduction and shall have no further
interest in the Partnership.

ARTICLE III - Capital Contributions

Section 3.01. Capital Contributions. As of the date of this
Agreement, the General Partner has contributed the amount of $1,000 to the
capital of the Partnership and shall make any further contributions required to
satisfy its obligations under Section 3.04. Each Preferred Partner, or its
predecessor in interest, will contribute to the capital of the Partnership the
amount of the Purchase Price for the Preferred Partner Interests held by it.

Section 3.02. Additional Capital Contributions. No Partner shall be
required to make any additional contributions or advances to the Partnership
except as provided in Section 3.04. or by law. The General Partner may make
additional capital contributions in excess of the amounts required under this
Agreement at any time.

Section 3.03. No Interest or Withdrawals. No interest shall accrue
on any capital contribution made by a Partner, and no Partner shall have the
right to withdraw or to be repaid any portions of its capital contributions so
made, except as specifically provided in this Agreement.

Section 3.04. Minimum Capital Contribution of General Partner.
Whenever any Limited Partner makes a capital contribution, the General Partner
shall immediately make the capital contribution sufficient to cause the
aggregate capital contribution of the General Partner to equal 3% of the
aggregate capital contributed by all Partners. Any such additional
contributions shall constitute additional capital contributions made by the
General Partner.

<PAGE>
Section 3.05. Partnership Interests. Unless otherwise provided
herein, the percentage interests of the Partners shall be as determined in
proportion to the capital contributions of the Partners.

Section 3.06. Interests. Each Partner's respective Preferred Partner
Interests shall be set forth on the books and records of the Partnership. Each
Partner hereby agrees that its Interests shall for all purposes be personal
property. No Partner has an interest in specific Partnership property. The
Partnership shall not issue any additional interest in the Partnership after
the date hereof other than General Partner Interests or Preferred Partner
Interests or as required to preserve the valid existence of the Partnership.

ARTICLE IV - Capital Accounts

Section 4.01. Capital Accounts. There shall be established on the
books of the Partnership a capital account ("Capital Account") for each Partner
that shall consist of the initial capital contribution to the Partnership made
by such Partner (or such Partner's predecessor in interest), increased by: (a)
any additional capital contributions made by such Partner, (b) the agreed value
of any property subsequently contributed to the capital of the Partnership by
such Partner; and (c) Net Income allocated to any Partner (or predecessor
thereof). A Partner's Capital Account shall be decreased by: (a) Net Loss
allocated to any Partner (or predecessor thereof); and (b) any distributions
made to such Partner. In addition to and notwithstanding the foregoing,
Capital Accounts shall be otherwise adjusted in accordance with the tax
accounting principles set forth in Treasury Regulation Section
1.704-1(b)(2)(iv).

Section 4.02. Compliance With Treasury Regulations. The foregoing
provisions and the other provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with Section 704(b) of
the Code and Treasury Regulation Section 1.704-1(b) and shall be interpreted
and applied in a manner consistent with such regulations. In the event that
the General Partner shall determine that it is prudent to modify the manner in
which the Capital Accounts, or any debits or credits thereto, are determined in
order to comply with such regulations, the General Partner may make such
modification.

ARTICLE V - Allocations

Section 5.01. Profits and Losses. Each fiscal period, the Net Income
of the Partnership shall be allocated (i) first, to the Preferred Partners, pro
rata in proportion to the number of Preferred Partner Interests held by each
Preferred Partner and at the distribution rate specified in the Action for each
series of Preferred Partner Interests, in an amount equal to the excess of (a)
the distributions accrued on such Preferred Partner Interests since their date
of issuance through and including the close of the current fiscal period
(whether or not paid) over (b) the amount of profits allocated to the Preferred
Partners pursuant to this Section 5.01(i) in all prior fiscal periods; and (ii)
thereafter, to the General Partner. The Net Losses of the Partnership shall be
allocated each year to the General Partner.

<PAGE>
Section 5.02. Allocation Rules. For purposes of determining the
profits, losses or any other items allocable to any period, profits, losses and
any such other items shall be determined on a daily, monthly or other basis, as
determined by the General Partner in its sole and absolute discretion using any
method that is permissible under Section 706 of the Code and the Treasury
Regulations thereunder. The Partners are aware of the income tax consequences
of the allocations made by this Article V and hereby agree to be bound by the
provisions of this Article V in reporting their shares of Partnership income
and loss for income tax purposes.

Section 5.03. Adjustments to Reflect Changes in Interests.
Notwithstanding the foregoing, with respect to any Fiscal Year during which any
Partner's percentage interest in the Partnership changes, whether by reason of
the admission of a Partner, the withdrawal of a Partner, a non-pro rata
contribution of capital to the Partnership or any other event described in
Section 706(d)(1) of the Code and the Treasury Regulations issued thereunder,
allocations of the items of income, gain, loss and deduction of the Partnership
shall be adjusted appropriately to take into account the varying interests of
the Partners during such Fiscal Year. The General Partner shall consult with
the Partnership's accountants and other tax advisors and shall select the
method of making such adjustments, which method shall be used consistently
thereafter.

Section 5.04. Tax Allocations. For Federal, state and local income
tax purposes, Partnership income, gain, loss, deduction or credit (or any item
thereof) for each Fiscal Year shall be allocated to and among the Partners in
order to reflect the allocations made pursuant to the provisions of this
Article V for such Fiscal Year (other than allocations of items which are not
deductible or are excluded from taxable income), taking into account any
variation between the adjusted tax basis and book value of Partnership property
in accordance with the principles of Section 704(c) of the Code.

Section 5.05. Qualified Income Offset. Notwithstanding any other
provision hereof, if any Partner unexpectedly receives an adjustment,
allocation or distribution described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5), and (6) which creates or increases a deficit in
the Capital Account of such Partner (and, for this purpose, the existence of a
deficit shall be determined by reducing the Partner's Capital Account by the
items described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5),
and (6)), the next available gross income of the Partnership shall be allocated
to the Partners having such deficit balances, in proportion to the deficit
balances, until such deficit balances are eliminated as quickly as possible.
The provisions of this Section 5.05 are intended to constitute a "qualified
income offset" within the meaning of Treasury Regulation Section
1.704-1(b)(2)(ii)(d) and shall be interpreted and implemented as therein
provided.

Section 5.06. Taxpayer Information. Any Person who holds Preferred
Partner Interests as a nominee for another Person is required to furnish to the
Partnership (a) the name, address and taxpayer identification number of the
beneficial owner and the nominee; (b) information as to whether the beneficial
owner is (i) a Person that is not a United States Person, (ii) a foreign
government, an international organization or any wholly owned agency or
instrumentality of either of the foregoing, or (ii) a tax-exempt entity; (c)
<PAGE>
the amount and description of Preferred Partner Interests held, acquired or
transferred for the beneficial owner; and (d) certain information including the
dates of acquisitions and transfers, means of acquisitions and transfers, and
acquisitions cost for purchases, as well as the amount of net proceeds from
sales.

ARTICLE VI - Distributions

Section 6.01. Distributions. Preferred Partners shall receive
periodic distributions, if any, in accordance with the applicable terms of the
Preferred Partner Interests, as and when declared by the General Partner.
Subject to the rights of the holders of the Preferred Partner Interests, the
General Partner shall receive such distributions, if any, as may be declared
from time to time by the General Partner.

Section 6.02. Certain Distributions Prohibited. Notwithstanding
anything in this Agreement to the contrary, all Partnership distributions shall
be subject to the following limitations:

(a) No distribution shall be made to any Partner if, and to the
extent that, such distribution would not be permitted under Section 2A-45 of
the New Jersey Law or other applicable law.

(b) No distribution shall be made to any Partner to the extent
that such distribution, if made, would create or increase a deficit balance in
the Capital Account of such Partner.

(c) Other than Liquidating Distributions, no distribution of
Partnership property shall be made in kind. Notwithstanding anything in the
New Jersey Law or this Agreement to the contrary, in the event of a Liquidating
Distribution, a Partner may be compelled in accordance with Section 12.01 to
accept a distribution of Subordinated Debentures, cash or any other asset in
kind from the Partnership even if the percentage of the asset distributed to it
exceeds a percentage of that asset which is equal to the percentage in which
such Partner shares in distributions from the Partnership.

ARTICLE VII - Accounting Matters; Banking

Section 7.01. Fiscal Year. The fiscal year ("Fiscal Year") of the
Partnership shall be the calendar year, or such other year as is required by
the Code.

Section 7.02. Certain Accounting Matters. (a) At all times during
the existence of the Partnership, the General Partner shall keep, or cause to
be kept, full books of account, records and supporting documents, which shall
reflect in reasonable detail, each transaction of the Partnership. The books
of account shall be maintained on the accrual method of accounting, in
accordance with generally accepted accounting principles, consistently applied.
The Partnership shall use the accrual method of accounting for United States
Federal income tax purposes. The books of account and the records of the
Partnership shall be examined by and reported upon as of the end of each Fiscal
<PAGE>
Year by a firm of independent certified public accountants selected by the
General Partner.

(b) The General Partner shall cause to be prepared and delivered
to each of the Partners, within 90 days after the end of each Fiscal Year of
the Partnership, annual financial statements of the Partnership, including a
balance sheet of the Partnership as of the end of such Fiscal Year and the
related statements of income or loss and a statement indicating such Partner's
share of each item of Partnership income, gain, loss, deduction or credit for
such Fiscal Year for income tax purposes.

(c) Notwithstanding anything in this Agreement to the contrary,
the General Partner may, to the maximum extent permitted by applicable law,
keep confidential from the Partners for such period of time as the General
Partner deems reasonable any information which the General Partner reasonably
believes to be in the nature of trade secrets or other information the
disclosure of which the General Partner in good faith believes is not in the
best interest of the Partnership or could damage the Partnership or which the
Partnership or a third party is required by law or by an agreement to keep
confidential.

(d) The General Partner may make, or revoke, in its sole and
absolute discretion, any elections for the Partnership that are permitted under
tax or other applicable laws, including elections under Section 704(c) of the
Code, provided that the General Partner shall not make any elections pursuant
to Section 754 of the Code.

Section 7.03. Banking. The Partnership shall maintain one or more
bank accounts in the name and for the sole benefit of the Partnership. The
sole signatories for such accounts shall be designated by the General Partner.
Reserve cash, cash held pending the expenditure of funds for the business of
the Partnership or cash held pending a distribution to one or more of the
Partners may be invested in any manner at the sole and absolute discretion of
the General Partner.

Section 7.04. Right to Rely on Authority of General Partner. No
Person that is not a Partner, in dealing with the General Partner, shall be
required to determine such General Partner's authority to make any commitment
or engage in any undertaking on behalf of the Partnership, or to determine any
fact or circumstance bearing upon the existence of the authority of the General
Partner.

Section 7.05. Tax Matters Partner. The "tax matters partner," as
defined in Section 6231 of the Code, of the Partnership shall be the General
Partner (the "Tax Matters Partner"). The Tax Matters Partner shall receive no
compensation from the Partnership for its services in that capacity. The Tax
Matters Partner is authorized to employ such accountants, attorneys and agents
as it, in its sole and absolute discretion deems necessary or appropriate. Any
Person who serves as Tax Matters Partner shall not be liable to the Partnership
or to any Partner for any action it takes or fails to take as Tax Matters
Partner with respect to any administrative or judicial proceeding involving
"partnership items" (as defined in Section 6231 of the Code) of the
Partnership.

<PAGE>
ARTICLE VIII - Management

Section 8.01. Management. (a) The General Partner shall have full
and exclusive authority with respect to all matters concerning the conduct of
the business and affairs of the Partnership, including (without limitation) the
power, without the consent of the Limited Partners, to make all decisions it
deems necessary, advisable, convenient or appropriate to accomplish the
purposes of the Partnership. The acts of the General Partner acting alone shall
serve to bind the Partnership and shall constitute the acts of the Partners.

(b) The Limited Partners in their capacity as such shall not
take part in the management, operation or control of the business of the
Partnership or transact any business in the name of the Partnership. In
addition, the Limited Partners, in their capacity as such, shall not be agents
of the Partnership and shall not have the power to sign or bind the Partnership
to any agreement or document. The Limited Partners shall have the right to vote
only with respect to those matters specifically provided for in this Agreement.
Notwithstanding anything herein to the contrary, the Preferred Partners may
exercise all rights provided to them, if any, under the Indenture and the
Guarantee.

(c) The General Partner is authorized and directed to use its
best efforts to conduct the affairs of, and to operate, the Partnership in such
a way that the Partnership would not be deemed to be an "investment company"
required to be registered under the 1940 Act or taxed as a corporation for
Federal income tax purposes and so that the Subordinated Debentures will be
treated as indebtedness of PSE&G for Federal income tax purposes. In this
connection, the General Partner is authorized to take any action not
inconsistent with applicable law, the Certificate of Limited Partnership or
this Agreement that does not materially adversely affect the interests of
holders of Preferred Partner Interests that the General Partner determines in
its sole and absolute discretion to be necessary, advisable or desirable for
such purposes.

Section 8.02 Fiduciary Duty. (a) To the extent that, at law or in
equity, an Indemnified Person has duties (including fiduciary duties) and
liabilities relating thereto to the Partnership or to any other Covered Person,
an Indemnified Person acting under this Agreement shall not be liable to the
Partnership or to any other Covered Person for its good faith reliance on the
provisions of this Agreement or the advice of counsel selected by the
Indemnified Person in good faith. The provisions of this Agreement, to the
extent that they restrict the duties and liabilities of an Indemnified Person
otherwise existing at law or in equity, are agreed by the parties hereto to
replace such other duties and liabilities of such Indemnified Person.

(b) Unless otherwise expressly provided herein, (i) whenever a
conflict of interest exists or arises between Covered Persons, or (ii) whenever
this Agreement or any other agreement contemplated herein or therein provides
that an Indemnified Person shall act in a manner that is, or provides terms
that are, fair and reasonable to the Partnership or any Partner, the
Indemnified Person shall resolve such conflict of interest, taking such action
or providing such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any
<PAGE>
customary or accepted industry practices, the advice of counsel selected by the
Indemnified Person in good faith, and any applicable generally accepted
accounting practices or principles. In the absence of bad faith by the
Indemnified Person, the resolution, action or term so made, taken or provided
by the Indemnified Person shall not constitute a breach of this Agreement or
any other agreement contemplated herein or of any duty or obligation of the
Indemnified Person at law or in equity or otherwise.

(c) Whenever in this Agreement an Indemnified Person is
permitted or required to make a decision (i) in its "discretion" or under a
grant of similar authority or latitude, the Indemnified Person shall be
entitled to consider only such interests and factors as it desires, including
its own interests, and shall have no duty or obligation to give any
consideration to any interest of or factors affecting the Partnership or any
other Person, or (ii) in its "good faith" or under another express standard,
the Indemnified Person shall act under such express standard and shall not be
subject to any other or different standard imposed by this Agreement or other
applicable law.

Section 8.03. Specific Obligations of the General Partner. The
General Partner hereby undertakes:

(a) to devote to the affairs of the Partnership so much of its
time as shall be necessary to carry on properly the Partnership's business and
its responsibilities hereunder;

(b) to cause the Partnership to do or refrain from doing such
acts as shall be required by the laws of the State of New Jersey in order to
preserve the valid existence of the Partnership as a New Jersey limited
partnership and to preserve the limited liability of the Limited Partners; and

(c) to pay directly all, and the Partnership shall not be
obligated to pay, directly or indirectly, any, of the costs and expenses of the
Partnership (including, without limitation, costs and expenses relating to the
organization of, and offering of limited partner interests in, the Partnership
and costs and expenses relating to the operation of the Partnership, including
without limitation, costs and expenses of accountants, attorneys, statistical
or bookkeeping services and computing or accounting equipment, paying agent(s),
registrar(s), transfer agent(s), duplicating, travel and telephone and costs
and expenses incurred in connection with the acquisition, financing, and
disposition of Partnership assets).

Section 8.04. Powers of the General Partner. The General Partner
shall have the right, power and authority, in the management of the business
and affairs of the Partnership, to do or cause to be done any and all acts
deemed by the General Partner to be necessary or appropriate to effectuate the
business, purposes and objectives of the Partnership. Without limiting the
generality of the foregoing, the General Partner shall have the power and
authority without any further act, approval or vote of any Partner to:

(a)issue Interests, including Preferred Partner Interests,
and classes and series thereof, in accordance with this Agreement;

<PAGE>
(b)act as, or appoint another Person to act as, registrar
and transfer agent for the Preferred Partner Interests;

(c)establish a record date with respect to all actions to be
taken hereunder that require a record date to be established, including with
respect to allocations, distributions and voting rights and declare
distributions and make all other required payments on General Partner, Class A
Limited Partner and Preferred Partner Interests as the Partnership's paying
agent;

(d)enter into and perform one or more Indentures or
supplemental indentures and one or more Underwriting Agreements and use the
proceeds from the issuance of the Interests to purchase the Subordinated
Debentures, in each case on behalf of the Partnership;

(e)bring and defend on behalf of the Partnership actions and
proceedings at law or in equity before any court or governmental,
administrative or other regulatory agency, body or commission or otherwise;

(f)employ or otherwise engage employees and agents (who may
be designated as officers with titles) and managers, contractors, advisors and
consultants and pay reasonable compensation for such services;

(g)redeem each series of Preferred Partner Interests (which
shall constitute a return of capital and not a distribution of income) in
accordance with its terms and/or to the extent that the related series of
Subordinated Debentures is redeemed or reaches maturity; and

(h)execute all documents or instruments, perform all duties
and powers and do all things for and on behalf of the Partnership in all
matters necessary, convenient, advisable or incidental to the foregoing.

The expression of any power or authority of the General Partner in
this Agreement shall not in any way limit or exclude any other power or
authority which is not specifically or expressly set forth in, or precluded by,
this Agreement.

Section 8.05. Independent Affairs. Any Partner or any Affiliate
thereof may engage in or possess an interest in any other business venture of
whatever nature and description, independently or with others, wherever located
and whether or not comparable to or in competition with the Partnership or the
General Partner, or any Affiliate thereof, and neither the Partnership nor any
of the Partners shall, by virtue of this Agreement, have any rights with
respect to, or interests in, such independent ventures or the income, profits
or losses derived therefrom. No Partner or Affiliate thereof shall be
obligated to present any particular investment opportunity to the Partnership
even if such opportunity is of a character that, if presented to the
Partnership, could be taken by the Partnership, and any Partner or Affiliate
thereof shall have the right to take for its own account (individually or as a
partner or fiduciary) or to recommend to others any such particular investment
opportunity.

Section 8.06. Meetings of the Partners. Meetings of the Partners of
any class or series or of all classes or series of the Partnership's Interests
<PAGE>
may be called at any time by the Partners holding 10% in liquidation preference
of such class or series of Interests, or of all classes or series of Interests,
as the case may be, or as provided in any Action establishing a series of
Preferred Partner Interests. Except to the extent otherwise provided in any
such Action, the following provisions shall apply to meetings of Partners.

(a) Notice of any meeting shall be given to all Partners
not less than ten (10) business days nor more than sixty (60) days prior to the
date of such meeting. Partners may vote in person or by proxy at such meeting.
Whenever a vote, consent or approval of Partners is permitted or required under
this Agreement, such vote, consent or approval may be given at a meeting of
Partners or by written consent. If action is taken by written consent without
a meeting, a written report of such action shall be furnished to the Limited
Partners in accordance with Section 2A-29.3 of the New Jersey Law.

(b) Each Partner may authorize any Person to act for it by
proxy on all matters in which a Partner is entitled to participate, including
waiving notice of any meeting, or voting or participating at a meeting. Every
proxy must be signed by the Partner or its attorney-in-fact. No proxy shall be
valid after the expiration of eleven (11) months from the date thereof unless
otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the Partner executing it.

(c) Each meeting of Partners shall be conducted by the
General Partner or by such other Person that the General Partner may designate.

(d) Subject to the provisions of this Section 8.06, the
General Partner, in its sole and absolute discretion, shall establish all other
provisions relating to meetings of Partners, including notice of the time,
place or purpose of any meeting at which any matter is to be voted on by any
Partners, waiver of any such notice, action by consent without a meeting, the
establishment of a record date, quorum requirements, voting in person or by
proxy or any other matter with respect to the exercise of any such right to
vote; provided, however, that unless the General Partner has established a
lower percentage, a majority of the Partners entitled to vote thereat shall
constitute a quorum at all meetings of the Partners.

Section 8.07. Net Worth of the General Partner. By execution of this
Agreement, the General Partner represents and covenants that (a) as of the date
hereof and at all times during the existence of the Partnership it will
maintain a fair market value net worth of at least ten percent (10%) of the
total capital contributions less redemptions to the Partnership, throughout the
life of the Partnership, in accordance with Rev. Proc. 89-12, 1989-1 C.B. 798,
or such other amount as may be required from time to time pursuant to any
amendment, modification or successor to Rev. Proc. 89-12 (such net worth being
computed excluding any interest in, or receivable due from, the Partnership and
including any income tax liabilities that would become due by the General
Partner upon disposition by the General Partner of all assets included in
determining such net worth), and (b) it will not make any voluntary
dispositions of assets which would reduce its net worth below the amount
described in (a).

Section 8.08. Restrictions on General Partner. So long as any series
of Subordinated Debentures are held by the Partnership, the General Partner
<PAGE>
shall not (i) direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or executing any trust or power
conferred on the Trustee with respect to such series, (ii) waive any default
under the Indenture, (iii) exercise any right to rescind or annul a declaration
that the principal of all of a series of Subordinated Debentures shall be due
and payable or (iv) consent to any amendment, modification or termination of
the Indenture, where consent by the holder of the Subordinated Debentures shall
be required, without, in each case, obtaining the prior approval of the Special
Representative, or, if no Special Representative has been appointed, the
holders of not less than 66 2/3% of the aggregate stated liquidation preference
of all series of Preferred Partner Interests affected thereby, acting as a
single class; provided, however, that where a consent under the Indenture would
require the consent of each holder affected thereby, no such consent shall be
given by the General Partner without the prior consent of each holder of all
series of Preferred Partner Interests affected thereby. The General Partner
shall not revoke any action previously authorized or approved by a vote of any
series of Preferred Partner Interests. The General Partner shall notify all
holders of such Preferred Partner Interests of any notice of default received
from the Trustee with respect to such series of Subordinated Debentures.

ARTICLE IX - Liability and Indemnification

Section 9.01. Partnership Expenses and Liabilities.

(a)Except as provided by the New Jersey Law, the General
Partner shall have the liabilities of a partner in a partnership without
limited partners to Persons other than the Partnership and the other Partners.

(b)Except as otherwise expressly required by law, a Limited
Partner, in its capacity as such, shall have no liability in excess of (i) the
amount of its capital contributions to the Partnership, (ii) its share of any
assets and undistributed profits of the Partnership, and (iii) the amount of
any distributions wrongfully distributed to it.

Section 9.02. No Liability. Except as otherwise expressly provided
in Section 9.01(a) or by the New Jersey Law, no Covered Person shall be liable
to the Partnership or to any other Partner for any act or omission performed or
omitted pursuant to the authority granted to it hereunder or by law, or from a
loss resulting from any mistake or error in judgment on its part or from the
negligence, dishonesty, fraud or bad faith of any employee, independent
contractor, broker or other agent of the Partnership, provided that such act or
omission, such mistake or error in judgment or the selection of such employee,
independent contractor, broker or other agent, as the case may be, did not
result from the willful misconduct, gross negligence or fraud of such Covered
Person. Any Covered Person shall be fully protected in relying in good faith
upon the records of the Partnership and upon such information, opinions,
reports or statements presented to the Partnership by any Person as to matters
the Covered Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable
care by or on behalf of the Partnership, including information, opinions,
reports or statements as to the value and amount of the assets, liabilities,
profits, losses, or any other facts pertinent to the existence and amount of
assets from which distributions to Partners might properly be paid.

<PAGE>
Section 9.03. Indemnification. To the fullest extent permitted by
applicable law, except as set forth in Section 8.03(c), an Indemnified Person
shall be entitled to indemnification from the Partnership for any loss, damage
or claim incurred by such Indemnified Person by reason of any act or omission
performed or omitted by such Indemnified Person in good faith on behalf of the
Partnership and in a manner reasonably believed to be within the scope of
authority conferred on such Indemnified Person by this Agreement, except that
no Indemnified Person shall be entitled to be indemnified in respect of any
loss, damage or claim incurred by such Indemnified Person by reason of willful
misconduct, gross negligence or fraud with respect to such acts or omissions;
provided, however, that any indemnity under this Section 9.03 shall be provided
out of and to the extent of Partnership assets only, and except as otherwise
provided by the New Jersey Law, no Covered Person shall have any personal
liability on account thereof. To the fullest extent permitted by applicable
law, expenses (including legal fees) incurred by an Indemnified Person in
defending any claim, demand, action, suit or proceeding shall, from time to
time, be advanced by the Partnership prior to the final disposition of such
claim, demand, action, suit or proceeding upon receipt by the Partnership of an
undertaking by or on behalf of the Indemnified Person to repay such amount if
it shall be determined that the Indemnified Person is not entitled to be
indemnified as authorized in this Section 9.03.

ARTICLE X - Withdrawal; Transfer Restrictions

Section 10.01. Transfer by General Partner; Admission of Substituted
General Partner. The General Partner may not Transfer its Interest (in whole
or in part) to any Person without the consent of all other Partners, provided
that the General Partner may, without the consent of any Partner, Transfer its
Interest to any direct or indirect wholly owned subsidiary of PSE&G.
Notwithstanding anything else herein, the General Partner may merge with or
into another Person, may permit another Person to merge with or into the
General Partner and may Transfer all or substantially all of its assets to
another Person if the General Partner is the survivor of such merger or the
Person into which the General Partner is merged or to which the General
Partner's assets are transferred is a Person organized under the laws of the
United States or any state thereof or the District of Columbia and the General
Partner shall have the right to admit the assignee or transferee of its
Interest which is permitted hereunder as a substituted or additional general
partner of the Partnership, without the consent of the Limited Partners. Any
such assignee or transferee of all or a part of the Interest of a General
Partner shall be deemed admitted to the Partnership as a general partner of the
Partnership immediately prior to the effective date of such Transfer, and such
additional or successor General Partner is hereby authorized to and shall
continue the business of the Partnership without dissolution.

Section 10.02. Withdrawal of Limited Partners. A Preferred Partner
may not withdraw from the Partnership prior to the dissolution and winding up
of the Partnership except upon the assignment of its Preferred Partner
Interests (including any redemption, repurchase, exchange or other acquisition
by the Partnership), as the case may be, in accordance with the provisions of
this Agreement. Any Person who has been assigned one or more Interests shall
provide the Partnership with a completed Form W-8 or such other documents or
information as are requested by the Partnership for tax reporting purposes. A
<PAGE>
withdrawing Preferred Partner shall not be entitled to receive any distribution
and shall not otherwise be entitled to receive the fair value of its Preferred
Partner Interest except as otherwise expressly provided in this Agreement.

ARTICLE XI - Dissolution of the Partnership

Section 11.01. No Dissolution. The Partnership shall not be
dissolved by the admission of Partners in accordance with the terms of this
Agreement. The death, withdrawal, incompetency, bankruptcy, dissolution or
other cessation to exist as a legal entity of a Limited Partner, or the
occurrence of any other event that terminates the Interest of a Limited Partner
in the Partnership, shall not in and of itself cause the Partnership to be
dissolved and its affairs wound up. To the fullest extent permitted by
applicable law, upon the occurrence of any such event, the General Partner,
subject to the terms of this Agreement, may, without any further act, vote or
approval of any Partner, admit any Person to the Partnership as an additional
or substitute Limited Partner, which admission shall be effective as of the
date of the occurrence of such event, and the business of the Partnership shall
be continued without dissolution.

Section 11.02. Events Causing Dissolution. The Partnership shall be
dissolved and its affairs shall be wound up upon the occurrence of any of the
following events:

(a)The expiration of the term of the Partnership, as
provided in Section 2.04 hereof;

(b)The withdrawal, removal or bankruptcy of the General
Partner or Transfer (other than a grant of a security interest) by the General
Partner of its entire Interest in the Partnership when the assignee is not
admitted to the Partnership as an additional or successor General Partner in
accordance with Section 10.01 hereof, or the occurrence of any other event that
results in the General Partner ceasing to be a general partner of the
Partnership under the New Jersey Law, provided, the Partnership shall not be
dissolved and required to be wound up in connection with any of the events
specified in this clause (b) if (i) at the time of the occurrence of such event
there is at least one remaining general partner of the Partnership who is
hereby authorized to, agrees to and does carry on the business of the
Partnership, or (ii) within ninety (90) days after the occurrence of such
event, a majority in Interest of the remaining Partners (or such greater
percentage in Interest as is required by the New Jersey Law) agree in writing
to continue the business of the Partnership and to the appointment, effective
as of the date of such event, if required, of one or more additional general
partners of the Partnership;

(c)The entry of a decree of judicial dissolution under the
New Jersey Law;

(d)the written consent of the General Partner and all of the
Preferred Partners; or

(e)in the sole and absolute discretion of the General
Partner upon the occurrence of a Special Event.

<PAGE>
Section 11.03. Notice of Dissolution. Upon the dissolution of the
Partnership, the General Partner shall promptly notify the Partners of such
dissolution.

ARTICLE XII - Liquidation of Partnership Interests

Section 12.01. Liquidation. Upon dissolution of the Partnership, the
General Partner, or, in the event that the dissolution is caused by an event
described in Section 11.02(b) and there is no other General Partner, a Person
or Persons who may be approved by Preferred Partners holding not less than a
majority in liquidation preference of the Preferred Partner Interests as
liquidating trustee (the "Liquidating Trustee") shall immediately commence to
wind up the Partnership's affairs; provided, however, that a reasonable time
shall be allowed for the orderly liquidation of the assets of the Partnership
and the satisfaction of liabilities to creditors so as to enable the Partners
to minimize the normal losses attendant upon a liquidation. The Preferred
Partners shall continue to share profits and losses during liquidation in the
same proportions, as specified in Articles V and VI hereof, as before
liquidation. The proceeds of liquidation shall be distributed, as realized, in
the following order and priority:

(a)to creditors of the Partnership, including Preferred
Partners who are creditors, to the extent otherwise permitted by law, in
satisfaction of the liabilities of the Partnership (whether by payment or the
making of reasonable provision for payment thereof), other than liabilities for
which reasonable provision for payment has been made and liabilities for
distributions to Partners;

(b)to the holders of Preferred Partner Interests of each
series then outstanding in accordance with the terms of the Action or Actions
for such Series; and

(c)to all Partners in accordance with their respective
positive Capital Account balances, after giving effect to all contributions,
distributions and allocations for all periods.

Section 12.02. Termination. The Partnership shall terminate when all
of the assets of the Partnership have been distributed in the manner provided
for in this Article XII, and the Certificate of Limited Partnership shall have
been cancelled in the manner required by the New Jersey Law.

Section 12.03. Duty of Care. The General Partner or the Liquidating
Trustee, as the case may be, shall not be liable to the Partnership or any
Partner for any loss attributable to any act or omission of the General Partner
taken in good faith in connection with the liquidation of the Partnership and
distribution of its assets in belief that such course of conduct was in the
best interest of the Partnership. The General Partner or the Liquidating
Trustee, as the case may be, may consult with counsel and accountants with
respect to liquidating the Partnership and distributing its assets and shall be
justified in acting or omitting to act in accordance with the written opinion
of such counsel or accountants, provided they shall have been selected with
reasonable care.

<PAGE>
Section 12.04. No Liability for Return of Capital. The General
Partner and its respective officers, directors, members, shareholders,
employees, representatives, agents, partners and Affiliates shall not be
personally liable for the return of the contributions of any Partner to the
Partnership. No Partner shall be obligated to restore to the Partnership any
amount with respect to a negative Capital Account.

ARTICLE XIII - Preferred Partner Interests

Section 13.01. Preferred Partner Interests.

(a) The aggregate number of Preferred Partner Interests which
the Partnership shall have authority to issue is unlimited. Each series of
Preferred Partner Interests shall rank equally and all Preferred Partner
Interests shall rank senior to all other Interests in respect of the right to
receive distributions and the right to receive payments out of the assets of
the Partnership upon voluntary or involuntary dissolution and winding up of the
Partnership. The issuance of any Interests ranking senior to the Preferred
Partner Interests shall be deemed to materially adversely affect the rights of
the Preferred Partner Interests under this Agreement.

(b) The General Partner on behalf of the Partnership is
authorized to issue Preferred Partner Interests, in one or more series, having
such designations, rights, privileges, restrictions, and other terms and
provisions, whether in regard to distributions, return of capital or otherwise,
as may from time to time be established in a written action or actions (each,
an "Action") of the General Partner providing for the issue of such series. In
connection with the foregoing, the General Partner is expressly authorized,
prior to issuance, to set forth in an Action or Actions providing for the issue
of such series, the following:

(i) The distinctive designation of such series
which shall distinguish it from other series;

(ii) The number of Preferred Partner Interests
included in such series, which number may be increased or decreased from
time to time unless otherwise provided by the General Partner in creating
the series;

(iii) The distribution rate (or method of
determining such rate) for Preferred Partner Interests of such series, the
amount of interest, if any, which shall accrue on accrued and unpaid
distributions, the method of calculation of interest payments and the first
date upon which distributions shall be payable;

(iv) The amount or amounts which shall be paid out
of the assets of the Partnership to the holders of such series of Preferred
Partner Interests upon voluntary or involuntary dissolution and winding up
of the Partnership;

(v) The price or prices at which (the "Redemption
Price"), the period or periods within which and the terms and conditions
upon which the Preferred Partner Interests of such series may be redeemed
<PAGE>
or purchased, in whole or in part, at the option of the Partnership;

(vi) The obligation of the Partnership to purchase
or redeem Preferred Partner Interests of such series pursuant to a sinking
fund or otherwise and the price or prices at which, the period or periods
within which and the terms and conditions upon which the Preferred Partner
Interests of such series shall be redeemed, in whole or in part, pursuant
to such obligation;

(vii) The period or periods within which and the
terms and conditions, if any, including the price or prices or the rate or
rates of conversion or exchange and the terms and conditions of any
adjustments thereof, upon which the Preferred Partner Interests of such
series shall be convertible or exchangeable at the option of the Preferred
Partner, or the Partnership, into any other Interests or securities or
other property or cash or into any other series of Preferred Partner
Interests;

(viii) The voting rights, if any, of the Preferred
Partner Interests of such series in addition to those required by law or
set forth herein, and any requirement for the approval by the Preferred
Partner Interest, or of the Preferred Partner Interests of one or more
series, or of both, as a condition to specified Action or amendments to
this Agreement;

(ix) The additional amounts, if any, which the
Partnership will pay as a distribution as necessary in order that the net
amounts received by the Preferred Partners who hold such series of
Preferred Partner Interests after withholding or deduction on account of
certain taxes, duties, assessments or governmental charges will equal the
amount which would have been receivable in respect of such Preferred
Partner Interests in the absence of such withholding or deduction
("Additional Amounts"); and

(x) Any other relative rights, powers, preferences
or limitations of the Preferred Partner Interests of the series not
inconsistent with this Agreement or with applicable law.

In connection with the foregoing and without limiting the generality
thereof, the General Partner is hereby expressly authorized, without the vote
or approval of any other Partner, to take any Action to create under the
provisions of this Agreement a series of Preferred Partner Interests that was
not previously outstanding. Without the vote or approval of any other Partner,
the General Partner may execute, swear to, acknowledge, deliver, file and
record whatever documents may be required in connection with the issue from
time to time of Preferred Partner Interests in one or more series as shall be
necessary, convenient or desirable to reflect the issue of such series. The
General Partner shall do all things it deems to be appropriate or necessary to
comply with the New Jersey Law and is authorized and directed to do all things
it deems to be necessary or permissible in connection with any future issuance,
including compliance with any statute, rule, regulation or guideline of any
Federal, state or other governmental agency or any securities exchange.

<PAGE>
Any Action or Actions taken by the General Partner pursuant to the
provisions of this paragraph (b) shall be deemed an amendment and supplement to
and part of this Agreement.

(c) Except as otherwise provided in this Agreement or in any
Action in respect of any series of the Preferred Partner Interests and as
otherwise required by law, all rights to the management and control of the
Partnership shall be vested exclusively in the General Partner.

(d) No holder of Interests shall be entitled as a matter of
right to subscribe for or purchase, or have any preemptive right with respect
to, any part of any new or additional issue of Interests of any class or series
whatsoever, or of securities convertible into any Interests of any class or
series whatsoever, whether now or hereafter authorized and whether issued for
cash or other consideration or by way of distribution. Any Person acquiring
Preferred Partner Interests shall be admitted to the Partnership as a Preferred
Partner upon compliance with Section 2.06.

Section 13.02. Terms of All Preferred Partner Interests.
Notwithstanding anything else in any Action to the contrary, all Preferred
Partner Interests of the Partnership shall have the following voting rights,
preferences, participating, optional and other special rights and the
qualifications, limitations or restrictions of, and other matters relating to,
the Preferred Partner Interests as set forth below in this Section 13.02.

(a) Distributions.

(i)The Preferred Partners shall be entitled to receive,
when, as and if declared by the General Partner out of funds held by the
Partnership to the extent that the Partnership has cash on hand sufficient
to permit such payments and funds legally available therefor, cumulative
cash distributions at a rate per annum established by the General Partner,
payable in United States dollars monthly in arrears on the last day of each
calendar month of each year. In the event that any date on which
distributions are payable on the Preferred Partner Interests is not a
Business Day, then payment of the distribution payable on such date will be
made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay) except that, if
such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with
the same force and effect as if made on such date. Such distributions will
accrue and be cumulative from the original date of issue whether or not
they have been declared and whether or not there are profits, surplus or
other funds of the Partnership legally available for the payment of
distributions, or whether they are deferred.

(ii) If distributions have not been paid in full
on any series of Preferred Partner Interests, the Partnership may not:

(A) pay any distributions on any
other series of Preferred Partner Interests, unless
the amount of any distributions paid on any
Preferred Partner Interests is paid on all
Preferred Partner Interests then outstanding on a
<PAGE>
pro rata basis, on the date such distributions are
paid, so that

(1) (x) the aggregate
amount of distributions paid on such
series of Preferred Partner Interests
bears to (y) the aggregate amount of
distributions paid on all such Preferred
Partner Interests outstanding the same
ratio as

(2) (x) the aggregate of
all accumulated arrears of unpaid
distributions in respect of such series of
Preferred Partner Interests bears to (y)
the aggregate of all accumulated arrears
of unpaid distributions in respect of such
Preferred Partner Interests outstanding;

(B) pay any distribution on any general partner Interest;
or

until, in each case, such time as all accumulated and unpaid
distributions on all series of Preferred Partner Interests
shall have been paid in full for all distribution periods
terminating on or prior to, in the case of clauses (A) and (B),
such payment and, in the case of clause (C), the date of such
redemption, purchase or acquisition.

(b) Redemption Procedures.

(i) Notice of any redemption (a "Notice of Redemption") of
the Preferred Partner Interests will
be given by the Partnership by mail or delivery to
each record holder of Preferred Partner Interests
to be redeemed not fewer than thirty (30) nor more
than sixty (60) days prior to the date fixed for
redemption thereof. For purposes of the
calculation of the date of redemption and the dates
on which notices are given pursuant to this
paragraph (b)(i), a Notice of Redemption shall be
deemed to be given on the day such notice is first
mailed by first-class mail, postage prepaid, or on
the date it was delivered, either in person,
receipt acknowledged, or by delivery service, to
the holders of such Preferred Partner Interests.
Each Notice of Redemption shall be addressed to the
record holders of the Preferred Partner Interests
at the address of the holder appearing in the books
and records of the Partnership. No defect in the
<PAGE>
Notice of Redemption or in the mailing or delivery
thereof or publication of its contents shall affect
the validity of the redemption proceedings.

(ii) The Partnership may not redeem any Preferred Partner
Interests unless all accumulated and
unpaid distributions have been paid on all
Preferred Partner Interests for all monthly
distribution periods terminating on or prior to the
date of redemption. In the case of a partial
redemption resulting from a requirement that the
Partnership pay Additional Amounts or withhold or
deduct certain amounts, the Partnership will (A)
cause the global certificates representing all of
such series of Preferred Partner Interests to be
withdrawn from The Depository Trust Company or its
successor securities depository, (B) issue
certificates in definitive form representing such
series of Preferred Partner Interests, and (C)
redeem the series or portion of the series of
Preferred Partner Interests subject to such
requirement to withhold or deduct Additional
Amounts. Subject to applicable law, PSE&G or its
Affiliates may at any time and from time to time
purchase outstanding Preferred Partner Interests by
tender, in the open market or by private agreement.
If a partial redemption of outstanding Preferred
Partner Interests would result in a delisting of a
series of Preferred Partner Interests from any
national securities exchange on which the series of
Preferred Partner Interests is then listed, the
Partnership may then only redeem the series of
Preferred Partner Interests in whole.

(iii) If Notice of Redemption shall have been given and
payment shall have been made by the
Partnership to the record holders of the Preferred
Partner Interests, then upon the date of such
payment, all rights in respect of such Preferred
Partner Interests so called for redemption will
cease, except the right of the holders of such
securities to receive the Redemption Price, but
without interest. In the event that any date fixed
for redemption of Preferred Partner Interests is
not a Business Day, then payment of the Redemption
Price payable on such date will be made on the next
succeeding day which is a Business Day (and without
any interest or other payment in respect of any
such delay), except that, if such Business Day
falls in the next succeeding calendar year, such
payment will be made on the immediately preceding
Business Day (in each case with the same force and
effect as if made on such day). In the event that
payment of the Redemption Price in respect of
<PAGE>
Preferred Partner Interests is not made either by
the Partnership or by PSE&G pursuant to the
Guarantee, distributions on such Preferred Partner
Interests will continue to accrue at the then
applicable rate, from the original redemption date
to the date of payment, in which case the actual
payment date will be considered the date fixed for
redemption for purposes of calculating the
Redemption Price.

(c) Liquidation Distribution. If, upon any liquidation, the
Liquidation Distribution on any series of Preferred Partner Interests can be
paid only in part because the Partnership has insufficient assets available to
pay in full the aggregate Liquidation Distribution on all Preferred Partner
Interests, then the amounts payable directly by the Partnership on such series
of Preferred Partner Interests and on all other series of Preferred Partner
Interests shall be paid on a pro rata basis, so that

(i) (1) the aggregate amount paid in
respect of the Liquidation Distribution bears to
(2) the aggregate amount paid as liquidation
distributions on all other Preferred Partner
Interests the same ratio as

(ii) (1) the aggregate Liquidation Distribution bears to
(2) the aggregate maximum liquidation
distributions on all other Preferred Partner
Interests.

(d) Voting Rights. The Limited Partners shall not have any
right to vote on matters concerning the Partnership except as specifically set
forth in this Agreement, in the Guarantee or as otherwise required by law. If
(i) the Partnership fails to pay distributions in full on any series of
Preferred Partner Interests for eighteen (18) consecutive months; (ii) a
default under the Indenture occurs and is continuing; or (iii) PSE&G is in
default on any of its payment or other obligations under the Guarantee, then
the holders of the Preferred Partner Interests, will be entitled by a vote of
the majority of the aggregate stated liquidation preference of all outstanding
Preferred Partner Interests having a right to vote to appoint and authorize a
special representative ("Special Representative"), to enforce the Partnership's
rights under the Subordinated Debentures and the Indenture against PSE&G and
enforce the obligations undertaken by PSE&G under the Guarantee, including,
after failure to pay distributions for 60 consecutive monthly distribution
periods, to declare and pay distributions on such series of Preferred Partner
Interests, the General Partner agreeing to execute and deliver such documents
as may be necessary, appropriate or convenient for the Special Representative
to enforce such rights and obligations. Notwithstanding anything else herein,
the Special Representative shall not be admitted as a partner of the
Partnership or otherwise be deemed a partner of the Partnership and shall have
no liability for the debts, obligations or liabilities of the Partnership.

In furtherance of the foregoing, and without limiting the powers of
any Special Representative so appointed and for the avoidance of any doubt
concerning the powers of the Special Representative, any Special
<PAGE>
Representative, in its own name and as trustee of an express trust, may
institute a proceeding, including, without limitation, any suit in equity, an
action at law or other judicial or administrative proceeding, to enforce the
Partnership's creditor rights directly against PSE&G or any other obligor in
connection with such obligations to the same extent as the Partnership and on
behalf of the Partnership, and may pursue such proceeding to judgment or final
decree, and enforce the same against PSE&G or any other obligor in connection
with such obligations and collect, out of the property, wherever situated, of
PSE&G or any such other obligor upon such obligations, the monies adjudged or
decreed to be payable in the manner provided by law.

For purposes of determining whether the Partnership has failed to pay
distributions in full for eighteen (18) consecutive monthly distribution
periods, distributions shall be deemed to remain in arrears, notwithstanding
any payments in respect thereof, until full cumulative distributions have been
or contemporaneously are declared and paid with respect to all monthly
distribution periods terminating on or prior to the date of payment of such
full cumulative distributions. Subject to the requirements of applicable law,
not later than thirty (30) days after such right to appoint a Special
Representative arises, the General Partner will convene a general meeting for
the above purpose. If the General Partner fails to convene such meeting within
such 30-day period, the Preferred Partners who hold 10% of the aggregate stated
liquidation preference of the outstanding Preferred Partner Interests will be
entitled to convene such meeting. The provisions of this Agreement relating to
the convening and conduct of meetings of Partners will apply with respect to
any such meeting. Any Special Representative so appointed shall cease to act
in such capacity immediately if the Partnership (or PSE&G pursuant to the
Guarantee) shall have paid in full all accumulated and unpaid distributions on
the Preferred Partner Interests or such default or breach by PSE&G, as the case
may be, shall have been cured. Notwithstanding the appointment of any such
Special Representative, PSE&G retains all rights under the Indenture, including
the right to extend the interest payment period on the Subordinated Debentures.

If any proposed amendment of this Agreement provides for, or the
General Partner otherwise proposes to effect (pursuant to an Action or
otherwise), any action which would materially adversely affect the powers,
preferences or special rights of any series of Preferred Partner Interests,
then holders of such series of outstanding Preferred Partner Interests will be
entitled to vote on such amendment or action of the General Partner (but not on
any other amendment or action) and, in the case of an amendment which would
equally adversely affect the powers, preferences or special rights of any other
series of Preferred Partner Interests, all holders of such series of Preferred
Partner Interests, shall vote together as a class on such amendment or action
of the General Partner (but not on any other amendment or action), and such
amendment or action shall not be effective except with the approval of
Preferred Partners holding not less than 66 2/3% of the aggregate stated
liquidation preference of such outstanding series of Preferred Partner
Interests. Except as otherwise provided under Section 11.02 or the New Jersey
Law, the Partnership will be dissolved and wound up only with the consent of
the holders of all outstanding Preferred Partner Interests.

The powers, preferences or special rights of any Preferred Partner
Interests will be deemed not to be adversely affected by the creation or issue
of, and no vote will be required for the creation or issuance of, any
<PAGE>
additional series of Preferred Partner Interests or additional general partner
Interests.

Any required approval of Preferred Partner Interests may be given at a
separate meeting of such holders convened for such purpose, at a meeting of the
holders of all series of Preferred Partner Interests or pursuant to written
consent. The Partnership will cause a notice of any meeting at which holders
of any Preferred Partner Interests are entitled to vote, or of any matter upon
which action by written consent of such holders is to be taken, to be mailed to
each holder of Preferred Partner Interests. Each such notice will include a
statement setting forth (a) the date of such meeting or the date by which such
action is to be taken, (b) a description of any resolution proposed for
adoption at such meeting on which such holders are entitled to vote or of such
matter upon which written consent is sought, and (c) instructions for the
delivery of proxies or consents.

No vote or consent of the holders of the Preferred Partner Interests
will be required for the Partnership to redeem and cancel the Preferred Partner
Interests in accordance with this Agreement.

Notwithstanding that holders of Preferred Partner Interests are
entitled to vote or consent under any of the circumstances described above, any
of the Preferred Partner Interests that are owned by PSE&G or any entity owned
more than 50% by PSE&G, either directly or indirectly, shall not be entitled to
vote or consent and shall, for the purposes of such vote or consent, be treated
as if they were not outstanding.

(e) Mergers. The Partnership may not consolidate, amalgamate,
merge with or into, or be replaced by, or convey, transfer or lease its
properties and assets as an entirety or substantially as an entirety to any
corporation or other entity, except with the approval of the General Partner
and the holders of 66 2/3% in aggregate stated liquidation preference of such
outstanding Preferred Partner Interests or as otherwise described below. The
General Partner may, without the consent of the holders of the Preferred
Partner Interests, cause the Partnership to consolidate, amalgamate, merge with
or into, or be replaced by, or convey, transfer or lease its properties and
assets as an entirety or substantially as an entirety to, a corporation, a
limited liability company, limited partnership, trust or other entity organized
as such under the laws of any state of the United States of America or the
District of Columbia, provided that (i) such successor entity either (x)
expressly assumes all of the obligations of the Partnership under the Preferred
Partner Interests and the other obligations of the Partnership or (y)
substitutes for the Preferred Partner Interests other securities having
substantially the same terms as the Preferred Partner Interests (the "Successor
Securities") so long as the Successor Securities rank, as regards participation
in the profits or assets of the successor entity, at least as high as the
Preferred Partner Interests rank, as regards participation in the profits or
assets of the Partnership, (ii) PSE&G confirms its obligations under the
Guarantee with regard to the Successor Securities, if any are issued, (iii)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not cause the Preferred Partner Interests or Successor Securities to
be delisted by any national securities exchange or other organization on which
the Preferred Partner Interests are then listed, (iv) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does
<PAGE>
not cause the Preferred Partner Interests or Successor Securities to be
downgraded by any "nationally recognized statistical rating organization", as
that term is defined by the Commission for purposes of Rule 436(g)(2) under the
Securities Act, (v) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the powers, preferences
and special rights of holders of Preferred Partner Interests or Successor
Securities in any material respect, (vi) such successor entity has a purpose
substantially identical to that of the Partnership and (vii) prior to such
merger, consolidation, amalgamation, replacement, conveyance, transfer or lease
PSE&G has received an opinion of counsel (which may be regular counsel to PSE&G
or an Affiliate, but not an employee thereof) experienced in such matters to
the effect that (1) holders of outstanding Preferred Partner Interests will not
recognize any gain or loss for Federal income tax proposes as a result of the
merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease, (2) such successor entity will be treated as a partnership for Federal
income tax purposes, (3) following such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, PSE&G and such successor entity
will be in compliance with the 1940 Act without registering thereunder as an
"investment company," and (4) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease will not adversely affect the
limited liability of holders of Preferred Partner Interests or Successor
Securities.

ARTICLE XIV - Transfers

Section 14.01. Transfers of Preferred Partner Interests. Preferred
Partner Interests may be freely transferred by a Preferred Partner. No
Interest shall be transferred, in whole or in part, except in accordance with
the terms and conditions set forth in this Agreement. Any transfer or
purported transfer of any Interest not made in accordance with this Agreement
shall be null and void.

Section 14.02. Transfer of Certificates. The General Partner shall
provide for the registration of Certificates. Upon surrender for registration
of transfer of any Certificate, the General Partner shall cause one or more new
Certificates to be issued in the name of the designated transferee or
transferees. Every Certificate surrendered for registration of transfer shall
be accompanied by a written instrument of transfer and agreement to be bound by
the terms of this Agreement in a form satisfactory to the General Partner duly
executed by the Preferred Partner or his attorney duly authorized in writing.
Each Certificate surrendered for registration of transfer shall be cancelled by
the General Partner. A transferee of a Certificate shall provide the
Partnership with a completed Form W-8 or such other documents or information as
are requested by the Partnership for tax reporting purposes and thereafter
shall be admitted to the Partnership as a Preferred Partner and shall be
entitled to the rights and subject to the obligations of a Preferred Partner
hereunder upon the receipt by such transferee of a Certificate. The transferor
of a Certificate shall cease to be a limited partner of the Partnership at the
time that the transferee of the Certificate is admitted to the Partnership as a
Preferred Partner in accordance with this Section 14.02.

Section 14.03. Persons Deemed Preferred Partners. The Partnership
may treat the Person in whose name any Certificate shall be registered on the
<PAGE>
books and records of the Partnership as the Preferred Partner and the sole
holder of such Certificate for purposes of receiving distributions and for all
other purposes whatsoever and, accordingly, shall not be bound to recognize any
equitable or other claims to or interest in such Certificate on the part of any
other Person, whether or not the Partnership shall have actual or other notice
thereof.

Section 14.04. Book Entry Interests. The Certificates, on original
issuance, will be issued in the form of a typewritten Certificate or
Certificates representing the Book Entry Interests to be delivered to The
Depository Trust Company, the initial Clearing Agency, by, or on behalf of, the
Partnership. Such Certificates shall initially be registered on the books and
records of the Partnership in the name of Cede & Co., the nominee of the
initial Clearing Agency, and no Preferred Partner Interest Owner will receive a
definitive Certificate representing such Preferred Partner Interest Owner's
interests in such Certificate, except as provided in Section 14.06. Unless and
until definitive, fully registered Certificates (the "Definitive Certificates")
have been issued to the Preferred Partner Interest Owners pursuant to Section
14.06:

(a)The provisions of this Section shall be in full force and
effect;

(b)The Partnership and the General Partner shall be entitled
to deal with the Clearing Agency for all purposes of this Agreement (including
the payment of distributions on the Certificates and receiving approvals, votes
or consents hereunder) as the Preferred Partner and the sole holder of the
Certificates and shall have no obligations to the Preferred Partner Interest
Owners;

(c)The rights of the Preferred Partner Interest Owners shall
be exercised only through the Clearing Agency and shall be limited to those
established by law and agreements between such Preferred Partner Interest
Owners and the Clearing Agency and/or the Clearing Agency Participants. Unless
or until the Definitive Certificates are issued pursuant to Section 14.06, the
initial Clearing Agency will make book entry transfers among the Clearing
Agency Participants and receive and transmit payments of distributions on the
Certificates to such Clearing Agency Participants;

(d)To the extent that the provisions of this Section
conflict with any other provisions of this Agreement, the provisions of this
Section shall control; and

(e)Whenever this Agreement requires or permits actions to be
taken based upon approvals, votes or consents of a percentage of the Preferred
Partners, the Clearing Agency shall be deemed to represent such percentage only
to the extent that it has received instructions to such effect from the
Preferred Partner Interest Owners and/or Clearing Agency Participants owning or
representing, respectively, such required percentage of the beneficial
interests in the Certificates and has delivered such instructions to the
General Partner.

Section 14.05. Notices to Clearing Agency. Whenever a notice or
other communication to the Preferred Partners is required under this Agreement,
<PAGE>
unless and until Definitive Certificates shall have been issued pursuant to
Section 14.06, the General Partner shall give all such notices and
communications specified herein to be given to the Preferred Partners to the
Clearing Agency, and shall have no obligations to the Preferred Partner
Interest Owners.

Section 14.06. Definitive Certificates. If (i) the Clearing Agency
elects to discontinue its services as securities depository and gives
reasonable notice to the Partnership, or (ii) the General Partner elects to
terminate the book entry system through the Clearing Agency, then the
Definitive Certificates shall be prepared by the Partnership. Upon surrender
of the typewritten Certificate or Certificates representing the Book Entry
Interests by the Clearing Agency, accompanied by registration instructions, the
General Partner shall cause the Definitive Certificates to be delivered to the
Preferred Partner Interest Owners in accordance with the instructions of the
Clearing Agency. The General Partner shall not be liable for any delay in
delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Any Person receiving a Definitive
Certificate in accordance with this Article XIV shall be admitted to the
Partnership as a Preferred Partner upon receipt of such Definitive Certificate.
The Clearing Agency or the nominee of the Clearing Agency, as the case may be,
shall cease to be a Limited Partner of the Partnership under this Section 14.06
at the time that at least one additional Person is admitted to the Partnership
as a Preferred Partner in accordance with this Section 14.06. The Definitive
Certificates shall be printed, lithographed or engraved or may be produced in
any other manner as is reasonably acceptable to the General Partner, as
evidenced by its execution thereof. The General Partner will appoint a
registrar, transfer agent and paying agent for the Preferred Partner Interests.
Registration of transfers of Preferred Partner Interests will be effected
without charge by or on behalf of the Partnership, but upon payment of any tax
or other governmental charges which may be imposed in relation to it. The
Partnership will not be required to register or cause to be registered the
transfer of Preferred Partner Interests after such Preferred Partner Interests
have been called for redemption.

ARTICLE XV - General

Section 15.01. Power of Attorney. (a) The Class A Limited Partner
and each Preferred Partner constitutes and appoints the General Partner and the
Liquidating Trustee as its true and lawful representative and attorney-in-fact,
in its name, place and stead, to make, execute, sign, acknowledge and deliver
or file (i) all instruments, documents and certificates which may from time to
time be required by any law to effectuate, implement and continue the valid and
subsisting existence of the Partnership, (ii) all instruments, documents and
certificates that may be required to effectuate the dissolution and termination
of the Partnership in accordance with the provisions hereof and the laws of the
State of New Jersey, (iii) all other amendments of this Agreement or the
Certificate of Limited Partnership and other filings contemplated by this
Agreement including, without limitation, amendments reflecting the withdrawal
of the General Partner, or the return, in whole or in part, of the contribution
of any Partner, or the addition, substitution or increased contribution of any
Partner, or any action of the Partners duly taken pursuant to this Agreement
whether or not such Partner voted in favor of or otherwise approved such
<PAGE>
action, and (iv) any other instrument, certificate or document required from
time to time to admit a Partner, to effect its substitution as a Partner, to
effect the substitution of the Partner's assignee as a Partner or to reflect
any action of the Partners provided for in this Agreement.

(b)The powers of attorney granted herein (i) shall be deemed
to be coupled with an interest, shall be irrevocable and shall survive the
death, insanity, incompetency or incapacity (or, in the case of a Partner that
is a corporation, association, partnership, limited liability company or trust,
shall survive the merger, dissolution or other termination of existence) of the
Partner and (ii) shall survive the assignment by the Partner of the whole or
any portion of his Interest, except that where the assignee of the whole or any
portion thereof has furnished a power of attorney, this power of attorney shall
survive such assignment for the sole purpose of enabling the General Partner
and the Liquidating Trustee to execute, acknowledge and file any instrument
necessary to effect any permitted substitution of the assignee for the assignor
as a Partner and shall thereafter terminate. In the event that the appointment
conferred in this Section 15.01 would not constitute a legal and valid
appointment by any Partner under the laws of the jurisdiction in which such
Partner is incorporated, established or resident, upon the request of the
General Partner or the Liquidating Trustee, such Partner shall deliver to the
General Partner or the Liquidating Trustee a properly authenticated and duly
executed document constituting a legal and valid power of attorney under the
laws of the appropriate jurisdiction covering the matters set forth in this
Section 15.01.

(c)The General Partner may require a power of attorney to be
executed by a transferee of a Partner as a condition of its admission as a
substitute Partner.

Section 15.02. Waiver of Partition. Each Partner hereby irrevocably
waives any and all rights that it may have to maintain an action for partition
of any of the Partnership's property or assets.

Section 15.03. Notices. Any notice permitted or required to be given
hereunder shall be in writing and shall be deemed given (i) on the day the
notice is first mailed to a Partner by first class mail, postage prepaid, or
(ii) on the date it was delivered to a Partner, either in person, receipt
acknowledged, or by delivery service, at its address appearing on the books and
records of the Partnership. Another address may be designated by a Partner by
such Partner giving notice of its new address as provided in this Section
15.03.

Section 15.04. Entire Agreement. This Agreement, including the
exhibits annexed hereto and incorporated by reference herein, contains the
entire agreement of the parties hereto and supersedes all prior agreements and
understandings, oral or otherwise, among the parties hereto with respect to the
matters contained herein.

Section 15.05. Waivers. Except as otherwise expressly provided
herein, no purported waiver by any party of any breach by another party of any
of his obligations, agreements or covenants hereunder, or any part thereof,
shall be effective unless made in a writing executed by the party or parties
sought to be bound thereby, and no failure to pursue or elect any remedy with
<PAGE>
respect to any default under or breach of any provision of this Agreement, or
any part hereof, shall be deemed to be a waiver of any other subsequent similar
or different default or breach, or any election of remedies available in
connection therewith, nor shall the acceptance or receipt by any party of any
money or other consideration due him under this Agreement, with or without
knowledge of any breach hereunder, constitute a waiver of any provision of this
Agreement with respect to such or any other breach.

Section 15.06. Headings. The section headings herein contained have
been inserted only as a matter of convenience of reference and in no way
define, limit or describe the scope or intent of any provisions of this
Agreement nor in any way affect any such provisions.

Section 15.07. Separability. Each provision of this Agreement shall
be considered to be separable, and if, for any reason, any such provision or
provisions, or any part thereof, is determined to be invalid and contrary to
any existing or future applicable law, such invalidity shall not impair the
operation of, or affect, those portions of this Agreement which are valid, and
this Agreement shall be construed and enforced in all respects as if such
invalid or unenforceable provision or provisions had been omitted.

Section 15.08. Contract Construction. Whenever the context of this
Agreement permits, the masculine gender shall include the feminine and neuter
genders, and reference to singular or plural shall be interchangeable with the
other. References in this Agreement to particular sections of the Code or to
provisions of the New Jersey Law shall be deemed to refer to such sections or
provisions as they may be amended after the date of this Agreement.

Section 15.09. Counterparts. This Agreement may be executed in one
or more counterparts and each of such counterparts for all purposes shall be
deemed to be an original, but all of such counterparts, when taken together,
shall constitute but one and the same instrument, binding upon all parties
hereto, notwithstanding that all of such parties may not have executed the same
counterpart.

Section 15.10. Benefit. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, but shall not be deemed for the benefit of creditors or any other
Persons, nor shall it be deemed to permit any assignment by a Partner of any of
its rights or obligations hereunder except as expressly provided herein.

Section 15.11. Further Actions. Each of the Partners hereby agrees
that it shall hereafter execute and deliver such further instruments and do
such further acts and things as may be required or useful to carry out the
intent and purposes of this Agreement and as are not inconsistent with the
terms hereof.

Section 15.12. Governing Law. This Agreement shall be governed by
and construed in accordance with the substantive laws of the State of New
Jersey, without regard to conflicts of laws.

Section 15.13. Amendments. Except as otherwise expressly provided
herein or as otherwise required by law, this Agreement may only be amended by a
written instrument executed by the General Partner provided, however, that any
<PAGE>
amendment which would adversely affect the powers, preferences or special
rights of any series of Preferred Partner Interests may be effected only as
permitted by the terms of such series of Preferred Partner Interests.

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.

GENERAL PARTNER:
PUBLIC SERVICE ELECTRIC AND
GAS COMPANY

______________________________
Name:
Title:

CLASS A LIMITED
PARTNER:

______________________________
Name:
Title:
Exhibit A

Certificate Evidencing Preferred Partner Interests

Public Service Electric and Gas Capital, L.P.

__% Cumulative Monthly Income Preferred Securities
Series __ (liquidation preference
$25 per Preferred Security)

Public Service Electric and Gas Capital, L.P., a New Jersey limited
partnership (the "Partnership"), hereby certifies that Cede & Co. (the
"Holder") is the registered owner of ___________ (_________) fully paid
Preferred Securities of the Partnership designated the __% Cumulative Monthly
Income Preferred Securities, Series __ (liquidation preference $25 per
Preferred Security) (the "Series __ Preferred Securities") representing
preferred limited partner interests in the Partnership transferable on the
books and records of the Partnership, in person or by a duly authorized
attorney, upon surrender of this Certificate duly endorsed and in proper form
<PAGE>
for transfer. The powers, preferences and special rights and limitations of
the Series __ Preferred Securities are set forth in, and this Certificate and
the Series __ Preferred Securities represented hereby are issued and shall in
all respects be subject to the terms and provisions of, the Amended and
Restated Limited Partnership Agreement dated as of _______, 1994 of the
Partnership as the same may, from time to time, be amended (the "Partnership
Agreement") authorizing the issuance of the Series __ Preferred Securities and
determining, along with any actions of the General Partner of the Partnership
as authorized under the Partnership Agreement, the preferred, deferred and
other special rights and restrictions, regarding distributions, voting,
redemption and otherwise and other matters relating to the Series __ Preferred
Securities. The Partnership will furnish a copy of the Partnership Agreement
to the Holder without charge upon written request to the Partnership at its
principal place of business or registered office. Capitalized terms used
herein but not defined shall have the meaning given them in the Partnership
Agreement. The Holder is entitled to the benefits of the Payment and Guarantee
Agreement of Public Service Electric and Gas Company, dated as of ______, 1994
relating to the Preferred Securities (the "Guarantee") and of the Indenture
between Public Service Electric and Gas Company and First Fidelity Bank,
National Association, as Trustee, dated as of ______, 1994 (the "Indenture"),
under and pursuant to which the related series of Subordinated Debentures are
issued and outstanding, in either case to the extent provided therein. The
Holder is further entitled to enforce such rights of the Partnership under the
Indenture to the extent provided therein and in the Partnership Agreement. The
Partnership will furnish a copy of the Guarantee and Indenture to the Holder
without charge upon written request to the Partnership at its principal place
of business or registered office.

The Holder, by accepting this Certificate, is deemed to have (i)
agreed that the Subordinated Debentures issued pursuant to the Indenture are
subordinate and junior in right of payment to all general liabilities of Public
Service Electric and Gas Company as and to the extent provided in the Indenture
and (ii) agreed that the Guarantee is subordinate and junior in right of
payment to all general liabilities of Public Service Electric and Gas Company.
Upon receipt of this Certificate, the Holder is admitted to the Partnership as
a Preferred Partner, is bound by the Partnership Agreement and is entitled to
the benefits thereunder.

IN WITNESS WHEREOF, the Partnership has executed this Certificate this
____ day of ________________, 1994.

PUBLIC SERVICE ELECTRIC AND GAS
CAPITAL, L.P.

By: Public Service Electric and
Gas Company, its General
Partner

By:______________________________
Name:
Title:

<PAGE>

EXHIBIT 4-3

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

and

FIRST FIDELITY BANK, NATIONAL ASSOCIATION, as Trustee

INDENTURE

Dated as of ______, 1994

Providing for the Issuance of
Deferrable Interest Subordinated Debentures in Series
<PAGE>
including

_% Deferrable Interest Subordinated Debentures, Series A

TABLE OF CONTENTS

Page

ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions. . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.02 Other Definitions. . . . . . . . . . . . . . . . . . 8
SECTION 1.03 Incorporation by Reference of Trust
Indenture Act. . . . . . . . . . . . . . . . . . . . 8
SECTION 1.04 Rules of Construction. . . . . . . . . . . . . . . . 8
SECTION 1.05 Acts of Holders. . . . . . . . . . . . . . . . . . . 9

ARTICLE 2 THE DEBENTURES; THE SERIES A DEBENTURES
SECTION 2.01 Issue of Debentures Generally. . . . . . . . . . . . 10
SECTION 2.02 Terms and Form of the Series A
Debentures . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.03 Payment of Principal and Interest. . . . . . . . . . 13
SECTION 2.04 Execution, Authentication and Delivery . . . . . . . 15
SECTION 2.05 Registrar and Paying Agent . . . . . . . . . . . . . 17
SECTION 2.06 Paying Agent to Hold Money in Trust. . . . . . . . . 18
SECTION 2.07 Debentureholder Lists. . . . . . . . . . . . . . . . 18
SECTION 2.08 Transfer and Exchange. . . . . . . . . . . . . . . . 18
SECTION 2.09 Replacement Debentures . . . . . . . . . . . . . . . 19
SECTION 2.10 Outstanding Debentures; Determinations of
Holders' Action. . . . . . . . . . . . . . . . . . . 20
SECTION 2.11 Temporary Debentures . . . . . . . . . . . . . . . . 21
SECTION 2.12 Book Entry System. . . . . . . . . . . . . . . . . . 21
SECTION 2.13 Cancellation . . . . . . . . . . . . . . . . . . . . 23

ARTICLE 3 REDEMPTION
SECTION 3.01 Redemption; Notice to Trustee. . . . . . . . . . . . 24
SECTION 3.02 Selection of Debentures to be Redeemed . . . . . . . 24
SECTION 3.03 Notice of Redemption . . . . . . . . . . . . . . . . 24
SECTION 3.04 Effect of Notice of Redemption . . . . . . . . . . . 25
SECTION 3.05 Deposit of Redemption Price. . . . . . . . . . . . . 26
SECTION 3.06 Debentures Redeemed in Part. . . . . . . . . . . . . 26

ARTICLE 4 COVENANTS
SECTION 4.01 Payment of Debentures. . . . . . . . . . . . . . . . 26
SECTION 4.02 Prohibition Against Dividends, etc.. . . . . . . . . 27
SECTION 4.03 SEC Reports. . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.04 Compliance Certificates. . . . . . . . . . . . . . . 28
SECTION 4.05 Relationship with the Partnership. . . . . . . . . . 28
SECTION 4.06 Further Instruments and Acts . . . . . . . . . . . . 29
SECTION 4.07 Payments for Consents. . . . . . . . . . . . . . . . 29

ARTICLE 5 SUCCESSOR CORPORATION
SECTION 5.01 When the Company May Merge, Etc. . . . . . . . . . . 29

<PAGE>
ARTICLE 6 DEFAULTS AND REMEDIES
SECTION 6.01 Events of Default. . . . . . . . . . . . . . . . . . 30
SECTION 6.02 Acceleration . . . . . . . . . . . . . . . . . . . . 32
SECTION 6.03 Other Remedies . . . . . . . . . . . . . . . . . . . 32
SECTION 6.04 Waiver of Past Defaults. . . . . . . . . . . . . . . 33
SECTION 6.05 Control by Majority or the Special
Representative . . . . . . . . . . . . . . . . . . . 33
SECTION 6.06 Limitation on Suits. . . . . . . . . . . . . . . . . 34
SECTION 6.07 Rights of Holders to Receive Payment . . . . . . . . 34
SECTION 6.08 Collection Suit by the Trustee . . . . . . . . . . . 34
SECTION 6.09 The Trustee May File Proofs of Claim . . . . . . . . 35
SECTION 6.10 Priorities . . . . . . . . . . . . . . . . . . . . . 35
SECTION 6.11 Undertaking for Costs. . . . . . . . . . . . . . . . 36
SECTION 6.12 Waiver of Stay, Extension or Usury Laws. . . . . . . 36

ARTICLE 7 THE TRUSTEE
SECTION 7.01 Duties of the Trustee. . . . . . . . . . . . . . . . 37
SECTION 7.02 Rights of the Trustee. . . . . . . . . . . . . . . . 38
SECTION 7.03 Individual Rights of the Trustee . . . . . . . . . . 39
SECTION 7.04 The Trustee's Disclaimer . . . . . . . . . . . . . . 39
SECTION 7.05 Notice of Defaults . . . . . . . . . . . . . . . . . 39
SECTION 7.06 Reports by Trustee to Holders. . . . . . . . . . . . 39
SECTION 7.07 Compensation and Indemnity . . . . . . . . . . . . . 40
SECTION 7.08 Replacement of Trustee . . . . . . . . . . . . . . . 41
SECTION 7.09 Successor Trustee by Merger. . . . . . . . . . . . . 42
SECTION 7.10 Eligibility; Disqualification. . . . . . . . . . . . 42
SECTION 7.11 Preferential Collection of Claims Against
the Company. . . . . . . . . . . . . . . . . . . . . 42

ARTICLE 8 SATISFACTION AND DISCHARGE OF INDENTURE;
DEFEASANCE OF CERTAIN OBLIGATIONS; UNCLAIMED MONEYS
SECTION 8.01 Satisfaction and Discharge of Indenture. . . . . . . 43
SECTION 8.02 Application by Trustee of Funds Deposited
for Payment of Debentures. . . . . . . . . . . . . . 44
SECTION 8.03 Repayment of Moneys Held by Paying Agent . . . . . . 44
SECTION 8.04 Return of Moneys Held by the Trustee and Paying
Agent Unclaimed for Three Years. . . . . . . . . . . 45

ARTICLE 9 AMENDMENTS
SECTION 9.01 Without Consent of Holders . . . . . . . . . . . . . 45
SECTION 9.02 With Consent of Holders. . . . . . . . . . . . . . . 46
SECTION 9.03 Compliance with Trust Indenture Act. . . . . . . . . 47
SECTION 9.04 Revocation and Effect of Consents, Waivers and
Actions. . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 9.05 Notation on or Exchange of Debentures. . . . . . . . 48
SECTION 9.06 Trustee to Execute Supplemental
Indentures . . . . . . . . . . . . . . . . . . . . . 48
SECTION 9.07 Effect of Supplemental Indentures. . . . . . . . . . 48

ARTICLE 10 SUBORDINATION
SECTION 10.01 Debentures Subordinated to Senior Indebtedness . . . 48
SECTION 10.02 Priority and Payment of Proceeds in
Certain Events; Remedies Standstill. . . . . . . . . 49
SECTION 10.03 Payments which May Be Made Prior to
<PAGE>
Notice . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 10.04 Rights of Holders of Senior Indebtedness
Not to Be Impaired . . . . . . . . . . . . . . . . . 50
SECTION 10.05 Trustee May Take Action to Effectuate
Subordination. . . . . . . . . . . . . . . . . . . . 51
SECTION 10.06 Subrogation. . . . . . . . . . . . . . . . . . . . . 51
SECTION 10.07 Obligations of Company Unconditional;
Reinstatement. . . . . . . . . . . . . . . . . . . . 52
SECTION 10.08 Trustee Entitled to Assume Payments Not
Prohibited in Absence of Notice. . . . . . . . . . . 53
SECTION 10.09 Right of Trustee to Hold Senior
Indebtedness . . . . . . . . . . . . . . . . . . . . 54

ARTICLE 11 MISCELLANEOUS
SECTION 11.01 Trust Indenture Act Controls . . . . . . . . . . . . 54
SECTION 11.02 Notices. . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 11.03 Communication by Holders with Other
Holders. . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 11.04 Certificate and Opinion as to Conditions
Precedent. . . . . . . . . . . . . . . . . . . . . . 55
SECTION 11.05 Statements Required in Certificate or Opinion. . . . 56
SECTION 11.06 Severability Clause. . . . . . . . . . . . . . . . . 56
SECTION 11.07 Rules by Trustee, Paying Agent and
Registrar. . . . . . . . . . . . . . . . . . . . . . 56
SECTION 11.08 Legal Holidays . . . . . . . . . . . . . . . . . . . 56
SECTION 11.09 Governing Law. . . . . . . . . . . . . . . . . . . . 57
SECTION 11.10 No Recourse Against Others . . . . . . . . . . . . . 57
SECTION 11.11 Successors . . . . . . . . . . . . . . . . . . . . . 57
SECTION 11.12 Multiple Original Copies of this
Indenture. . . . . . . . . . . . . . . . . . . . . . 57
SECTION 11.13 No Adverse Interpretation of Other Agreements. . . . 57
SECTION 11.14 Table of Contents; Headings, Etc . . . . . . . . . . 58
SECTION 11.15 Benefits of the Indenture. . . . . . . . . . . . . . 58
SECTION 11.16 Partnership Books and Records. . . . . . . . . . . . 58
CROSS-REFERENCE TABLE
of Provisions of the Indenture
Required by the Trust Indenture Act of 1939

Trust Indenture Provision of
Act Section Indenture

310(a)(1) 7.10
(a)(2) 7.10
(a)(3) Not Applicable
(a)(4) Not Applicable
(a)(5) Not Applicable
(b) 7.08; 7.10; 11.01
(c) Not Applicable 311(a)
7.11
(b) 7.11
(c)
Not Applicable 312(a)
2.07
(b) 11.03
<PAGE>
(c) 11.03 313(a) 7.06
(b)(1)
Not Applicable
(b)(2) 7.06
(c) 7.06; 11.02
(d) 7.06 314(a) 4.03; 11.02
(b)
Not Applicable
(c)(1) 2.02; 11.04; 11.05
(c)(2) 2.02; 11.04; 11.05
(c)(3)
Not Applicable
(d)
Not Applicable
(e) 11.05
(f) Not Applicable 315(a) 7.01(b)
(b) 7.05; 11.02
(c) 7.01(a)
(d) 7.01(c)
(e) 6.11 316(a)(1)(A) 6.05
(a)(1)(B) 6.04
(a)(2)
Not Applicable
(a)(last sentence) 2.10
(b) 6.07
(c) 2.02 317(a)(1) 6.08
(a)(2) 6.09
(b) 2.06 318(a) 11.01
(b) Not Applicable
(c) 11.01 ___________________ Note:
This Cross-Reference Table shall not, for any purpose, be
deemed to be part of the Indenture.

INDENTURE, dated as of __________, 1994, by and between Public Service
Electric and Gas Company, a corporation duly organized and existing under the
laws of the State of New Jersey (the "Company"), and First Fidelity Bank,
National Association, a national banking association duly organized and
existing under the laws of the United States of America as trustee (the
"Trustee").

WHEREAS, the Company is the general partner of Public Service Electric
and Gas Capital, L.P., a New Jersey limited partnership (the "Partnership"),
which intends to issue in series from time to time its limited partner
interests and to loan the proceeds thereof, together with the investment by the
Company, as its sole general partner, in the Partnership to the Company.

WHEREAS, in order to evidence its intention to make such loans and to
accept the Debentures as evidence of such loans, and its approval of the terms
of the Series A Debentures (as hereinafter defined), the Partnership has joined
in this Indenture.

WHEREAS, the Company has authorized the issuance of its ___%
Deferrable Interest Subordinated Debentures, Series A (the "Series A
Debentures") to evidence its obligations with respect to a loan from the
Partnership of the proceeds of a series of its preferred limited partner
interests designated __% Cumulative Monthly Income Preferred Securities, Series
A and the related investment by the Company, as its sole general partner, in
the Partnership, and to provide therefor, the Company has duly authorized the
execution and delivery of this Indenture.

WHEREAS, all things necessary to make the Series A Debentures, when
duly issued and executed by the Company and authenticated and delivered
hereunder, the valid obligations of the Company, and to make this Indenture a
<PAGE>
valid and binding agreement of the Company, in accordance with its terms, have
been done.

NOW THEREFORE:

Each of the Company and the Trustee, intending to be legally bound
hereby, agrees as follows for the benefit of the other party and for the equal
and ratable benefit of the Holders (as hereinafter defined) of the securities
issued hereunder, including the Series A Debentures:

ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.01Definitions.

"Additional Interest", with respect to the Series A Debentures, means
an amount equal to and payable at the same time as, any Additional Amounts
payable on the Series A Preferred Securities, as defined in the action pursuant
to the Limited Partnership Agreement creating the Series A Preferred
Securities, plus amounts, if any, which the Partnership would be required to
pay as taxes, duties, assessments or governmental charges of whatever nature
(other than withholding taxes) imposed by the United States, or any other
taxing authority, with respect to the Series A Debentures so that the net
amounts received and retained by the Partnership after paying any such taxes,
duties, assessments or governmental charges will be not less than the amounts
the Partnership would have received had no such taxes, duties, assessments or
governmental charges been imposed. With respect to any other series of
Debentures, "Additional Interest" shall have the meaning set forth in the
supplemental indenture creating such series.

"Affiliate" of any specified Person means any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. When used with respect to any Person,
"control" means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.

"Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board.

"Board Resolution" means a copy of a resolution certified by the
Secretary or the Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of
such certification and delivered to the Trustee.

"Business Day" means any day that is not a Saturday, a Sunday or a day
on which banking institutions in The City of New York or the State of New
Jersey are authorized or required by law or executive order to close.

<PAGE>
"Capital Lease Obligations" of a Person means any obligation which is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such Person prepared in accordance with GAAP.

"Capital Stock" means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock.

"Company" means Public Service Electric and Gas Company, a New Jersey
corporation, or any successor thereto.

"Company Order" means a written request or order signed in the name of
the Company by an Officer of the Company and delivered to the Trustee.

"Debentureholder" or "Holder" means a Person in whose name a Debenture
is registered on the Registrar's books.

"Debentures" shall mean any of the securities of any series issued,
authenticated and delivered under this Indenture.

"Default" means any event which is, or after notice or passage of
time, or both, would be, an Event of Default pursuant to Section 6.01 hereof.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Extension Period" means a period, up to 60 consecutive months, in
which the Company elects to extend the interest payment period on the
Debentures pursuant to Section 4.01(b) hereof; provided that no Extension
Period shall extend beyond the Stated Maturity Date or the Redemption Date of
any Debenture.

"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board.

"General Partner" means the Company, as the general partner of the
Partnership, or any successor thereto or permitted assigns thereof that becomes
a general partner of the Partnership pursuant to the Limited Partnership
Agreement.

"Guarantee Agreement" means that certain payment and guarantee
agreement issued by the Company with respect to a series of Preferred
Securities, in which the Company irrevocably and unconditionally agrees to pay
the Guarantee Payments (as defined in the Guarantee Agreement) to the holders
of the series of Preferred Securities issued concurrently therewith.

"Indebtedness" means without duplication, (i) the principal of and
premium (if any) in respect of (A) indebtedness of the Company for money
borrowed and (B) indebtedness evidenced by securities, debentures, bonds or
other similar instruments issued by the Company; (ii) all Capital Lease
Obligations of the Company; (iii) all obligations of the Company issued or
assumed as the deferred purchase price of property, all conditional sale
obligations of the Company and all obligations of the Company under any title
<PAGE>
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) all obligations of the Company for the
reimbursement of any obligor on any letter of credit, banker's acceptance,
security purchase facility or similar credit transaction (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in (i) through (iii) above) entered into in the ordinary
course of business of the Company to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no
later than the third Business Day following receipt by the Company of a demand
for reimbursement following payment on the letter of credit); (v) all
obligations of the type referred to in clauses (i) through (iv) of other
Persons and all dividends of other Persons (other than the Preferred
Securities) for the payment of which, in either case, the Company is
responsible or liable as obligor, guarantor or otherwise (other than the
Guarantee Agreement); and (vi) all obligations of the type referred to in
clauses (i) through (v) of other Persons secured by any lien on any property or
asset of the Company (whether or not such obligation is assumed by the
Company), the amount of such obligation being deemed to be the lesser of the
value of such property or assets or the amount of the obligation so secured;
provided, however, that Indebtedness will not include endorsements of
negotiable instruments for collection in the ordinary course of business.

"Indenture" means this indenture, as amended or supplemented from time
to time in accordance with the terms hereof, including the provisions of the
TIA that are deemed to be a part hereof.

"Interest Payment Date", when used with respect to the Debentures of
any series, means the stated maturity of any installment of interest on the
Debentures of that series.

"Issue Date", with respect to a series of Debentures, means the date
on which the Debentures of such series are originally issued.

"Limited Partnership Agreement" means the Amended and Restated Limited
Partnership Agreement of the Partnership dated as of __________, 1994, as it
may be amended from time to time.

"Officer" means, with respect to any corporation, the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President, the
Treasurer, Assistant Treasurer, Secretary or the Assistant Secretary of such
corporation.

"Officer's Certificate" means a written certificate containing the
applicable information specified in Sections 11.04 and 11.05 hereof, signed in
the name of the Company by any one of its Officers, and delivered to the
Trustee.

"Opinion of Counsel" means a written opinion containing the applicable
information specified in Sections 11.04 and 11.05 hereof, by legal counsel who
is reasonably acceptable to the Trustee.

"Partnership" means Public Service Electric and Gas Capital, L.P., a
New Jersey limited partnership, or any successor thereto.

<PAGE>
"Paying Agent" means any Person authorized by the Company to pay the
principal of and premium, if any, and interest on the Debentures on behalf of
the Company.

"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.

"Predecessor Debentures" of any particular Debenture means every
previous Debenture evidencing all or a portion of the same debt as that
evidenced by such particular Debenture; and for purposes of this definition,
any Debenture authenticated and delivered under Section 2.09 hereof in exchange
for or in lieu of a mutilated, destroyed, lost or stolen Debenture shall be
deemed to evidence the same debt as the mutilated, destroyed, lost or stolen
Debenture.

"Preferred Securities" means the limited partner interests issued from
time to time in series by the Partnership.

"Record Date", with respect to any series of the Debentures, means the
Regular Record Date, the Special Record Date or any date set to determine the
holders of such series entitled to vote, consent, make a request or exercise
any other right associated with such series.

"Redemption Date", with respect to any Debenture to be redeemed, means
the date specified for the redemption of such Debenture in accordance with the
terms thereof and pursuant to Article 3 of this Indenture.

"Redemption Price", with respect to any Debenture to be redeemed,
means the price at which such Debenture is to be redeemed in accordance with
the terms thereof and pursuant to Article 3 of this Indenture.

"Regular Record Date", with respect to an interest payment on the
Debentures of a series, means the date set forth in this Indenture or the
supplemental indenture creating such series for the determination of Holders
entitled to receive payment of interest on the next succeeding Interest Payment
Date.

"SEC" or "Commission" means the Securities and Exchange Commission.

"Securities Act" means the Securities Act of 1933, as amended.

"Senior Indebtedness" means all Indebtedness, except for Indebtedness
that is by its terms subordinated to or pari passu with the Debentures.
Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness
shall not include any Indebtedness between or among the Company and any
Affiliates.

"Series A Debentures" means any of the Company's __% Deferrable
Interest Subordinated Debentures, Series A issued under this Indenture.

<PAGE>
"Series A Preferred Securities" means the limited partner interests
designated __% Cumulative Monthly Income Preferred Securities, Series A issued
by the Partnership.

"Special Record Date" for the payment of any Defaulted Interest on the
Debentures of any series means the date determined pursuant to Section 2.03
hereof.

"Special Representative" means a special representative appointed by
the holders of the Preferred Securities pursuant to Section 13.02(d) of the
Limited Partnership Agreement, provided that any appointment of a Special
Representative shall terminate upon the distribution of the Debentures to the
holders of the Preferred Securities (if not previously terminated).

"Stated Maturity Date", with respect to any Debenture, means the date
specified for the Debentures as the fixed date on which the principal of the
Debentures is due and payable.

"Subsidiary" means any corporation, association, partnership or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock or other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) the Company, (ii) the Company and one or more
Subsidiaries, or (iii) one or more Subsidiaries.

"TIA" means the Trust Indenture Act of 1939, as amended and as in
effect on the date of this Indenture; provided, however, that if the TIA is
amended after such date, TIA means, to the extent required by any such
amendment, the TIA as so amended.

"Trust Officer", when used with respect to the Trustee, means the
chairman or vice-chairman of the Board of Directors of the Trustee, the
chairman or vice-chairman of the executive committee of the Board of Directors
of the Trustee, the President, any vice president, any assistant vice
president, any trust officer, senior corporate trust officer or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter
is referred because of his or her knowledge of and familiarity with the
particular subject.

"Trustee" means First Fidelity Bank, National Association, until a
successor replaces it pursuant to the applicable provisions of this Indenture
and, thereafter, shall mean such successor.

"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the issuer's option.

<PAGE>
"Voting Stock" means, with respect to a corporation, all classes of
Capital Stock then outstanding of such corporation normally entitled to vote in
elections of directors.

"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of
which (other than directors' qualifying shares) is owned by the Company or
another Wholly Owned Subsidiary.

SECTION 1.02Other Definitions.

TERM
DEFINED IN SECTION

"Act". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.05
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . . . . . . . . .6.01
"Custodian". . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.01
"Defaulted Interest" . . . . . . . . . . . . . . . . . . . . . . . . .2.03
"Depositary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.12
"global Debenture" . . . . . . . . . . . . . . . . . . . . . . . . . .2.12
"Legal Holiday" . . . . . . . . . . . . . . . . . . . . . . . . . . 11.08
"Notice of Default". . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Register" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.05
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
"Successor". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.01

SECTION 1.03 Incorporation by Reference of Trust Indenture Act.

Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:

"indenture securities" means the Debentures.

"indenture security holder" means a Debentureholder.

"indenture to be qualified" means this Indenture.

"indenture trustee" or "institutional trustee" means the Trustee.

"obligor" on the indenture securities means the Company and any other
obligor on the Debentures.

All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have
the meanings assigned to them by such definitions.

SECTION 1.04 Rules of Construction.

Unless the context otherwise requires:

<PAGE>
A term has the meaning assigned to it;

an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;

"or" is not exclusive;

"including" means including, without limitation;

words in the singular include the plural, and words in
the plural include the singular; and

"herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.

SECTION 1.05 Acts of Holders.

(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders, may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent
duly appointed in writing or by the Special Representative and, except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Trustee and, where it is
hereby expressly required, to the Company. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Act" of Holders signing such instrument or instruments.
Proof of execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Indenture and conclusive in
favor of the Trustee and the Company, if made in the manner provided in this
Section.

(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any manner which the Trustee deems
sufficient.

(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Debenture shall bind every future
Holder of the same Debenture and the Holder of every Debenture issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made
upon such Debenture.

(e) If the Company solicits from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other Act, the Company
may, at its option, by or pursuant to a resolution of its Board of Directors,
fix in advance a Record Date for the determination of Holders entitled to give
such request, demand, authorization, direction, notice, consent, waiver or
other Act, but the Company shall have no obligation to do so. If such a Record
<PAGE>
Date is fixed, such request, demand, authorization, direction, notice, consent,
waiver or other Act may be given before or after such Record Date, but only
Holders of record at the close of business on such Record Date shall be deemed
to be Holders for the purposes of determining whether Holders of the requisite
proportion of outstanding Debentures have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent, waiver or
other Act, and for that purpose the outstanding Debentures shall be computed as
of such Record Date.

ARTICLE 2
THE DEBENTURES; THE SERIES A DEBENTURES

SECTION 2.01 Issue of Debentures Generally.

The aggregate principal amount of the Debentures which may be
authenticated and delivered under this Indenture is limited to the sum of the
aggregate stated liquidation preference of the Preferred Securities and the
aggregate capital contribution of the General Partner to the Partnership.

The Debentures may be issued in one or more series as from time to
time shall be authorized by the Board of Directors.

The Debentures of each series and the Trustee's Certificate of
Authentication shall be substantially in the forms to be attached as exhibits
to the Indenture or supplemental indenture creating such series, but in the
case of Debentures other than the Series A Debentures, with such inclusions,
omissions and variations as to letters, numbers or other marks of
identification or designation and such legends or endorsements printed,
lithographed or engraved thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Indenture, or as may be required
to comply with any law or with any rule or regulation made pursuant thereto or
with any rule or regulation of any securities exchange on which the Debentures
may be listed, or to conform to usage.

The several series of Debentures may differ from the Series A
Debentures, and as and between series, in respect of any or all of the
following matters:

(a) designation;

(b) Stated Maturity Date or Dates, which may be serial;

(d) the basis upon which interest shall be computed if
other than a 360-day year composed of twelve 30-day
months;

(e) Interest Payment Dates and the Regular Record Dates
therefor;

<PAGE>
(f) Issue Date or Dates and interest accrual provisions;

(g) authorized denominations;

(h) the place or places for the payment of principal
(and premium, if any) and interest;

(i) the aggregate principal amount of Debentures of such
series which may be issued;

(j) the optional and mandatory redemption provisions, if
any;

(k) provisions, if any, for any sinking or analogous
fund with respect to the Debentures of such series;
and

(l) any other provisions expressing or referring to the
terms and conditions upon which the Debentures of
such series are to be issued under this Indenture
which are not in conflict with the provisions of
this Indenture;

in each case as determined by the Board of Directors and specified in the
supplemental indenture creating such series.

SECTION 2.02 Terms and Form of the Series A Debentures

The Series A Debentures shall be designated "Public Service Electric
and Gas Company __% Deferrable Interest Subordinated Debentures, Series A."
The Series A Debentures and the Trustee's Certificate of Authentication shall
be substantially in the form of Exhibit A attached hereto. The terms and
provisions contained in the Series A Debentures shall constitute, and are
hereby expressly made, a part of this Indenture. The Company and the Trustee,
by their execution and delivery of this Indenture, expressly agree to such
terms and provisions and to be bound thereby.

The aggregate principal amount of Series A Debentures outstanding at
any time may not exceed $___________ except as provided in Section 2.09 hereof
to be initially authenticated and delivered from time to time upon delivery to
the Trustee of the items specified in Section 2.04(d) hereof.

The Stated Maturity Date of the Series A Debentures is __________,
2043. The interest rate of the Series A Debentures is _____% per annum plus
Additional Interest, if any.

The Interest Payment Dates for the Series A Debentures are the last
calendar day of each month of each year commencing __________, 1994. In the
event that any date on which interest is payable on the Series A Debentures is
not a Business Day, then payment of interest payable on such date will be made
on the next day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
<PAGE>
as if made on such date. The Regular Record Date for each Interest Payment
Date for the Series A Debentures shall be the 16th day of each month, provided
that if the Partnership is the sole Holder of the Series A Debentures or the
Series A Debentures are issued in book-entry-only form, the Regular Record Date
shall be the close of business on the Business Day next preceding such Interest
Payment Date.

Each Series A Debenture shall bear interest from its Issue Date or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for with respect to such Series A Debenture; except that, so long
as there is no existing Defaulted Interest or Extension Period on the Series A
Debentures, any Series A Debenture authenticated by the Trustee between the
Regular Record Date for any Interest Payment Date and such Interest Payment
Date shall bear interest from such Interest Payment Date.

Overdue principal, premium, if any, and interest on any Series A
Debenture and interest which has been deferred pursuant to Section 4.01(b)
hereof shall bear interest (to the extent that the payment of such interest
shall be legally enforceable) at a rate per annum equal to the interest rate
per annum, including Additional Interest, if any, payable on such Series A
Debenture.

The Series A Debentures shall be issuable only in registered form
without coupons and only in denominations of $25 and any integral multiple
thereof.

SECTION 2.03 Payment of Principal and Interest.

Unless otherwise specified pursuant to Section 2.01(d), interest on
the Debentures shall be computed on the basis of a 360-day year composed of
twelve 30-day months, and for any period shorter than thirty days, interest
will be computed on the basis of the actual number of days elapsed in such
period.

Unless otherwise provided with respect to a series of Debentures,

(i) the principal and Redemption Price of and interest
on each Debenture shall be payable in such coin or
currency of the United States of America as at the
time of payment is legal tender for the payment of
public and private debts;

(ii) the principal and Redemption Price of any Debenture
and interest payable on the Stated Maturity Date (if
other than an Interest Payment Date) or Redemption
Date shall be payable, upon surrender of such
Debenture at the office or agency of any Paying
Agent therefor; and

(iii) interest on any Debenture on each Interest Payment
Date therefor shall be payable by check mailed to
the address of the Person entitled thereto as such
address appears on the Register; provided that, at
<PAGE>
the written request of the Holder of at least
$10,000,000 aggregate principal amount of Debentures
received by the Registrar not later than the Regular
Record Date for such Interest Payment Date, interest
accrued on such Debenture will be payable by wire
transfer within the continental United States in
immediately available funds to the bank account
number of such Holder specified in such request and
entered on the Register by the Registrar.

Except as specified pursuant to Section 2.01 or Section 4.01(b)
hereof, interest on any Debenture which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Debenture (or one or more Predecessor Debentures) is registered
at the close of business on the Regular Record Date for such interest. Any
interest on any Debenture which is payable, but is not punctually paid or duly
provided for, on any Interest Payment Date (herein called "Defaulted Interest")
shall forthwith cease to be payable to the Holder on the relevant Regular
Record Date by virtue of having been such Holder, and such Defaulted Interest
may be paid by the Company, at its election in each case, as provided in Clause
(1) and (2) below:

(1) The Company may elect to make payment of any
Defaulted Interest to the Persons in whose names the
Debentures (or their respective Predecessor Debentures) are
registered at the close of business on a Special Record Date
for the payment of such Defaulted Interest, which shall be
fixed in the following manner. The Company shall, not less
than 15 Business Days prior to the date of the proposed
payment, notify the Trustee and the Paying Agent in writing of
the amount of Defaulted Interest proposed to be paid on each
Debenture and the date of the proposed payment, and at the
same time the Company shall deposit with the Paying Agent an
amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Paying Agent for such deposit
prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as in this Clause
provided. The Special Record Date for the payment of such
Defaulted Interest shall be the close of business on the tenth
calendar day prior to the date of the proposed payment. The
Trustee shall, in the name and at the expense of the Company,
cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be given to
the Holder thereof, not less than 7 calendar days prior to
such Special Record Date. Notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor
having been given, such Defaulted Interest shall be paid to
the Persons in whose names the Debentures (or their respective
Predecessor Debentures) are registered at the close of
business on such Special Record Date and shall no longer be
payable pursuant to the following Clause (2).

<PAGE>
(2) The Company may make payment of any Defaulted
Interest on the Debentures in any other lawful manner not
inconsistent with the requirements of any securities exchange
on which such Debentures may be listed, and upon such notice
as may be required by such exchange, if, after notice given by
the Company to the Trustee and the Paying Agent of the
proposed payment pursuant to this Clause, such manner of
payment shall be deemed practicable by the Paying Agent.

Subject to the foregoing provisions of this Section, each Debenture
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Debenture shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Debenture.

SECTION 2.04 Execution, Authentication and Delivery.

(a) The Debentures shall be executed on behalf of the Company by its
Chief Executive Officer, its President or one of its Vice Presidents, under its
corporate seal imprinted or reproduced thereon and attested by its Secretary or
one of its Assistant Secretaries. The signature of any such Officer on the
Debentures may be manual or facsimile.

(b) Debentures bearing the manual or facsimile signatures of
individuals who were at any time the proper Officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication and delivery of such
Debentures or did not hold such offices at the date of such Debentures.

(c) No Debenture shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on
such Debenture a Certificate of Authentication duly executed by the Trustee by
manual signature of a Trust Officer, and such Certificate of Authentication
upon any Debenture shall be conclusive evidence, and the only evidence, that
such Debenture has been duly authenticated and made available for delivery
hereunder.

(d) The Trustee shall authenticate and deliver Debentures of a
series, for original issue, at one time or from time to time in accordance with
the Company Order referred to below, upon receipt by the Trustee of:

(1) a Board Resolution approving the form or forms and
terms of such series;

(2) a Company Order requesting the authentication and
delivery of such Debentures and stating the sum of the
aggregate stated liquidation preference of the Preferred
Securities to be issued concurrently with such Debentures plus
the aggregate capital contribution to be made by the General
Partner to the Partnership concurrently with the issuance of
such Debentures;

(3) unless previously delivered, an indenture supplement
hereto setting forth the form of such Debentures and
<PAGE>
establishing the terms thereof;

(4) the Debentures of such series, executed on behalf of
the Company in accordance with Section 2.04(a) hereof;

(5) an Opinion of Counsel to the effect that:

(i) the form or forms of such Debentures have been
duly authorized by the Company and have been established
in conformity with the provisions of this Indenture; and

(ii) such Debentures, when authenticated and
delivered by the Trustee and issued and delivered by the
Company in the manner and subject to any conditions
specified in such Opinion of Counsel, will have been duly
issued under this Indenture and will constitute valid and
legally binding obligations of the Company, entitled to
the benefits provided by this Indenture, and enforceable
in accordance with their terms, subject, as to
enforcement to laws relating to or affecting generally
the enforcement of creditors' rights, including, without
limitation, bankruptcy and insolvency laws and to general
principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or
at law).

(iii) that any supplemental indenture referred to in
clause (3) above has been duly authorized, executed and
delivered by the Company and is a valid instrument
legally binding upon the Company, enforceable in
accordance with its terms, subject as to enforcement to
laws relating to or affecting creditors' rights,
including, without limitation, bankruptcy and insolvency
laws and to general principles of equity (regardless of
whether such enforceability is considered in a proceeding
in equity or at law); and

(iv) that all consents, approvals and orders of any
commission, governmental authority or agency required in
connection with the issuance and sale of the Debentures
have been obtained.

(e) an Officer's Certificate certifying that no Default or Event of
Default has occurred and is continuing.

(f) The Trustee shall act as the initial authenticating agent.
Thereafter, the Trustee may appoint an authenticating agent. An authenticating
agent may authenticate Debentures whenever the Trustee may do so. Each
reference in this Indenture to authentication by the Trustee includes
authentication by such agent. The Trustee shall pay any authenticating agent
appointed by the Trustee reasonable compensation for its services and the
Trustee shall be reimbursed for such payment by the Company pursuant to Section
7.07 hereof. The provisions set forth in Section 7.02, Section 7.03, Section
7.04 and Section 7.07 hereof shall be applicable to any authenticating agent.

<PAGE>
SECTION 2.05 Registrar and Paying Agent.

The Company shall maintain or cause to be maintained, within or
outside the State of New Jersey, an office or agency where the Debentures may
be presented for registration of transfer or for exchange ("Registrar"), an
office or agency where Debentures may be presented or surrendered for payment
("Paying Agent"), and an office or agency where notices and demands to or upon
the Company in respect of the Debentures and this Indenture may be served. The
Registrar shall keep a register (the "Register") of the Debentures and of their
transfer and exchange. The Company may have one or more co-Registrars and one
or more additional Paying Agents. The term Registrar includes any additional
registrar and the term Paying Agent includes any additional paying agent. The
corporate trust office of the Trustee in Newark, New Jersey, shall initially be
the Registrar for the Series A Debentures and agent for service of notice or
demands on the Company, and the Trustee shall initially be the Paying Agent for
the Series A Debentures.

The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-Registrar (if not the Company or the Trustee or
an affiliate of the Trustee). The agreement shall implement the provisions of
this Indenture that relate to such agent. The Company shall give prompt
written notice to the Trustee of any change of location of such office or
agency. If at any time the Company shall fail to maintain or cause to be
maintained any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the address of the Trustee set forth in
Section 11.02 hereof. The Company shall notify the Trustee of the name and
address of any such agent. If the Company fails to maintain a Registrar,
Paying Agent or agent for service of notices or demands, the Trustee shall act
as such and shall be entitled to appropriate compensation therefor pursuant to
Section 7.07 hereof. The Company or any Affiliate of the Company may act as
Paying Agent, Registrar or co-Registrar or agent for service of notices and
demands.

The Company may also from time to time designate one or more other
offices or agencies where the Debentures may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations.
The Company will give prompt written notice to the Trustee of any such
designation or rescission and of any change in location of any such other
office or agency.

SECTION 2.06 Paying Agent to Hold Money in Trust.

Except as otherwise provided herein, prior to or on each due date of
the principal of and premium (if any) and interest on any Debenture, the
Company shall deposit with the Paying Agent a sum of money sufficient to pay
such principal, premium (if any) and interest so becoming due. The Company
shall require each Paying Agent (other than the Trustee or the Company) to
agree in writing that such Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal of and premium (if any) and interest on the Debentures and shall
notify the Trustee of any Default by the Company in making any such payment.
At any time during the continuance of any such Default, the Paying Agent shall,
upon the request of the Trustee, forthwith pay to the Trustee all money so held
<PAGE>
in trust and account for any money disbursed by it. The Company at any time
may require a Paying Agent to pay all money held by it to the Trustee and to
account for any money disbursed by it. Upon doing so, the Paying Agent shall
have no further liability for the money so paid over to the Trustee. If the
Company, a Subsidiary or an Affiliate of either of them acts as Paying Agent,
it shall segregate the money held by it as Paying Agent and hold it as a
separate trust fund.

SECTION 2.07 Debentureholder Lists.

The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Debentureholders. If the Trustee is not the Registrar, the Company shall cause
to be furnished to the Trustee on or before the Record Date for each Interest
Payment Date and at such other times as the Trustee may request in writing,
within five Business Days of such request, a list, in such form as the Trustee
may reasonably require of the names and addresses of Debentureholders.

SECTION 2.08 Transfer and Exchange.

When Debentures are presented to the Registrar or a co-Registrar with
a request to register the transfer or to exchange them for an equal principal
amount of Debentures of the same series of other authorized denominations, the
Registrar shall register the transfer or make the exchange as requested if its
reasonable requirements for such transactions are met. To permit registrations
of transfer and exchanges, the Company shall execute and the Trustee shall
authenticate Debentures, all at the Registrar's request.

Every Debenture presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Registrar duly executed by the Holder or his attorney duly
authorized in writing.

The Company shall not require payment of a service charge for any
registration of transfer or exchange of Debentures, but the Company may require
payment of a sum sufficient to pay all taxes, assessments or other governmental
charges that may be imposed in connection with the registration of the transfer
or exchange of Debentures from the Debentureholder requesting such transfer or
exchange (other than any exchange of a temporary Debenture for a definitive
Debenture not involving any change in ownership).

The Company shall not be required to make, and the Registrar need not
register, transfers or exchanges of (a) any Debenture for a period beginning at
the opening of business 15 days before the mailing of a notice of redemption of
Debentures and ending at the close of business on the day of such mailing or
(b) any Debenture selected, called or being called for redemption, except, in
the case of any Debenture to be redeemed in part, the portion thereof not to be
redeemed.

SECTION 2.09 Replacement Debentures.

<PAGE>
If (a) any mutilated Debenture is surrendered to the Company or the
Trustee, or (b) the Company and the Trustee receive evidence to their
satisfaction of the destruction, loss or theft of any Debenture, and there is
delivered to the Company and the Trustee such Debenture or indemnity as may be
required by them to save each of them harmless, then, in the absence of notice
to the Company or the Trustee that such Debenture has been acquired by a bona
fide purchaser, the Company shall execute in exchange for any such mutilated
Debenture or in lieu of any such destroyed, lost or stolen Debenture, a new
Debenture of the same series and of like tenor and principal amount, bearing a
number not contemporaneously outstanding, and the Trustee shall authenticate
and make such new Debenture available for delivery.

In case any such mutilated, destroyed, lost or stolen Debenture has
become or is about to become due and payable, or is about to be redeemed by the
Company pursuant to Article 3 hereof, the Company in its discretion may,
instead of issuing a new Debenture, pay or purchase such Debenture, as the case
may be.

Upon the issuance of any new Debentures under this Section 2.09, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) in connection
therewith.

Every new Debenture issued pursuant to this Section 2.09 in lieu of
any mutilated, destroyed, lost or stolen Debenture shall constitute an original
additional contractual obligation of the Company (whether or not the mutilated,
destroyed, lost or stolen Debenture shall be at any time enforceable) by
anyone, and shall be entitled to all benefits of this Indenture equally and
ratably with any and all other Debentures duly issued hereunder.

The provisions of this Section 2.09 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Debentures.

SECTION 2.10 Outstanding Debentures; Determinations of Holders'
Action.

Debentures outstanding at any time are all the Debentures
authenticated by the Trustee except for those canceled by it, those delivered
to it for cancellation, those mutilated, destroyed, lost or stolen Debentures
referred to in Section 2.09 hereof, those redeemed by the Company pursuant to
Article 3 hereof, and those described in this Section 2.10 as not outstanding.
A Debenture does not cease to be outstanding because the Company or a
Subsidiary or Affiliate thereof holds the Debenture; provided, however, that in
determining whether the Holders of the requisite principal amount of Debentures
have given or concurred in any request, demand, authorization, direction,
notice, consent or waiver hereunder, Debentures owned by the Company or a
Subsidiary or Affiliate (other than the Partnership, so long as any of its
Preferred Securities are outstanding) shall be disregarded and deemed not to be
outstanding.

<PAGE>
Subject to the foregoing, only Debentures outstanding at the time of
such determination shall be considered in any such determination (including
determinations pursuant to Articles 3, 6 and 9).

If a Debenture is replaced pursuant to Section 2.09 hereof, it ceases
to be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Debenture is held by a bona fide purchaser.

If the Paying Agent (other than the Company) holds, in accordance
with this Indenture, at the Stated Maturity Date or on a Redemption Date, money
sufficient to pay the Debentures payable on that date, then immediately on the
Stated Maturity Date or such Redemption Date, as the case may be, such
Debentures shall cease to be outstanding, and interest, if any, on such
Debentures shall cease to accrue.

SECTION 2.11 Temporary Debentures.

So long as the Partnership is the sole Holder of the Debentures, the
Company may execute temporary Debentures, and upon the Company's Order, the
Trustee shall authenticate and make such temporary Debentures available for
delivery. Temporary Debentures shall be printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized denomination, in the same
series and principal amount and of like tenor as the definitive Debentures in
lieu of which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the Officers of the Company executing
such Debentures may determine, as conclusively evidenced by their execution of
such Debentures.

After the preparation of definitive Debentures, the temporary
Debentures shall be exchangeable for definitive Debentures of the same series
upon surrender of the temporary Debentures at the office or agency of the
Company designated for such purpose pursuant to Section 2.05 hereof, without
charge to the Holders thereof. Upon surrender for cancellation of any one or
more temporary Debentures, the Company shall execute a like principal amount of
definitive Debentures of the same series of authorized denominations, and the
Trustee, upon written request of the Company signed by two Officers of the
Company, shall authenticate and make such Debentures available for delivery in
exchange therefor. Until so exchanged, the temporary Debentures shall in all
respects be entitled to the same benefits under this Indenture as definitive
Debentures.

SECTION 2.12 Book Entry System.

If the Partnership is not the sole Holder of the Debentures, in order
to utilize a book-entry-only system for all or any portion of the Debentures of
any series, all or a portion of the Debentures of any series may be issued in
the form of one or more fully registered Debentures of the same series for the
aggregate principal amount of such Debentures of each Issue Date, interest rate
and Stated Maturity Date (a "global Debenture"), which global Debenture shall
be registered in the name of the depositary (the "Depositary") selected by the
Company or in the name of such Depositary's nominee. Each global Debenture
shall be delivered by the Trustee to the Depositary or pursuant to the
<PAGE>
Depositary's instruction and shall bear a legend substantially to the following
effect: "Except as otherwise provided in Section 2.12 of the Indenture, this
Debenture may be transferred, in whole but not in part, only to another nominee
of the Depositary or to a successor Depositary or to a nominee of such
successor Depositary."

Notwithstanding any other provision of this Section 2.12 or of
Section 2.08 hereof, a global Debenture may be transferred in whole but not in
part and in the manner provided in Section 2.08 hereof, only by a nominee of
the Depositary for such series, or by the Depositary or any such nominee of a
successor Depositary for such series selected or approved by the Company or to
a nominee of such successor Depositary.

If at any time the Depositary for global Debentures of any series of
Debentures notifies the Company that it is unwilling or unable to continue as
Depositary for such global Debentures or if at any time the Depositary for such
global Debentures shall no longer be registered or in good standing under the
Exchange Act, or other applicable statute or regulation and a successor
Depository for such global Debentures is not appointed by the Company within 90
days after the Company receives such notice or becomes aware of such condition,
as the case may be, then this Section 2.12 shall no longer be applicable to the
global Debentures of such series and the Company will execute, and the Trustee
will authenticate and deliver, Debentures of such series in definitive
registered form without coupons, in authorized denominations, and in an
aggregate principal amount equal to the principal amount of the global
Debentures of such series in exchange for such global Debentures. In addition,
the Company may at any time determine, in its sole discretion, that the
Debentures of any series shall no longer be represented by one or more global
Debentures and that the provisions of this Section 2.12 shall no longer apply
to the Debentures of such series. In such event the Company will execute and
the Trustee, upon receipt of an Officers' Certificate evidencing such
determination by the Company, will authenticate and deliver Debentures of such
series and of like tenor in definitive registered form, in authorized
denominations, and in aggregate principal amount equal to the principal amount
of the global Debentures of such series in exchange for such global Debentures.
Upon the exchange of global Debentures for such Debentures in definitive
registered form without coupons, in authorized denominations, the global
Debentures shall be cancelled by the Trustee. Such Debentures in definitive
registered form issued in exchange for global Debentures pursuant to this
Section 2.12 shall be registered in such names and in such authorized
denominations as the Depositary, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the Trustee. The Trustee
shall deliver such Debentures to the Person in whose names such Debentures are
so registered.

Except as provided above, owners solely of beneficial interests in a
global Debenture shall not be entitled to receive physical delivery of
Debentures in definitive form and will not be considered the Holders thereof
for any purpose under this Indenture.

Members of or participants in the Depositary shall have no rights
under this Indenture with respect to any global Debenture held on their behalf
by the Depositary, and such Depositary or its nominee, as the case may be, may
be treated by the Company, the Trustee, and any agent of the Company or the
<PAGE>
Trustee as the Holder of such global Debentures for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee, or any agent of the Company or the Trustee, from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or impair, as between the Depositary and its members or participants, the
operation of customary practices governing the exercise of the rights of a
Holder of any Debenture, including without limitation the granting of proxies
or other authorization of participants to give or take any request, demand,
authorization, direction, notice, consent, waiver or other action which a
Holder is entitled to give or take under this Indenture.

SECTION 2.13 Cancellation.

All Debentures surrendered for payment, redemption by the Company
pursuant to Article 3 hereof or registration of transfer or exchange shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly canceled by the Trustee. The Company may at any time
deliver to the Trustee for cancellation any Debentures previously authenticated
and made available for delivery hereunder which the Company may have acquired
in any manner whatsoever, and all Debentures so delivered shall be promptly
canceled by the Trustee. The Company may not reissue, or issue new Debentures
to replace Debentures it has paid or delivered to the Trustee for cancellation.
No Debentures shall be authenticated in lieu of or in exchange for any
Debentures canceled as provided in this Section 2.13, except as expressly
permitted by this Indenture. All canceled Debentures held by the Trustee shall
be destroyed by the Trustee, and the Trustee shall deliver a certificate of
destruction to the Company.

ARTICLE 3
REDEMPTION

SECTION 3.01 Redemption; Notice to Trustee.

(a) The Series A Debentures are subject to redemption prior to
maturity as provided therein.

(b) The redemption terms for any additional series of Debentures
shall be as specified in the supplemental indenture creating such series of
Debentures; provided that each series of Debentures shall be subject to
mandatory redemption upon the dissolution and winding up of the Partnership,
unless, in connection therewith, the Debentures are distributed to the holders
of the Preferred Securities.

(c) If any or all of the Debentures are to be redeemed pursuant to
Section 3.01 (a) or (b) hereof, the Company shall deliver to the Trustee at
least 45 days prior to the Redemption Date a Company Order specifying the
series and principal amount of Debentures to be redeemed and the Redemption
Date and Redemption Price for such Debentures. Such Company Order shall be
accompanied by a Board Resolution authorizing such redemption.

<PAGE>
SECTION 3.02 Selection of Debentures to be Redeemed.

If less than all the outstanding Debentures are to be redeemed at any
time, the Trustee shall select the Debentures to be redeemed by lot or by any
other method the Trustee considers fair and appropriate. The Trustee shall
make the selection at least 30 but not more than 60 days before the Redemption
Date from outstanding Debentures not previously called for redemption.
Provisions of this Indenture that apply to Debentures called for redemption
also apply to portions of Debentures called for redemption. The Trustee shall
notify the Company promptly of the Debentures or portions of Debentures to be
redeemed.

SECTION 3.03 Notice of Redemption.

At least 30 days but not more than 60 days before the Redemption
Date, the Trustee, in the Company's name and at the Company's expense, shall
mail or cause to be mailed a notice of redemption by first-class mail, postage
prepaid, to each Holder of Debentures to be redeemed at such Holder's last
address as it appears in the Register.

The notice of redemption shall identify the Debentures to be
redeemed, the provision of the Debentures or this Indenture pursuant to which
the Debentures called for redemption are being redeemed and shall state:

(1) the Redemption Date;

(2) the Redemption Price;

(3) the name and address of the Paying Agent;

(4) that payment of the Redemption Price of Debentures called for
redemption will be made only upon surrender of such Debentures to the Paying
Agent;

(5) if fewer than all the outstanding Debentures of any series are
to be redeemed, the identification and principal amounts of the particular
Debentures to be redeemed and that, on and after the Redemption Date, upon
surrender of such Debentures, a new Debenture or Debentures of the same series
and of like tenor and in a principal amount equal to the unredeemed portion
thereof will be issued; and

(6) that, unless the Company defaults in paying the Redemption Price
of the Debentures called for Redemption, plus accrued interest thereon to the
Redemption Date, interest will cease to accrue on such Debentures on and after
the Redemption Date.

Any notice of redemption given in the manner provided herein shall be
conclusively presumed to have been given, whether or not such notice is
actually received. Failure to mail any notice or defect in the mailed notice
or the mailing thereof in respect of any Debenture shall not affect the
validity of the redemption of any other Debenture.

SECTION 3.04 Effect of Notice of Redemption.

<PAGE>
If notice of redemption is required as set forth in Section 3.03
hereof, and after notice of redemption has been given, Debentures called for
redemption shall become due and payable on the Redemption Date and at the
Redemption Price and from and after the Redemption Date (unless the Company
shall default in the payment of the Redemption Price and accrued interest),
such Debentures shall cease to bear interest. Upon the later of the Redemption
Date and the date such Debentures are surrendered to the Paying Agent, such
Debentures shall be paid at the Redemption Price, plus accrued interest to the
Redemption Date, provided that installments of interest on Debentures with an
Interest Payment Date which is on or prior to the Redemption Date shall be
payable to the Holders of such Debentures, or one or more Predecessor
Debentures, registered as such at the close of business on the Regular Record
Dates therefor according to their terms and provisions.

SECTION 3.05 Deposit of Redemption Price.

On or prior to the Redemption Date, the Company shall deposit with
the Paying Agent (or if the Company or an Affiliate is the Paying Agent, shall
segregate and hold in trust or cause such Affiliate to segregate and hold in
trust) money sufficient to pay the Redemption Price of, and accrued interest
on, all Debentures to be redeemed on that date. The Paying Agent shall return
to the Company any money in excess of the amount sufficient to pay the
Redemption Price of, and accrued interest on, all Debentures to be redeemed and
any interest accrued on the amount deposited pursuant to this Section 3.05.

SECTION 3.06 Debentures Redeemed in Part.

Upon surrender of a Debenture that is redeemed in part, the Trustee
shall authenticate for the Holder a new Debenture of the same series and in a
principal amount equal to the unredeemed portion of such Debenture.

ARTICLE 4
COVENANTS

SECTION 4.01 Payment of Debentures.

(a) The Company shall pay the principal of and premium, if any, and
interest (including interest accruing on or after the filing of a petition in
bankruptcy or reorganization relating to the Company, whether or not a claim
for post-filing interest is allowed in such proceeding) on the Debentures on
(or prior to) the dates and in the manner provided in the Debentures or
pursuant to this Indenture. An installment of principal, premium, if any, or
interest shall be considered paid on the applicable due date if on such date
the Trustee or the Paying Agent holds, in accordance with this Indenture, money
sufficient to pay all of such installment then due. The Company shall pay
interest on overdue principal and interest on overdue installments of interest
(including interest accruing during an Extension Period and/or on or after the
filing of a petition in bankruptcy or reorganization relating to the Company,
whether or not a claim for post-filing interest is allowed in such proceeding),
to the extent lawful, at the rate per annum plus Additional Interest, if any,
<PAGE>
borne by the Debentures, which interest on overdue interest shall accrue from
the date such amounts became overdue.

(b) Notwithstanding the provisions of Section 4.01(a) hereof or any
other provision herein to the contrary, the Company shall have the right in its
sole and absolute discretion at any time and from time to time while the
Debentures are outstanding, so long as an Event of Default has not occurred and
is continuing, to extend the interest payment period for up to 60 consecutive
months, provided that such extended interest period shall not extend beyond the
Stated Maturity Date or Redemption Date of any Debenture, and provided further
that at the end of each Extension Period the Company shall pay all interest
then accrued and unpaid (together with interest thereon to the extent permitted
by applicable law at the rate per annum borne by the Debentures). Prior to the
termination of an Extension Period, the Company may shorten or may further
extend the interest payment period, provided that such Extension Period
together with all such previous and further extensions may not exceed 60
consecutive months. The Company shall give the Trustee notice of its selection
of such extended or shortened interest payment period at least one Business Day
prior to the date the Partnership or the Company is required to give notice of
the record or payment date of the related distribution on the Preferred
Securities or payment of interest on the Debentures to any national securities
exchange on which the Preferred Securities or the Debentures are then listed or
other applicable self-regulatory organization, but in any event not less than
two Business Days prior to the Record Date fixed by the Company for the payment
of such interest. If the Partnership is the sole holder of the Preferred
Securities, the Company shall cause the Partnership to give notice of the
Company's selection of such extended interest payment period to the holders of
the Preferred Securities by first class mail, postage prepaid. If the
Partnership is not the sole Holder of the Debentures, the Company shall give or
cause the Trustee to give notice (a form of which shall be provided by the
Company to the Trustee) of the Company's selection of such extended interest
payment period to the Holders by first class mail, postage prepaid.

SECTION 4.02 Prohibition Against Dividends, etc.

The Company shall not declare or pay any dividend on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
Capital Stock (i) during an Extension Period, (ii) if at such time there shall
have occurred any Default or Event of Default, or (iii) if the Company shall be
in default with respect to its payment or other obligations under the Guarantee
Agreement.

SECTION 4.03 SEC Reports.

The Company shall file with the Trustee, within 15 days after it
files them with the SEC, copies of its annual report and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) which the Company is
required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act. If the Company is not subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act, the Company shall file with the Trustee such
information, documents and other reports (or copies of such portions of any of
<PAGE>
the foregoing as the SEC may by rules and regulations prescribe) which are
specified in Sections 13 or 15(d) of the Exchange Act. The Company shall also
comply with the provisions of Section 314(a) of the TIA.

SECTION 4.04 Compliance Certificates.

(a) The Company shall deliver to the Trustee, within 90 days after
the end of each of the Company's fiscal years, an Officer's Certificate stating
whether or not the signer knows of any Default or Event of Default. Such
certificate shall contain a certification from the principal executive officer,
principal financial officer or principal accounting officer of the Company as
to his or her knowledge of the Company's compliance with all conditions and
covenants under this Indenture. For purposes of this Section 4.04(a), such
compliance shall be determined without regard to any period of grace or
requirement of notice provided under this Indenture. If such Officer does know
of such a Default or Event of Default, the Officer's Certificate shall describe
any such Default or Event of Default, and its status. Such Officer's
Certificate need not comply with Sections 11.04 and 11.05 hereof.

(b) The Company shall deliver to the Trustee any information
reasonably requested by the Trustee in connection with the compliance by the
Trustee or the Company with the TIA.

SECTION 4.05 Relationship with the Partnership.

In the event that the Company has transferred its general partner
interests in the Partnership to any wholly Owned Subsidiary, the Company agrees
(i) to maintain direct or indirect (through a Wholly Owned Subsidiary) 100%
ownership of the General Partner and will cause the General Partner to maintain
100% ownership of the general partnership interests in the Partnership; (ii) to
cause the General Partner to maintain a fair market value net worth of at least
10% of the total capital contributions less redemptions to the Partnership and
to contribute capital to the Partnership in an aggregate amount equal to 3% of
the aggregate capital contributed to the Partnership; (iii) to cause the
General Partner to timely perform all of its duties as General Partner of the
Partnership (including the duty to pay distributions on the Preferred
Securities to the extent the Partnership has funds legally available therefor);
and (iv) to use its reasonable efforts to cause the Partnership to remain a
limited partnership and otherwise continue to be treated as a partnership for
United States federal income tax purposes.

SECTION 4.06 Further Instruments and Acts.

Upon request of the Trustee, the Company shall execute and deliver
such further instruments and do such further acts as may be reasonably
necessary or proper to carry out more effectively the purposes of this
Indenture.

SECTION 4.07 Payments for Consents.

<PAGE>
Neither the Company nor any Subsidiary shall, directly or indirectly,
pay or cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any Holder of any Debentures for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of this
Indenture or the Debentures unless such consideration is offered to be paid or
agreed to be paid to all Holders of the Debentures who so consent, waive or
agree to amend in the time frame set forth in the documents soliciting such
consent, waiver or agreement.

ARTICLE 5
SUCCESSOR CORPORATION

SECTION 5.01 When the Company May Merge, Etc.

The Company may not consolidate with or merge with or into, or sell,
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety (either in one transaction or a series of
transactions) to, any Person unless:

(1) the Person formed by or surviving such consolidation or merger
or to which such sale, conveyance, transfer or lease shall have been made (the
"Successor") if other than the Company, (a) is organized and existing under the
laws of the United States of America or any State thereof or the District of
Columbia, and (b) shall expressly assume by a supplemental indenture, executed
and delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Debentures and the Indenture;

(2) immediately prior to and after giving effect to such transaction
(and treating any Indebtedness which becomes an obligation of the Successor
Person or any Subsidiary as a result of such transaction as having been
incurred by such Person or such Subsidiary at the time of such transaction), no
Default or Event of Default shall have occurred and be continuing; and

(3) the Company delivers to the Trustee an Officer's Certificate and
an Opinion of Counsel, each stating that such consolidation, merger, sale,
conveyance, transfer or lease and such supplemental indenture comply with this
Indenture.

The Successor will be the successor to the Company, and will be
substituted for, and may exercise every right and power and become the obligor
on the Debentures with the same effect as if the Successor had been named as
the Company herein but, in the case of a sale, conveyance, transfer or lease of
all or substantially all of the assets of the Company, the predecessor Company
will not be released from its obligation to pay the principal of and premium,
if any, and interest on the Debentures.

ARTICLE 6
DEFAULTS AND REMEDIES

SECTION 6.01 Events of Default.

<PAGE>
An "Event of Default" occurs if one of the following shall have
occurred and be continuing:

(1) The Company defaults in the payment, when due and payable, of
(a) interest, including Additional Interest, on any Debenture and the default
continues for a period of 10 days; provided, that during an Extension Period,
failure to pay interest on the Debentures shall not constitute a Default or
Event of Default hereunder, or (b) the principal of or premium, if any, on any
Debentures when the same becomes due and payable on the Stated Maturity Date
thereof, upon acceleration, on any Redemption Date, or otherwise;

(2) The Company defaults in the performance of, fails to comply
with any of its other covenants or agreements in the Debentures or this
Indenture and such failure continues for 60 days after receipt by the Company
of a "Notice of Default";

(3) The Company, pursuant to or within the meaning of any
Bankruptcy Law:

(a) commences a voluntary case or proceeding;

(b) consents to the entry of an order for relief
against it in an involuntary case or
proceeding;

(c) consents to the appointment of a Custodian of
it or for all or substantially all of its
property, and such Custodian is not discharged
within 60 days;

(d) makes a general assignment for the benefit of
its creditors; or

(e) admits in writing its inability to pay its
debts generally as they become due; or

(4) A court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:

(a) is for relief against the Company in an
involuntary case or proceeding;

(b) appoints a Custodian of the Company for all or
substantially all of its properties;

(d) and in each case the order or decree remains
unstayed and in effect for 60 days.

The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of
<PAGE>
any court or any order, rule or regulation of any administrative or
governmental body.

The term "Bankruptcy Law" means Title 11, United States Code, or any
similar federal or state law for the relief of debtors. "Custodian" means any
receiver, trustee, assignee, liquidator, sequestrator, custodian or similar
official under any Bankruptcy Law.

A Default under clause (2) above is not an Event of Default until (i)
the Trustee provides a "Notice of Default" to the Company or the Holders of at
least a majority in aggregate principal amount of the Debentures at the time
outstanding or the Special Representative provides a "Notice of Default" to the
Company and the Trustee of the Default and (ii) the Company does not cure such
Default within the time specified in clause (2) above after receipt of such
notice. Any such notice must specify the Default, demand that it be remedied
and state that such notice is a "Notice of Default."

SECTION 6.02 Acceleration.

If any Event of Default other than an Event of Default under clause
(3) or (4) of Section 6.01 hereof occurs and is continuing, the Trustee, the
Holders of not less than 25% in principal amount of the Debentures then
outstanding or the Special Representative may declare the principal of all such
Debentures due and payable. Upon such a declaration, such principal and
interest shall be due and payable immediately.

If an Event of Default specified in clause (3) or (4) of Section 6.01
hereof occurs, the principal of and interest on all the Debentures shall ipso
facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee, any Debentureholders or the Special
Representative.

After such a declaration, (i) if the Partnership is the sole Holder
of the Debentures, the Special Representative, if one has been appointed, or,
if no Special Representative has been appointed, the Partnership, at the
direction of the holders of 66 % of the aggregate stated liquidation preference
of the Preferred Securities, or (ii) if the Partnership is not the sole Holder
of the Debentures, the Holders of at least 66 % in aggregate principal amount
of the Debentures at the time outstanding, in each case, by notice to the
Trustee, may rescind an acceleration and its consequences if the rescission
would not conflict with any judgment or decree and if all existing Events of
Default have been cured or waived except nonpayment of principal or interest
that has become due solely because of acceleration. No such rescission shall
affect any subsequent Default or impair any right consequent thereto.

SECTION 6.03 Other Remedies.

If an Event of Default occurs and is continuing, the Trustee may, in
its own name or as trustee of an express trust, institute, pursue and prosecute
any proceeding, including, without limitation, any action at law or suit in
equity or other judicial or administrative proceeding to collect the payment of
principal of, premium, if any, or interest on the Debentures, to enforce the
<PAGE>
performance of any provision of the Debentures or this Indenture or to obtain
any other available remedy.

The Trustee may maintain a proceeding even if it does not possess any
of the Debentures or does not produce any of the Debentures in the proceeding.
A delay or omission by the Trustee, the Special Representative or any
Debentureholder in exercising any right or remedy accruing upon an Event of
Default shall not impair such right or remedy or constitute a waiver of, or
acquiescence in, such Event of Default. No remedy is exclusive of any other
remedy. All available remedies are cumulative.

SECTION 6.04 Waiver of Past Defaults.

If a Default or Event of Default has occurred and is continuing, (i)
if the Partnership is the sole Holder of the Debentures, the Special
Representative or, if no Special Representative has been appointed, the
Partnership, at the direction of the holders of 66 % of the aggregate stated
liquidation preference of the Preferred Securities, or (ii) if the Partnership
is not the sold Holder of the Debentures, the Holders of at least 66 % in
aggregate principal amount of the Debentures at the time outstanding, in each
case by notice to the Trustee, the Company and the Partnership (if the
Partnership, at such time, holds any Debentures), may waive an existing Default
or Event of Default and its consequences except a Default in the payment of the
principal or premium, if any, or interest on any Debenture. When a Default is
waived, it is deemed cured and shall cease to exist, but no such waiver shall
extend to any subsequent or other Default or impair any consequent right.

SECTION 6.05 Control by Majority or the Special Representative.

If an Event of Default has occurred and is continuing, (i) if the
Partnership is the sole Holder of the Debentures, the Special Representative
or, if no Special Representative has been appointed, the Partnership, at the
direction of the holders of 66 % of the aggregate stated liquidation preference
of the Preferred Securities, or (ii) if the Partnership is not the sole Holder
of the Debentures, the Holders of at least 66 % in aggregate principal amount
of the Debentures at the time outstanding, in each case may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or of exercising any trust or power conferred on the Trustee. However,
the Trustee may refuse to follow any direction that conflicts with law or this
Indenture or that the Trustee determines in good faith is unduly prejudicial to
the rights of other Debentureholders or may involve the Trustee in personal
liability. The Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, including withholding notice to
the Holders of the Debentures of continuing default (except in the payment of
the principal (other than any mandatory sinking fund payment) or premium, if
any or interest on any Debentures) if the Trustee considers it in the interest
of the Holders of the Debentures to do so.

SECTION 6.06 Limitation on Suits.

<PAGE>
Except as provided in Section 6.07 hereof, neither the Special
Representative nor any Debentureholder may pursue any remedy with respect to
this Indenture or the Debentures unless:

(1) the Holders or the Special Representative gives to the Trustee
written notice stating that an Event of Default is continuing;

(2) the Holders or the Special Representative provides to the
Trustee reasonable security and indemnity against any loss, liability or
expense satisfactory to the Trustee; and

(3) the Trustee does not comply with the request within 60 days
after receipt of the notice, the request and the offer of security and
indemnity.

SECTION 6.07 Rights of Holders to Receive Payment.

Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal and premium (if any) or interest on
the Debentures held by such Holder, on or after the respective due dates
expressed in the Debentures (in the case of interest, as the same may be
extended pursuant to Section 4.01(b) hereof) or any Redemption Date, or to
bring suit for the enforcement of any such payment on or after such respective
dates shall not be impaired or affected adversely without the consent of each
such Holder.

SECTION 6.08 Collection Suit by the Trustee.

If an Event of Default described in Section 6.01(1) hereof occurs and
is continuing, the Trustee may recover judgment in its own name and as trustee
of an express trust against the Company or any obligor on the Debentures for
the whole amount owing with respect to the Debentures and the amounts provided
for in Section 7.07 hereof.

SECTION 6.09 The Trustee May File Proofs of Claim.

In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or its properties or assets, the
Trustee shall be entitled and empowered, by intervention in such proceeding or
otherwise:

(1) to file and prove a claim for the whole amount of the principal
of and, premium, if any, and interest on the Debentures and to file such other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel)
and of the Holders allowed in such judicial proceeding; and

(2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same; and any Custodian in
<PAGE>
any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay the Trustee any amount
due it for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, and any other amounts due the Trustee
under Section 7.07 hereof.

Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Debentures
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.

SECTION 6.10 Priorities.

If the Trustee collects any money pursuant to this Article 6, it
shall, subject to Article 10 hereof, pay out the money in the following order:

FIRST: to the Trustee for amounts due under Section 7.07
hereof;

SECOND: to Debentureholders for amounts due and unpaid on
the Debentures for the principal amount, Redemption
Price or interest, if any, as the case may be,
ratably, without preference or priority of any kind,
according to such amounts due and payable on the
Debentures; and

THIRD: the balance, if any, to the Company.

The Trustee may fix a Record Date and payment date for any payment to
Debentureholders pursuant to this Section 6.10.

SECTION 6.11 Undertaking for Costs.

In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant (other than the Trustee) in the suit of an undertaking to pay the
costs of the suit, and the court in its discretion may assess reasonable costs,
including reasonable attorneys' fees and expenses, against any party litigant
in the suit, having due regard to the merits and good faith of the claims or
defenses made by the party litigant. This Section 6.11 does not apply to a suit
by the Trustee, a suit by a Holder pursuant to Section 6.07 hereof, a suit by
Holders of more than 10% in aggregate principal amount of the Debentures at the
time outstanding or a suit by the Special Representative.

SECTION 6.12 Waiver of Stay, Extension or Usury Laws.

The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead or in any manner whatsoever claim
<PAGE>
or take the benefit or advantage of, any stay or extension law or any usury or
other law wherever enacted, now or at any time hereafter in force, that would
prohibit or forgive the Company from paying all or any portion of the principal
or premium, if any, or interest on the Debentures as contemplated herein or
affect the covenants or the performance by the Company of its obligations under
this Indenture; and the Company (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.

ARTICLE 7
THE TRUSTEE

SECTION 7.01 Duties of the Trustee.

(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise the rights and powers vested in it by this Indenture and
use the same degree of care and skill in its exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.

(b) Except during the continuance of an Event of Default, (i) the
Trustee need perform only those duties that are specifically set forth in this
Indenture and no others; and (ii) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this Indenture.
However, in the case of any certificates or opinions which by any provision
hereof are specifically required to be furnished to the Trustee, the Trustee
shall examine the certificates and opinions to determine whether or not they
conform to the requirements of this Indenture.

(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:

(i) this Section 7.01(c) does not limit the effect
of Section 7.01(b) hereof;

(ii) the Trustee shall not be liable for any error
of judgment made in good faith by a Trust
Officer unless it is proved that the Trustee
was negligent in ascertaining the pertinent
facts; and

(iii) the Trustee shall not be liable with respect to
any action it takes or omits to take in good
faith in accordance with a direction received
by it pursuant to Section 6.05 hereof.

<PAGE>
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to Section 7.01(a), (b), (c) and (e) and Section 7.02
hereof.

(e) The Trustee may refuse to perform any duty or exercise any
right or power or extend or risk its own funds or otherwise incur any financial
liability unless it receives security and indemnity reasonably satisfactory to
it against any loss, liability or expense (including reasonable counsel fees).

(f) Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. Except as
otherwise provided in Section 3.05 and Section 8.01 hereof the Trustee shall
not be liable for interest on any money held by it hereunder.

SECTION 7.02 Rights of the Trustee.

(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The Trustee
need not investigate any fact or matter stated in the document.

(b) Before the Trustee acts or refrains from acting, it may require
an Officer's Certificate and, if appropriate, an Opinion of Counsel. The
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on such Officer's Certificate and Opinion of Counsel.

(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.

(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized or within
its rights or powers.

(e) The Trustee may consult with counsel of its selection and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon.

(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders or the Special Representative pursuant to this Indenture,
unless such Holders or the Special Representative, as the case may be, shall
have offered to the Trustee reasonable security and indemnity against the
costs, expenses and liabilities (including reasonable counsel fees) which might
be incurred by it in compliance with such request or direction.

SECTION 7.03 Individual Rights of the Trustee.

The Trustee in its individual or any other capacity may become the
owner or pledgee of Debentures and may otherwise deal with the Company or its
Affiliates with the same rights it would have if it were not Trustee. Any
Paying Agent, Registrar or co-registrar may do the same with like rights.
However, the Trustee must comply with Sections 7.10 and 7.11 hereof.

<PAGE>
SECTION 7.04 The Trustee's Disclaimer.

The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Debentures. The Trustee shall not be accountable for the
Company's use of the proceeds from the Debentures, and the Trustee shall not be
responsible for any statement in this Indenture or the Debentures or any report
or certificate issued by the Company hereunder or any registration statement
relating to the Debentures (other than the Trustee's Certificate of
Authentication), or the determination as to which beneficial owners are
entitled to receive any notices hereunder.

SECTION 7.05 Notice of Defaults.

If a Default occurs and is continuing and if it is known to the
Trustee, the Trustee shall mail to each Debentureholder, as their names and
addresses appear in the Register, notice of the Default within 90 days after it
becomes known to the Trustee unless such Default shall have been cured or
waived. Except in the case of a Default described in Section 6.01(1) hereof,
the Trustee may withhold such notice if and so long as a committee of Trust
Officers in good faith determines that the withholding of such notice is in the
interests of the Debentureholders. The Trustee shall not be charged with
knowledge of any Default (except in the case of a Default under Section 6.01(1)
hereof) unless a responsible Trust Officer assigned to the corporate trust
administration department of the Trustee shall have actual knowledge of the
Default. The second sentence of this Section 7.05 shall be in lieu of the
proviso to TIA Section 315(b). Said proviso is hereby expressly excluded from
this Indenture, as permitted by the TIA.

SECTION 7.06 Reports by Trustee to Holders.

Within 60 days after each October 31, beginning with the October 31
next following the date of this Indenture, the Trustee shall mail to each
Debentureholder, and such other holders that have submitted their names to the
Trustee for such purpose, a brief report dated as of such October 31 in
accordance with and to the extent required under TIA Section 313.

A copy of each report at the time of its mailing to Debentureholders
shall be filed with the Company, the SEC and any securities exchange on which
the Debentures are listed. The Company agrees to promptly notify the Trustee
whenever the Debentures become listed on any securities exchange and of any
listing thereof.

SECTION 7.07 Compensation and Indemnity.

The Company agrees:

(1) to pay to the Trustee from time to time such compensation as
shall be agreed in writing between the Company and the Trustee for all services
rendered by it hereunder (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust);

<PAGE>
(2) to reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the reasonable
compensation and the expenses, and advances of its agents and counsel, provided
that prior to an Event of Default, the Trustee shall only have one counsel),
including all reasonable expenses and advances incurred or made by the Trustee
in connection with any Event of Default or any membership on any creditors'
committee, except any such expense or advance as may be attributable to its
negligence or bad faith; and

(3) to indemnify the Trustee, its officers, directors and
shareholders, for, and to hold it harmless against, any and all loss, liability
or expense, incurred without negligence or bad faith on its part, arising out
of or in connection with the acceptance or administration of this trust,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers
or duties hereunder.

Before, after or during an Event of Default, the Trustee shall have a
claim and lien prior to the Debentures as to all property and funds held by it
hereunder for any amount owing it for its fees and expenses or any predecessor
Trustee pursuant to this Section 7.07, except with respect to funds held by the
Trustee or any Paying Agent in trust for the payment of principal of, premium,
if any, or interest on particular Debentures pursuant to Section 2.06 or
Section 8.01 hereof.

The Company's payment obligations pursuant to this Section 7.07 are
not subject to Article 10 of this Indenture and shall survive the discharge of
this Indenture. When the Trustee renders services or incurs expenses after the
occurrence of a Default specified in Section 6.01 hereof, the compensation for
services and expenses are intended to constitute expenses of administration
under any Bankruptcy Law.

SECTION 7.08 Replacement of Trustee.

The Trustee may resign at any time, by so notifying the Company in
writing at least 30 days prior to the date of the proposed resignation;
provided, however, no such resignation shall be effective until a successor
Trustee has accepted its appointment pursuant to this Section 7.08. The
Special Representative, if one has been appointed, or, if the Partnership is
not the sole Holder of the Debentures, the Holders of a majority in aggregate
principal amount of the Debentures at the time outstanding or, if the
Partnership is the sole Holder of the Debentures, the Partnership, with the
consent of the holder of 66 % of the aggregate stated liquidation preference of
the Preferred Securities, may remove the Trustee by so notifying the Trustee in
writing and may appoint a successor Trustee, which shall be subject to the
consent of the Company unless an Event of Default has occurred and is
continuing. The Trustee shall resign if:

(1) the Trustee fails to comply with Section 7.10
hereof;

(2) the Trustee is adjudged bankrupt or insolvent;

<PAGE>
(3) a receiver or public officer takes charge of the
Trustee or its property; or

(4) the Trustee otherwise becomes incapable of acting.

If the Trustee resigns or is removed or if a vacancy exists in the office of
Trustee for any reason, the Company shall promptly appoint a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment to
the retiring Trustee and to the Company. Thereupon the resignation or removal
of the retiring Trustee shall become effective, and the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture.
The successor Trustee shall mail a notice of its succession to
Debentureholders. Subject to payment of all amounts owing to the Trustee under
Section 7.07 hereof and subject further to its lien under Section 7.07, the
retiring Trustee shall promptly transfer all property held by it as Trustee to
the successor Trustee. If a successor Trustee does not take office within 30
days after the retiring Trustee resigns or is removed, the Company, the Special
Representative or the Holders of a majority in aggregate principal amount of
the Debentures at the time outstanding may petition any court of competent
jurisdiction for the appointment of a successor Trustee.

If the Trustee fails to comply with Section 7.10 hereof, any
Debentureholder may petition any court of competent jurisdiction for its
removal and the appointment of a successor Trustee.

SECTION 7.09 Successor Trustee by Merger.

If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all its corporate trust business or assets to
another corporation, the resulting, surviving or transferee corporation without
any further act shall be the successor Trustee.

SECTION 7.10 Eligibility; Disqualification.

The Trustee shall at all times satisfy the requirements of TIA
Sections 310(a)(1) and 310(a)(2). The Trustee (or any Affiliate thereof which
has unconditionally guaranteed the obligations of the Trustee hereunder) shall
have a combined capital and surplus of at least $50,000,000 as set forth in its
most recently published annual report of condition. The Trustee shall comply
with TIA Section 310(b). In determining whether the Trustee has conflicting
interests as defined in TIA Section 310(b)(1), the provisions contained in the
proviso to TIA Section 310(b)(1) shall be deemed incorporated herein.

SECTION 7.11 Preferential Collection of Claims Against the
Company.

If and when the Trustee shall be or become a creditor of the Company,
the Trustee shall be subject to the provisions of the TIA regarding the
collection of claims against the Company.

<PAGE>
ARTICLE 8
SATISFACTION AND DISCHARGE OF INDENTURE;
DEFEASANCE OF CERTAIN OBLIGATIONS; UNCLAIMED MONEYS

SECTION 8.01 Satisfaction and Discharge of Indenture.

The Company shall be deemed to have paid and discharged the entire
indebtedness on any series of the Debentures outstanding on the date the
Company has irrevocably deposited or caused to be irrevocably deposited with
the Trustee or any Paying Agent as trust funds in trust, specifically pledged
as security for, and dedicated solely to, the benefit of the Holders of the
Debentures of such series (1) cash (which may be held in an interest bearing
account insured by the Federal Deposit Insurance Corporation) in an amount, or
(2) U.S. Government Obligations, maturing as to principal and interest at such
times and in such amounts as will ensure the availability of cash, or (3) a
combination thereof, sufficient to pay the principal of and premium, if any,
and interest on all Debentures then outstanding, provided that in the case of
redemption, notice of redemption shall have been given or the Company shall
have irrevocably instructed the Trustee to give such notice; and further
provided that the following conditions shall have been met:

(A) no Default or Event of Default with respect to the
Debentures has occurred and is continuing on the date of such
deposit or occurs as a result of such deposit;

(B) the Company has delivered to the Trustee an
Officer's Certificate certifying that there does not exist (i)
a default in the payment of all or any portion of any Senior
Indebtedness or (ii) any other default affecting Senior
Indebtedness permitting its acceleration as the result of
which the maturity of Senior Indebtedness has been
accelerated;

(C) the Company has delivered to the Trustee (i) either
a private Internal Revenue Service ruling or an Opinion of
Counsel based on a ruling of the Internal Revenue Service or
other change in Federal income tax law to the effect that the
Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such deposit, defeasance
and discharge and will be subject to federal income tax on the
same amount and in the manner and at the same times as would
have been the case if such deposit, defeasance and discharge
had not occurred, and (ii) an Opinion of Counsel to the effect
that (A) the deposit shall not result in the Company, the
Trustee or the trust being deemed to be an "investment
company" under the Investment Company Act of 1940, as amended,
and (B) such deposit creates a valid trust in which such
Holders of the Debentures have the sole beneficial ownership
interest or that such Holders of the Debentures have a
nonavoidable first priority security interest in such trust;
and

(D) the Company has delivered to the Trustee an
<PAGE>
Officer's Certificate and an Opinion of Counsel, each stating
that all conditions precedent relating to the defeasance
contemplated by this provision have been complied with.

Upon such deposit, provisions of this Indenture with respect to such series of
Debentures shall no longer be in effect (except as to (1) the rights of
registration of transfer and exchange of Debentures, (2) the replacement of
apparently mutilated, defaced, destroyed, lost or stolen Debentures, (3) the
rights of the Holders to receive payments of the principal thereof and premium,
if any, and interest thereon, (4) the rights of the Holders as beneficiaries
hereof with respect to the property so deposited with the Trustee payable to
all or any of them, (5) the obligation of the Company to maintain an office or
agency for payments on and registration of transfer of the Debentures, (6) the
rights, obligations and immunities of the Trustee hereunder, and (7) the
obligations of the Company to the Trustee for compensation and indemnity under
Section 7.07 hereof; and the Trustee shall, at the request and expense of the
Company, execute proper instruments acknowledging the same.

SECTION 8.02 Application by Trustee of Funds Deposited for
Payment of Debentures.

Subject to Section 8.04 hereof, all moneys deposited with the Trustee
pursuant to Section 8.01 hereof shall be held in trust and applied by it to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent), to the Holders for the payment or redemption
of which such moneys have been deposited with the Trustee, of all sums due and
to become due thereon for principal and interest; but such money need not be
segregated from other funds except to the extent required by law.

SECTION 8.03 Repayment of Moneys Held by Paying Agent.

In connection with the satisfaction and discharge of this Indenture,
all moneys then held by any Paying Agent under this Indenture shall, upon
demand of the Company, be repaid to it or paid to the Trustee, and thereupon
such Paying Agent shall be released from all further liability with respect to
such moneys.

SECTION 8.04 Return of Moneys Held by the Trustee and Paying
Agent Unclaimed for Three Years.

Any moneys deposited with or paid to the Trustee or any Paying Agent
for the payment of the principal of and premium, if any, or interest on any
Debenture and not applied but remaining unclaimed for three years after the
date when such principal, premium, if any, or interest shall have become due
and payable shall unless otherwise required by mandatory provisions of
applicable escheat or abandoned or unclaimed property law, be repaid to the
Company by the Trustee or such Paying Agent, and the Holder of such Debenture
shall, unless otherwise required by mandatory provisions of applicable escheat
or abandoned or unclaimed property laws, thereafter look only to the Company
for any payment which such Holder may be entitled to collect, and all liability
<PAGE>
of the Trustee or any Paying Agent with respect to such moneys shall thereupon
cease.

ARTICLE 9
AMENDMENTS

SECTION 9.01 Without Consent of Holders.

From time to time, when authorized by a resolution of the Board of
Directors, the Company and the Trustee, without notice to or the consent of any
Holders of the Debentures or the Special Representative, may amend or
supplement this Indenture or the Debentures:

(1) to cure any ambiguity, defect or inconsistency;

(2) to comply with Article 5 hereof;

(3) to provide for uncertificated Debentures in addition to or in
place of certificated Debentures;

(4) to make any other change that does not in the reasonable
judgment of the Company adversely affect the rights of any Debentureholder;

(5) to comply with any requirement of the SEC in connection with the
qualification of this Indenture under the TIA; or

(6) to set forth the terms and conditions, which shall not be
inconsistent with this Indenture, of the series of Debentures (other than the
Series A Debentures) that are to be issued hereunder and the form of Debentures
of such series.

SECTION 9.02 With Consent of Holders.

The Company and the Trustee may amend this Indenture or the
Debentures in any manner not permitted by Section 9.01 or may waive future
compliance by the Company with any provisions of this Indenture or the
Debentures (i) if the Partnership is the sole Holder of the Debentures, with
the written consent of the Special Representative or if no Special
Representative has been appointed, the Partnership, at the direction of the
holders of 66 % of the aggregate stated liquidation preference of the Preferred
Securities at the time outstanding, or (ii) if the Partnership is not the sole
Holder of the Debentures, with the consent of the Holders of at least 66 % in
aggregate principal amount of the Debentures at the time outstanding. Such an
amendment or waiver may not, without the consent of (i) each Holder of the
Debentures (if the Partnership is not the sole Holder of the Debentures) or
(ii) each holder of the Preferred Securities (if the Partnership is the sole
Holder of the Debentures):

(1) reduce the principal of the Debentures;

<PAGE>
(2) reduce the principal amount of the Debentures the Holders of
which must consent to an amendment of the Indenture or a waiver;

(3) change the stated maturity of the principal of, premium, if any,
or the interest on or rate of interest of, or Additional Interest with respect
to, any Debentures, change adversely to the Holders the redemption provisions
of Article 3 hereof, or impair the right to institute suit for the enforcement
of any such payment or change the currency in respect of which the payments on
any Debentures are to be made;

(4) change the obligation of the Company to pay Additional Interest
on the Debentures;

(5) make any change in Article 10 hereof that adversely affects the
rights of the Holders of the Debentures or any change to any other Section
hereof that adversely affects their rights under Article 10 hereof;

(6) change Section 6.07 hereof.

It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent approves the substance thereof.

If certain Holders agree to defer or waive certain obligations of the
Company hereunder with respect to Debentures held by them, such deferral or
waiver shall not affect the rights of any other Holder to receive the payment
or performance required hereunder in a timely manner.

After an amendment or waiver under this Section 9.02 becomes
effective, the Company shall mail to the Special Representative and to each
Holder a notice briefly describing the amendment or waiver. Any failure of the
Company to mail such notices, or any defect therein, shall not, however, in any
way impair or affect the validity of such amendment or waiver.

SECTION 9.03 Compliance with Trust Indenture Act.

Every supplemental indenture executed pursuant to this Article 9
shall comply with the TIA.

SECTION 9.04 Revocation and Effect of Consents, Waivers and
Actions.

Until an amendment, waiver or other action by Holders becomes
effective, a consent to it or any other action by a Holder of a Debenture
hereunder is a continuing consent by the Holder and every subsequent Holder of
that Debenture or portion of the Debenture that evidences the same obligation
as the consenting Holder's Debenture, even if notation of the consent, waiver
or action is not made on the Debenture. However, any such Holder or subsequent
Holder may revoke the consent, waiver or action as to such Holder's Debenture
or portion of the Debenture if the Trustee receives the notice of revocation
before the consent of the requisite aggregate principal amount of the
Debentures then outstanding has been obtained and not revoked. After an
<PAGE>
amendment, waiver or action becomes effective, it shall bind every
Debentureholder, except as provided in Section 9.02 hereof.

The Company may, but shall not be obligated to, fix a Record Date for
the purpose of determining the Holders entitled to consent to any amendment or
waiver. If a Record Date is fixed, then, notwithstanding the first two
sentences of the immediately preceding paragraph, those Persons who were
Holders at such Record Date or their duly designated proxies, and only those
Persons, shall be entitled to consent to such amendment, supplement or waiver
or to revoke any consent previously given, whether or not such Persons continue
to be Holders after such Record Date. No such consent shall be valid or
effective for more than 90 days after such Record Date.

SECTION 9.05 Notation on or Exchange of Debentures.

Debentures authenticated and made available for delivery after the
execution of any supplemental indenture pursuant to this Article 9 may, and
shall, if required by the Trustee, bear a notation in form approved by the
Trustee as to any matter provided for in such supplemental indenture. If the
Company shall so determine, new Debentures so modified as to conform, in the
opinion of the Trustee and the Board of Directors, to any such supplemental
indenture may be prepared and executed by the Company and authenticated and
made available for delivery by the Trustee in exchange for outstanding
Debentures.

SECTION 9.06 Trustee to Execute Supplemental Indentures.

The Trustee shall execute any supplemental indenture authorized
pursuant to this Article 9 if the supplemental indenture does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. If it
does, the Trustee may, but need not, execute it. In executing such
supplemental indenture the Trustee shall be entitled to receive, and shall be
fully protected in relying upon, an Officer's Certificate and Opinion of
Counsel stating that such supplemental indenture is authorized or permitted by
this Indenture.

SECTION 9.07 Effect of Supplemental Indentures.

Upon the execution of any supplemental indenture under this Article
9, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes and
every Holder of Debentures theretofore or thereafter authenticated and made
available for delivery hereunder shall be bound thereby.

ARTICLE 10
SUBORDINATION

SECTION 10.01 Debentures Subordinated to Senior Indebtedness.

<PAGE>
Notwithstanding the provisions of Section 6.10 hereof or any other
provision herein or in any Debenture, the Company and the Trustee or Holder by
his acceptance thereof (a) covenants and agrees, that all payments by the
Company of the principal of and premium, if any, and interest on the Debentures
(other than Debentures which have been discharged pursuant to Article 8) shall
be subordinated in accordance with the provisions of this Article 10 to the
prior payment in full, in cash or cash equivalents, of all amounts payable on,
under or in connection with Senior Indebtedness, and (b) acknowledges that
holders of Senior Indebtedness are or shall be relying on this Article 10.

SECTION 10.02 Priority and Payment of Proceeds in Certain Events;
Remedies Standstill.

(a) Upon any payment or distribution of assets or securities of the
Company, as the case may be, of any kind or character, whether in cash,
property or securities, upon any dissolution or winding up or total or partial
liquidation or reorganization of the Company, whether voluntary or involuntary,
or in bankruptcy, insolvency, receivership or other proceedings, all amounts
payable on, under or in connection with Senior Indebtedness (including any
interest accruing on such Senior Indebtedness subsequent to the commencement of
a bankruptcy, insolvency or similar proceeding) shall first be paid in full in
cash, or payment provided for in cash or cash equivalents, before the Holders
or the Trustee on behalf of the Holders shall be entitled to receive from the
Company any payment of principal of, premium, if any, or interest on the
Debentures or distribution of any assets or securities.

(b) No direct or indirect payment by or on behalf of the Company of
principal of, premium, if any, or interest on the Debentures (other than
Debentures which have been discharged pursuant to Article 8) whether pursuant
to the terms of the Debentures or upon acceleration or otherwise shall be made
if, at the time of such payment there exists (i) a default in the payment of
all or any portion of any Senior Indebtedness and the Trustee has received
written notice thereof from the Company, one or more holders of Senior
Indebtedness or from any trustee, representative or agent therefor, or (ii) any
other default affecting Senior Indebtedness permitting its acceleration, as the
result of which the maturity of Senior Indebtedness has been accelerated and
the Trustee has received written notice from any trustee, representative or
agent for the holders of the Senior Indebtedness or the holders of at least a
majority in principal amount of the Senior Indebtedness then outstanding of
such default and acceleration, and such default shall not have been cured or
waived by or on behalf of the holders of such Senior Indebtedness.

(c) If, notwithstanding the foregoing provisions prohibiting such
payment or distribution, the Trustee or any Holder shall have received any
payment on account of the principal of or premium, if any, or interest on the
Debentures (other than as permitted by subsections (a) and (b) of this Section
10.02) when such payment is prohibited by this Section 10.02 and before all
amounts payable on, under or in connection with Senior Indebtedness are paid in
full in cash or cash equivalents, then and in such event (subject to the
provisions of Section 10.08 hereof) such payment or distribution shall be
received and held in trust for the holders of Senior Indebtedness and, at the
written direction of the trustee, representative or agent for the holders of
the Senior Indebtedness, shall be paid to the holders of the Senior
<PAGE>
Indebtedness remaining unpaid to the extent necessary to pay such Senior
Indebtedness in full in cash or cash equivalents.

Upon any payment or distribution of assets or securities referred to
in this Article 10, the Trustee and the Holders shall be entitled to rely upon
any order or decree of a court of competent jurisdiction in which such
dissolution, winding up, liquidation or reorganization proceedings are pending,
and upon a certificate of the receiver, trustee in bankruptcy, liquidating
trustee, agent or other Person making any such payment or distribution,
delivered to the Trustee for the purpose of ascertaining the Persons entitled
to participate in such distribution, the holders of Senior Indebtedness and
other Indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 10.

SECTION 10.03 Payments which May Be Made Prior to Notice.

Nothing in this Article 10 or elsewhere in this Indenture shall
prevent (i) the Company, except under the conditions described in Section 10.02
hereof, from making payments of principal of or premium, if any, or interest on
the Debentures or from depositing with the Trustee any monies for such
payments, or (ii) the application by the Trustee of any monies deposited with
it for the purpose of making such payments of principal of or premium, if any,
or interest on the Debentures, to the Holders entitled thereto, unless at least
one Business Day prior to the date when such payment would otherwise (except
for the prohibitions contained in Section 10.02 hereof) become due and payable
the Trustee shall have received the written notice provided for in Section
10.02(b)(i) or (ii) hereof.

SECTION 10.04 Rights of Holders of Senior Indebtedness Not to Be
Impaired.

No right of any present or future holder of any Senior Indebtedness
to enforce subordination as herein provided shall at any time or in any way be
prejudiced or impaired by any act or failure to act in good faith by any such
holder, or by any noncompliance by the Company with the terms and provisions
and covenants herein regardless of any knowledge thereof any such holder may
have or otherwise be charged with.

The provisions of this Article 10 are intended to be for the benefit
of, and shall be enforceable directly by, the holders of Senior Indebtedness.

Notwithstanding anything to the contrary in this Article 10, to the
extent any Holders or the Trustee have paid over or delivered to any holder of
Senior Indebtedness any payment or distribution received on account of the
principal of or premium (if any) or interest on the Debentures to which any
other holder of Senior Indebtedness shall be entitled to share in accordance
with Section 10.02 hereof, no holder of Senior Indebtedness shall have a claim
or right against any Holders or the Trustee with respect to any such payment or
distribution or as a result of the failure to make payments or distributions to
such other holder of Senior Indebtedness.

<PAGE>
SECTION 10.05 Trustee May Take Action to Effectuate Subordination.

Each Holder of a Debenture, by his acceptance thereof, authorizes and
directs the Trustee on his behalf to take such action as may be required by the
trustee, representative or agent for holders of Senior Indebtedness or by the
Company to effectuate, as between the holders of Senior Indebtedness and the
Holders, the subordination as provided in this Article 10 and appoints the
Trustee his attorney-in-fact for any and all such purposes.

SECTION 10.06 Subrogation.

Upon the payment in full, in cash or cash equivalents, of all Senior
Indebtedness, any Holder shall be subrogated to the rights of the holders of
such Senior Indebtedness to receive payments or distributions of assets of the
Company made on such Senior Indebtedness until the Debentures shall be paid in
full; and for the purposes of such subrogation, no payments or distributions to
holders of such Senior Indebtedness of any cash, property or securities to
which such Holders of the Debentures would be entitled except for this Article
10, and no payment pursuant to this Article 10 to holders of such Senior
Indebtedness by such Holders of the Debentures, shall, as between the Company,
its creditors other than holders of such Senior Indebtedness and such Holders
of the Debentures, be deemed to be a payment by the Company to or on account of
such Senior Indebtedness, it being understood that the provisions of this
Article 10 are solely for the purpose of defining the relative rights of the
holders of such Senior Indebtedness, on the one hand, and such Holders of the
Debentures, on the other hand.

If any payment or distribution to which Holders of the Debentures
would otherwise have been entitled but for the provisions of this Article 10
shall have been applied, pursuant to this Article 10, to the payment of all
Senior Indebtedness, then and in such case, such Holders of the Debentures
shall be entitled to receive from the holders of such Senior Indebtedness at
the time outstanding any payments or distributions received by such holders of
Senior Indebtedness in excess of the amount sufficient to pay, in cash or cash
equivalents, all such Senior Indebtedness in full.

SECTION 10.07 Obligations of Company Unconditional; Reinstatement.

Nothing in this Article 10, or elsewhere in this Indenture or in any
Debenture is intended to or shall impair, as between the Company and Holders of
the Debentures, the obligations of the Company, which are absolute and
unconditional, to pay to such Holders the principal of and premium, if any, and
interest on the Debentures as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of such Holders of the Debentures and creditors of the Company other
than the holders of the Senior Indebtedness, nor shall anything herein or
therein prevent the Trustee, the Special Representative or any Holder from
exercising all remedies otherwise permitted by applicable law under this
Indenture, subject to the rights, if any, under this Article 10 of the holders
of such Senior Indebtedness in respect of cash, property or securities of the
Company received upon the exercise of any such remedy.

<PAGE>
The failure to make a scheduled payment of principal of or premium,
if any, interest on, the Debentures by reason of Section 10.02 shall not be
construed as preventing the occurrence of an Event of Default under Section
6.01 hereof; provided, however, that if (i) the conditions preventing the
making of such payment no longer exist, and (ii) such Holders of the Debentures
are made whole with respect to such omitted payments, the Event of Default
relating thereto (including any failure to pay any accelerated amounts) shall
be automatically waived, and the provisions of the Indenture shall be
reinstated as if no such Event of Default had occurred.

SECTION 10.08 Trustee Entitled to Assume Payments Not Prohibited
in Absence of Notice.

The Trustee or Paying Agent shall not be charged with the knowledge
of the existence of any default in the payment of all or a portion of any
Senior Indebtedness or any other default affecting Senior Indebtedness
permitting its acceleration, as a result of which the maturity of the Senior
Indebtedness has been accelerated, unless and until the Trustee or Paying Agent
shall have received written notice thereof from the Company or one or more
holders of Senior Indebtedness or from any trustee or agent therefor or unless
the Trustee or Paying Agent otherwise had actual knowledge thereof; and, prior
to the receipt of any such written notice or actual knowledge of a responsible
Trust Officer in the corporate trust administration department of the Trustee
or Paying Agent, the Trustee or Paying Agent may conclusively assume that no
such facts exist.

Unless at least one Business Day prior to the date when by the terms
of this Indenture any monies are to be deposited by the Company with the
Trustee or any Paying Agent for any purpose (including, without limitation, the
payment of the principal of or premium, if any, or interest on any Debenture),
the Trustee or Paying Agent shall have received with respect to such monies the
notice provided for in Section 10.02 or a responsible Trust Officer in the
corporate trust administration department of the Trustee or Paying Agent shall
have actual knowledge of default in the payment of all or a portion of any
Senior Indebtedness or any other default affecting Senior Indebtedness
permitting its acceleration, as the result of which the maturity of the Senior
Indebtedness has been accelerated, the Trustee or Paying Agent shall have full
power and authority to receive and apply such monies to the purpose for which
they were received. Neither of them shall be affected by any notice to the
contrary, which may be received by either on or after such date. The foregoing
shall not apply to the Paying Agent if the Company is acting as Paying Agent.
Nothing in this Section 10.08 shall limit the right of the holders of Senior
Indebtedness to recover payments as contemplated by Section 10.02 hereof. The
Trustee or Paying Agent shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself or itself to be a holder of
such Senior Indebtedness (or a trustee or agent on behalf of, or other
representative of, such holder) to establish that such notice has been given by
a holder of such Senior Indebtedness or a trustee or representative on behalf
of any such holder. The Trustee shall not be deemed to have any duty to the
holders (and shall be fully protected in relying upon such notice) of Senior
Indebtedness.

<PAGE>
SECTION 10.09 Right of Trustee to Hold Senior Indebtedness.

The Trustee and any Paying Agent shall be entitled to all of the
rights set forth in this Article 10 in respect of any Senior Indebtedness at
any time held by them to the same extent as any other holder of such Senior
Indebtedness, and nothing in this Indenture shall be construed to deprive the
Trustee or any Paying Agent of any of its rights as such holder.

ARTICLE 11
MISCELLANEOUS

SECTION 11.01 Trust Indenture Act Controls.

If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by operation of subsection (c) of Section 318 of the
TIA, the imposed duties shall control. The provisions of Sections 310 to 317,
inclusive, of the TIA that impose duties on any Person (including provisions
automatically deemed included in an indenture unless the indenture provides
that such provisions are excluded) are a part of and govern this Indenture,
except as, and to the extent, they are expressly excluded from this Indenture,
as permitted by the TIA.

SECTION 11.02 Notices.

Any notice or communication shall be in writing and delivered in
person or mailed by first-class mail, postage prepaid, addressed as follows:

if to the Company:

Public Service Electric and Gas Company
80 Park Plaza, T6B
P.O. Box 570
Newark, New Jersey 07101
Attention: Treasurer

if to the Trustee:

First Fidelity Bank, National Association
765 Broad Street
Newark, New Jersey 07101
Attention: Corporate Trust Department

The Company or the Trustee, by giving notice to the other, may
designate additional or different addresses for subsequent notices of
communications. The Company shall notify the holder, if any, of Senior
Indebtedness of any such additional or different addresses of which the Company
receives notice from the Trustee.

Any notice or communication given to a Debentureholder other than the
Partnership shall be mailed to the Debentureholder at the Debentureholder's
<PAGE>
address as it appears on the Register of the Registrar and shall be
sufficiently given if mailed within the time prescribed.

Failure to mail a notice or communication to a Debentureholder or any
defect in it shall not affect its sufficiency with respect to other
Debentureholders. If a notice or communication is mailed in the manner
provided above, it is duly given, whether or not received by the addressee.

If the Company mails a notice or communication to the
Debentureholders, it shall mail a copy to the Trustee and each Registrar,
Paying Agent or co-Registrar.

SECTION 11.03 Communication by Holders with Other Holders.

Debentureholders may communicate, pursuant to TIA Section 312(b),
with other Debentureholders with respect to their rights under this Indenture
or the Debentures. The Company, the Trustee, the Registrar, the Paying Agent
and anyone else shall have the protection of TIA Section 312(c).

SECTION 11.04 Certificate and Opinion as to Conditions Precedent.

Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:

(1) an Officer's Certificate (complying with Section 11.05 hereof)
stating that, in the opinion of such Officer, all conditions precedent to the
taking of such action have been complied with; and

(2) if appropriate, an Opinion of Counsel (complying with Section
11.05 hereof) stating that, in the opinion of such counsel, all such conditions
precedent to the taking of such action have been complied with.

SECTION 11.05 Statements Required in Certificate or Opinion.

Each Officer's Certificate and Opinion of Counsel with respect to
compliance with a covenant or condition provided for in this Indenture shall
include:

(1) a statement that each Person making such Officer's Certificate
or Opinion of Counsel has read such covenant or condition;

(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
Officer's Certificate or Opinion of Counsel are based;

(3) a statement that, in the opinion of each such Person, he has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has been
complied with; and

<PAGE>
(4) a statement that, in the opinion of such Person, such covenant
or condition has been complied with; provided, however, that with respect to
matters of fact not involving any legal conclusion, an Opinion of Counsel may
rely on an Officer's Certificate or certificates of public officials.

SECTION 11.06 Severability Clause.

If any provision in this Indenture or in the Debentures shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.

SECTION 11.07 Rules by Trustee, Paying Agent and Registrar.

The Trustee may make reasonable rules for action by or a meeting of
Debentureholders. The Registrar and Paying Agent may make reasonable rules for
their functions.

SECTION 11.08 Legal Holidays.

A "Legal Holiday" is any day other than a Business Day. If any
specified date (including a date for giving notice) is a Legal Holiday, the
action to be taken on such date shall be taken on the next succeeding day that
is not a Legal Holiday, and if such action is a payment in respect of the
Debentures, unless otherwise specified pursuant to Section 2.01 hereof no
principal, premium (if any) or interest installment shall accrue for the
intervening period; except that if any interest payment is due on a Legal
Holiday and the next succeeding day is in the next succeeding calendar year,
such payment shall be made on the Business Day immediately preceding such Legal
Holiday.

SECTION 11.09 Governing Law.

This Indenture and the Debentures shall be governed by and construed
in accordance with the laws of the State of New Jersey as applied to contracts
made and performed within the State of New Jersey, without regard to its
principles of conflicts of laws.

SECTION 11.10 No Recourse Against Others.

No director, officer, employee or stockholder, as such, of the
Company shall have any liability for any obligations of the Company under the
Debentures or this Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Debenture, each
Debentureholder shall waive and release all such liability. The waiver and
release shall be part of the consideration for the issue of the Debentures.

SECTION 11.11 Successors.

<PAGE>
All agreements of the Company in this Indenture and the Debentures
shall bind its successors and assigns. All agreements of the Trustee in this
Indenture shall bind its successors and assigns.

SECTION 11.12 Multiple Original Copies of this Indenture.

The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement. Any signed copy shall be sufficient proof of this Indenture.

SECTION 11.13 No Adverse Interpretation of Other Agreements.

This Indenture may not be used to interpret another indenture, loan
or debt agreement of the Company or any Subsidiary. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.

SECTION 11.14 Table of Contents; Headings, Etc.

The Table of Contents, Cross-Reference Table, and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.

SECTION 11.15 Benefits of the Indenture.

Except as expressly provided in Article 10 hereof, nothing in this
Indenture or in the Debentures, express or implied, shall give to any person,
other than the parties hereto and their successors hereunder, the Holders and
the Special Representative, any benefit or any legal or equitable right, remedy
or claim under this Indenture.

SECTION 11.16 Partnership Books and Records.

If at any time the consent or direction of all or a portion of the
holders of the Preferred Securities is required hereunder, the Company will use
its best efforts to cause the Partnership to provide to the Trustee such books
and records of the Partnership as are necessary to determine if the consent or
direction of the required number of holders of the Preferred Securities has
been obtained, and the Trustee shall be entitled to rely on such books and
records in making such a determination.
SIGNATURES

IN WITNESS WHEREOF, the undersigned, being duly authorized, have
executed this Indenture on behalf of the respective parties hereto as of the
date first above written.

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

<PAGE>
By: _______________________________

Name: _____________________________

Title: ____________________________

FIRST FIDELITY BANK,
NATIONAL ASSOCIATION, as Trustee

By: _______________________________

Name: _____________________________

Title: ____________________________

Public Service Electric and Gas Capital, L.P.

By: Public Service Electric and Gas Company,
its sole general partner

By: ______________________

Name:_____________________

Title:____________________

Solely for the purposes stated in the recitals hereto.
Exhibit A

PUBLIC SERVICE ELECTRIC AND GAS COMPANY
__% Deferrable Interest Subordinated Debenture,
Series A

No. 1

Public Service Electric and Gas Company, a New Jersey corporation
(the "Company", which term includes any successor corporation under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to ______________________________ or registered assigns, the principal sum of
________________________ __________________________________ Dollars on
__________, 2043, and to pay interest on said principal sum from _________,
1994 or from the most recent Interest Payment Date (as defined below) to which
interest has been paid or duly provided for, monthly in arrears on the last day
of each calendar month of each year commencing ________, 1994 (each, an
"Interest Payment Date") at the rate of __% per annum plus Additional Interest,
if any, until the principal hereof shall have become due and payable, and on
any overdue principal and (to the extent that payment of such interest is
enforceable under applicable law) on any overdue installment of interest at the
same rate per annum. The amount of interest payable on any Interest Payment
Date shall be computed on the basis of a 360-day year of twelve 30-day months.
<PAGE>
In the event that any Interest Payment Date is not a Business Day, then
interest will be payable on the next succeeding day which is a Business Day
(and without any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on such date. The interest
installment so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in the Indenture, be paid to the person
in whose name this Debenture is registered at the close of business on the
Regular Record Date for such interest installment, which shall be the 16th day
of each month, provided that if all of the Series A Debentures are then held by
the Partnership or the Series A Debentures are held in book-entry-only form,
the Regular Record Date shall be the close of business on the Business Day next
preceding such Interest Payment Date. Any such interest installment not
punctually paid or duly provided for shall forthwith cease to be payable to the
registered holders on such Regular Record Date, and may be paid to the person
in whose name this Debenture is registered at the close of business on a
Special Record Date to be fixed by the Trustee (as defined below) for the
payment of such defaulted interest, notice whereof shall be given to the
registered holders of the Series A Debentures (as defined below) not less than
7 days prior to such Special Record Date, as more fully provided in the
Indenture.

Payment of the principal of and interest on this Debenture will be
made in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts. Payments of
interest other than on an Interest Payment Date will be made by check mailed to
the registered holder hereof at the address shown in the Register or, at the
option of the registered holder hereof, to such other place in the United
States of America as registered holder hereof shall designate to the Trustee in
writing. At the request of a registered holder of at least $10,000,000
aggregate principal amount of Series A Debentures, interest on such Debentures
will be payable by wire transfer within the continental United States in
immediately available funds to the bank account number specified in writing by
such holder to the Registrar prior to the Regular Record Date.

The principal amount hereof and interest due on the Stated Maturity
Date or a Redemption Date (other than an Interest Payment Date) will be paid
only upon surrender of this Debenture at the principal corporate trust office
of First Fidelity Bank, National Association, Paying Agent, in Newark, New
Jersey, or at such other office or agency of the Paying Agent as the Company
shall designate by written notice to the registered holder of this Debenture.

The indebtedness evidenced by this Debenture is, to the extent
provided in the Indenture, subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness, and this Debenture is issued
subject to the provisions of the Indenture with respect thereto. The
registered holder of this Debenture, by accepting the same, (a) agrees to and
shall be bound by such provisions, (b) authorizes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination so provided and (c) appoints the
Trustee his attorney-in-fact for any and all such purposes. The registered
holder hereof, by his acceptance hereof, hereby waives all notice of the
acceptance of the subordination provisions contained herein and in the
<PAGE>
Indenture by each holder of Senior Indebtedness, whether now outstanding or
hereafter incurred, and waives reliance by each such Holder upon said
provisions.

This Debenture is one of a duly authorized series of Debentures of
the Company (herein sometimes referred to as the "Series A Debentures"),
specified in the Indenture, limited in aggregate principal amount to
$___________, issued under and pursuant to an Indenture dated as of _________,
1994 (the "Indenture") executed and delivered between the Company and First
Fidelity Bank, National Association, as trustee (the "Trustee"). Reference is
made to the Indenture for a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Trustee, the Company and
the registered holders of the Debentures. By the terms of the Indenture,
subordinated debentures (the "Debentures") are issuable in series which may
vary as to amount, date of maturity, rate of interest and in other respects as
in the Indenture provided.

The Series A Debentures are subject to mandatory redemption prior to
maturity at 100% of the principal amount thereof plus accrued interest to the
Redemption Date as follows:

(i) in whole upon the dissolution and winding up of the
Partnership, unless, in connection with such
dissolution and winding up, the Series A Debentures
are distributed to the holders of the Series A
Preferred Securities (as defined in the Indenture);
and

(ii) in whole or in part upon a redemption of the
Series A Preferred Securities, but if in part, in an
aggregate principal amount equal to the aggregate
stated liquidation preference of the Series A
Preferred Securities redeemed.

At the option of the Company, the Series A Debentures are redeemable
prior to maturity (i) at any time after the Company is required to pay
Additional Interest on the Series A Debentures, in whole or in part, (ii) at
any time on or after ___________, 1999, in whole or in part, and (iii) if a Tax
Event shall occur and be continuing, in whole (but not in part), in each case
at 100% of the principal amount thereof plus accrued interest to the Redemption
Date. "Tax Event" shall mean that the Partnership shall have received an
opinion of counsel (which may be regular counsel to the Company or an
Affiliate, but not an employee thereof) experienced in such matters to the
effect that, as a result of any amendment to, or change (including any
announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision or taxing authority thereof or
therein affecting taxation, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or such interpretation or
pronouncement is announced on or after the date of original issuance of
Preferred Securities, there is more than an insubstantial risk that (i) the
Partnership is subject to United States Federal income tax with respect to
interest received on the Debentures or the Partnership will otherwise not be
taxed as a Partnership or (ii) interest payable by the Company to the
<PAGE>
Partnership on the Debentures will not be deductible for United States Federal
income tax purposes or (iii) the Partnership is subject to more than a de
minimis amount of other taxes, duties, assessments or other governmental
charges.

At least 30 days but not more than 60 days before the Redemption
Date, the Trustee, shall mail or caused to be mailed a notice of redemption by
first-class mail, postage prepaid, to each Holder of Debentures to be redeemed.

In the event of redemption of this Debenture in part only, a new
Debenture or Debentures of this series for the unredeemed portion hereof will
be issued in the name of the Holder hereof upon the cancellation hereof.

In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of and premium, if any, and interest
on all of the Debentures may be declared, and upon such declaration shall
become, due and payable, in the manner, with the effect and subject to the
conditions provided in the Indenture.

The Indenture contains provisions for defeasance at any time of the
entire indebtedness of this Debenture upon compliance by the Company with
certain conditions set forth therein.

Subject to certain exceptions in the Indenture which require the
consent of every Holder, the Company and the Trustee may amend the Indenture or
the Debentures issued thereunder or may waive future compliance by the Company
with any provisions of the Indenture or the debentures issued thereunder (i) if
the Partnership is the sole holder of the debentures issued thereunder, with
the written consent of the Special Representative or, if no Special
Representative has been appointed, the Partnership, at the direction of the
holders of 66 % of the aggregate stated liquidation preference of the Preferred
Securities at the time outstanding, or (ii) if the Partnership is not the sole
Holder of the Debentures, with the consent of the Holders of at least 66 % in
aggregate principal amount of the debentures issued under the Indenture at the
time outstanding. Subject to certain exceptions in the Indenture, without the
consent of any Debentureholder, the Company and the Trustee may amend the
Indenture or the Debentures to cure any ambiguity, defect or inconsistency, to
bind a successor to the obligations of the Indenture, to provide for
uncertificated Debentures in addition to certificated Debentures, to comply
with any requirements of the Debentures and the Securities and Exchange
Commission in connection with the qualification of the Indenture under the TIA,
or to make any change that, in the reasonable judgment of the Company, does not
adversely affect the rights of any Debentureholder. Amendments bind all
Holders and subsequent Holders.

No reference herein to the Indenture and no provision of this
Debenture or the Indenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of and interest on
this Debenture at the time and place and at the rate and in the money herein
prescribed.

So long as an Event of Default has not occurred and is continuing,
the Company shall have the right at any time and from time to time to extend
the interest payment period of the debentures issued under the Indenture,
<PAGE>
including the Series A Debentures, to up to 60 consecutive months (the
"Extended Interest Payment Period"), provided that no Extended Interest Payment
Period shall extend beyond the Stated Maturity Date or Redemption Date of any
debenture issued under the Indenture. At the end of the Extended Interest
Payment Period, the Company shall pay all interest then accrued and unpaid
(together with interest thereon at the rate specified for the Series A
Debentures to the extent that payment of such interest is enforceable under
applicable law). During such Extended Interest Payment Period, the Company may
not declare or pay any dividend on, redeem, purchase, acquire or make a
liquidation payment with respect to any of its capital stock. Prior to the
termination of any such Extended Interest Payment Period, the Company may
further extend such Extended Interest Payment Period, provided that such
Extended Interest Payment Period together with all such previous and further
extensions thereof shall not exceed 60 consecutive months. At the termination
of any such Extended Interest Payment Period and upon the payment of all
amounts then due, the Company may select a new Extended Interest Payment
Period, subject to the foregoing restrictions.

Series A Debentures are issuable only in registered form without
coupons in denominations of $25 and any integral multiple thereof. As provided
in the Indenture and subject to certain limitations therein set forth, this
Debenture is exchangeable for a like aggregate principal amount of Series A
Debentures of a different authorized denomination, as requested by the
registered holder surrendering the same.

As provided in the Indenture and subject to certain limitations
therein set forth, this Debenture is transferable by the registered holder
hereof upon surrender of this Debenture for registration of transfer at the
office or agency of the Registrar accompanied by a written instrument or
instruments of transfer in form satisfactory to the Registrar duly executed by
the registered holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Series A Debentures of authorized denominations and
for the same aggregate principal amount will be issued to the designated
transferee or transferees. No service charge will be made for any such
transfer, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in relation thereto.

Prior to presentment for registration of transfer of this Debenture,
the Company, the Trustee, any Paying Agent and any Registrar may deem and treat
the registered holder hereof as the absolute owner hereof (whether or not this
Debenture shall be overdue and notwithstanding any notice of ownership or
writing hereon made by anyone other than the Registrar) for the purpose of
receiving payment of or on account of the principal hereof and interest due
hereon and for all other purposes, and neither the Company nor the Trustee nor
any Paying Agent nor any Registrar shall be affected by any notice to the
contrary.

No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture, against any
incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise, all such liability being, by the
<PAGE>
acceptance hereof and as part of the consideration for the issuance hereof,
expressly waived and released.

Each term used in this Debenture which is defined in the Indenture
and not defined herein shall have the meaning assigned to it in the Indenture.

This Debenture shall not be valid until an authorized officer of the
Trustee manually signs and dates the Trustee's Certificate of Authentication
below.
IN WITNESS WHEREOF, the Company has caused this Debenture to be
signed manually or by facsimile by its duly authorized officers and a facsimile
of its corporate seal to be affixed hereto or imprinted hereon.

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

By: __________________________

[SEAL] Name:
Title:

Attest:

______________________ Assistant Secretary

Dated: ___________, 1994
TRUSTEE'S CERTIFICATE OF AUTHENTICATION

This is one of the Debentures referred to in the within-mentioned Indenture.

FIRST FIDELITY BANK, NATIONAL ASSOCIATION, as Trustee

By: __________________________

Name ______________________________
Authorized Signatory

ASSIGNMENT FORM

To assign this Debenture, fill in the form below: (I) or (we) assign
and transfer this Debenture to:

_______________________________________________________________
(Insert assignee's social security or tax I.D. number)

________________________________________________________________
(Print or type assignee's name, address and zip code)

<PAGE>
and irrevocably appoint ______________________________ agent to transfer this
Debenture on the books of the Debenture Register. The agent may substitute
another to act for him.

Dated: ________________ Signature: ________________________
(Sign exactly as your name appears on
the other side of this Debenture)

Signature Guaranty: ________________________

D127228.A(BF)

<PAGE>
EXHIBIT 4-5

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

and

FIRST FIDELITY BANK, NATIONAL ASSOCIATION, as Trustee

FIRST SUPPLEMENTAL INDENTURE

Dated as of ____________, 1994

INDENTURE

Dated as of ____________, 1994

___% Deferrable Interest Subordinated Debentures, Series __

<PAGE>

TABLE OF CONTENTS

Page

ARTICLE 1 . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.01 . . . . . . . . . . . . . . . . . . . 2

ARTICLE 2 . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2.01 . . . . . . . . . . . . . . . . . . . 2

ARTICLE 3 . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 3.01 . . . . . . . . . . . . . . . . . . . 4

ARTICLE 3 . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 4.01 . . . . . . . . . . . . . . . . . . . 4
SECTION 4.02 . . . . . . . . . . . . . . . . . . . 5
SECTION 4.03 . . . . . . . . . . . . . . . . . . . 5
SECTION 4.04 . . . . . . . . . . . . . . . . . . . 6
SECTION 4.05 . . . . . . . . . . . . . . . . . . . 6
SECTION 4.06 . . . . . . . . . . . . . . . . . . . 6
SECTION 4.07 . . . . . . . . . . . . . . . . . . . 6

<PAGE>

FIRST SUPPLEMENTAL INDENTURE, dated as of ____________, 199__ by and
between Public Service Electric and Gas Company, a corporation duly organized
and existing under the laws of the State of New Jersey (the "Company" ) and
First Fidelity Bank, National Association, a national banking association
organized and existing under the laws of the United States of America, as
trustee (the "Trustee") under the Indenture dated as of ________, 1994 between
the Company and the Trustee.

WHEREAS, the Company executed and delivered the Indenture dated as of
_________, 1994 to the Trustee to provide for the issuance of its deferrable
interest subordinated debentures (the "Debentures") in series from time to time
as might be determined by the Company and pursuant thereto, the Company has
issued its ___% Deferrable Interest Subordinated Debentures, Series A.

WHEREAS, the Company is the general partner of Public Service Electric
and Gas Capital, L.P., a New Jersey limited partnership (the "Partnership"),
which intends to issue an additional series of its limited partner interests
designated ___% Cumulative Monthly Income Preferred Securities, Series __ (the
"Series __ Preferred Securities") and to loan the proceeds thereof, together
with the investment by the Company, as its sole general partner, in the
Partnership to the Company.

WHEREAS, in order to evidence its intention to make such loan and to
accept the Debentures as evidence of such loan, and its approval of the terms
of the Series __ Debentures (as hereinafter defined), the Partnership has
joined in this First Supplemental Indenture.

WHEREAS, the Company has authorized the issuance of its ___%
Deferrable Interest Subordinated Debentures, Series __ (the "Series __
Debentures") to evidence its obligations with respect to the loan from the
Partnership of the proceeds of the Series __ Preferred Securities and the
related investment by the Company, as its sole general partner, in the
Partnership, and to provide therefor, the Company has duly authorized the
execution and delivery of this First Supplemental Indenture.

WHEREAS, all things necessary to make the Series __ Debentures when
duly issued and executed by the Company and authenticated and delivered
hereunder, the valid obligations of the Company, and to make this First
Supplemental Indenture a valid and binding agreement of the Company, in
accordance with its terms, have been done.

<PAGE>

NOW THEREFORE:

Each of the Company and the Trustee, intending to be legally bound
hereby, agrees as follows for the benefit of the other party and for the equal
and ratable benefit of the holders of the Debentures, including the Series __
Debentures:

ARTICLE 1
DEFINITIONS

SECTION 1.01 Definitions.

The following terms used in this First Supplemental Indenture shall
have the following meanings:

"Additional Interest", with respect to the Series __ Debentures, means
an amount equal to and payable at the same time as, any Additional Amounts
payable on the Series __ Preferred Securities as defined in the action pursuant
to the Limited Partnership Agreement creating the Series __ Preferred
Securities plus amounts, if any, which the Partnership would be required to pay
as taxes, duties, assessments or governmental charges of whatever nature (other
than withholding taxes) imposed by the United States, or any other taxing
authority, with respect to the Series __ Debentures.

"Debentureholder" or "Holder" means a Person in whose name a Series __
Debenture is registered on the Registrar's books.

"Series __ Debentures" means any of the Company's __% Deferrable
Interest Subordinated Debentures, Series __ issued under this Indenture.

"Series __ Preferred Securities" means the limited partner interests
designated __% Cumulative Monthly Income Preferred Securities, Series __ issued
by the Partnership.

Each of the other terms used in this First Supplemental Indenture that
is defined in the Indenture and not defined herein shall have the meaning
assigned to it in the Indenture.

<PAGE>
ARTICLE 2
THE SERIES __ DEBENTURES

SECTION 2.01 Terms and Form of the Series A Debentures

The Series __ Debentures shall be designated "Public Service Electric
and Gas Company __% Deferrable Interest Subordinated Debentures, Series __ due
_____." The Series __ Debentures and the Trustee's Certificate of
Authentication shall be substantially in the form of Exhibit A attached hereto.
The terms and provisions contained in the Series __ Debentures shall
constitute, and are hereby expressly made, a part of this First Supplemental
Indenture. The Company and the Trustee, by their execution and delivery of
this Indenture, expressly agree to such terms and provisions and to be bound
thereby.

The aggregate principal amount of Series __ Debentures outstanding at
any time may not exceed $___________ except as provided in Section 2.09 of the
Indenture to be initially authenticated and delivered from time to time upon
delivery to the Trustee of the items specified in Section 2.04(d) of the
Indenture.

The Stated Maturity Date of the Series __ Debentures is __________,
20__. The interest rate of the Series __ Debentures is _____% per annum plus
Additional Interest, if any.

The Interest Payment Dates for the Series __ Debentures are the last
calendar day of each month of each year commencing __________, 199__. In the
event that any date on which interest is payable on the Series __ Debentures is
not a Business Day, then payment of interest payable on such date will be made
on the next day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date. The Regular Record Date for each Interest Payment
Date for the Series __ Debentures shall be the 15th day of each month, provided
that if the Partnership is the sole Holder of the Series __ Debentures or the
Series A Debentures are issued in book-entry-only form, the Regular Record Date
shall be the close of business on the Business Day next preceding such Interest
Payment Date.

Each Series __ Debenture shall bear interest from its Issue Date or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for with respect to such Series __ Debenture; except that, so
long as there is no existing Defaulted Interest or Extension Period on the
Series __ Debentures, any Series __ Debenture authenticated by the Trustee
between the Regular Record Date for any Interest Payment Date and such Interest
Payment Date shall bear interest from such Interest Payment Date.
<PAGE>

Overdue principal, premium, if any, and interest on any Series __
Debenture and interest which has been defined pursuant to Section 4.01(b) of
the Indenture shall bear interest (to the extent that the payment of such
interest shall be legally enforceable) at a rate per annum equal to the
interest rate per annum, including Additional Interest, if any, payable on such
Series __ Debenture.

The Series __ Debentures shall be issuable only in registered form
without coupons and only in denominations of $25 and any integral multiple
thereof.

____________________ shall be the Paying Agent for the Series __
Debentures.

ARTICLE 3
REDEMPTION

SECTION 3.01 Redemption; Notice to Trustee.

(a) The Series __ Debentures are subject to redemption prior to
maturity as provided therein.

(b) The Series __ Debentures shall be subject to mandatory redemption
upon the dissolution and winding up of the Partnership, unless, in connection
therewith, the Series __ Debentures are distributed to the holders of the
Series __ Preferred Securities.

(c) Except as otherwise provided in this Article 3, any redemption of
the Series __ Debentures shall be made in the manner, upon the terms and with
the effect, all as provided in Sections 3.01(c), 3.02, 3.03, 3.04, 3.05 and
3.06 of the Indenture.

ARTICLE 4
MISCELLANEOUS

SECTION 4.01 Confirmation of Indenture.

As amended and supplemented by this First Supplemental Indenture, the
Indenture is in all respects ratified and confirmed and the Indenture and this
First Supplemental Indenture shall be read, taken and construed as one and the
same instrument.

<PAGE>

SECTION 4.02 Notices.

Any notice or communication shall be in writing and delivered in
person or mailed by first-class mail, postage prepaid, addressed as follows:

if to the Company:

Public Service Electric and Gas Company
80 Park Plaza, T6B
P.O. Box 570
Newark, New Jersey 07101
Attention: Treasurer

if to the Trustee:

First Fidelity Bank, National Association
765 Broad Street
Newark, New Jersey 07101
Attention: Corporate Trust Department

Any notice or communication given to a Debentureholder other than the
Partnership shall be mailed to the Debentureholder at the Debentureholder's
address as it appears on the Register of the Registrar and shall be
sufficiently given if mailed within the time prescribed.

If the Company mails a notice or communication to the
Debentureholders, it shall mail a copy to the Trustee and each Registrar,
Paying Agent or co-Registrar.

SECTION 4.03 Severability Clause.

<PAGE>

SECTION 4.04 No Recourse Against Others.

No director, officer, employee or stockholder, as such, of the Company
shall have any liability for any obligations of the Company under the Series __
Debentures or this First Supplemental Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Series __ Debenture, each Debentureholder shall waive and release all such
liability. The waiver and release shall be part of the consideration for the
issue of the Series __ Debentures.

SECTION 4.05 Successors.

All agreements of the Company in this First Supplemental Indenture and
the Series __ Debentures shall bind its successors and assigns. All agreements
of the Trustee in this First Supplemental Indenture shall bind its successors
and assigns.

SECTION 4.06 Multiple Original Copies of this Indenture.

The parties may sign any number of copies of this First Supplemental
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement. Any signed copy shall be sufficient proof of
this First Supplemental Indenture.

SECTION 4.07 Table of Contents; Headings, Etc.

The Table of Contents, Cross-Reference Table, and headings of the
Articles and Sections of this First Supplemental Indenture have been inserted
for convenience of reference only, are not to be considered a part hereof, and
shall in no way modify or restrict any of the terms or provisions hereof.

<PAGE>

SIGNATURES

IN WITNESS WHEREOF, the undersigned, being duly authorized, have
executed this First Supplemental Indenture on behalf of the respective parties
hereto as of the date first above written.

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

By: _______________________________

Name: _____________________________

Title: ____________________________

FIRST FIDELITY BANK,
NATIONAL ASSOCIATION, as Trustee

By: _______________________________

Name: _____________________________

Title: ____________________________

Public Service Electric and Gas Capital, L.P.

By: Public Service Electric and Gas Company,
its sole general partner

By: ______________________

Name:_____________________

Title:____________________

Solely for the purposes stated
in the recitals hereto.
<PAGE>
Exhibit A

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

__% Deferrable Interest Subordinated Debentures,
Series __ due ____
No. __

Public Service Electric and Gas Company, a New Jersey corporation (the
"Company", which term includes any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
________________ or registered assigns, the principal sum of
____________________ _________________________ Dollars on __________, ____, and
to pay interest on said principal sum from _________, 1994 or from the most
recent Interest Payment Date (as defined below) "Interest Payment Date") to
which interest has been paid or duly provided for, monthly in arrears on the
last day of each calendar month of each year commencing ________, 1994 (each,
an "Interest Payment Date") at the rate of __% per annum plus Additional
Interest, if any, until the principal hereof shall have become due and payable,
and on any overdue principal and premium, if any, and (to the extent that
payment of such interest is enforceable under applicable law) on any overdue
installment of interest at the same rate per annum. The amount of interest
payable on any Interest Payment Date shall be computed on the basis of a
360-day year of twelve 30-day months. In the event that any Interest Payment
Date is not a Business Day, then interest will be payable on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date. The interest installment so payable, and punctually
paid or duly provided for, on any Interest Payment Date will, as provided in
the Indenture, be paid to the person in whose name this Series __ Debenture is
registered at the close of business on the Regular Record Date for such
interest installment, which shall be the 15th day of each month, provided that
if all of the Series __ Debentures are then held by the Partnership or the
Series __ Debentures are held in book-entry-only form, the Regular Record Date
shall be the close of business on the Business Day next preceding such Interest
Payment Date. Any such interest installment not punctually paid or duly
provided for shall forthwith cease to be payable to the registered holders on
such Regular Record Date, and may be paid to the person in whose name this
Debenture is registered at the close of business on a Special Record Date to be
fixed by the Trustee (as defined below) for the payment of such defaulted
interest, notice whereof shall be given to the registered holders of this
series of Debentures not less than 7 days prior to such Special Record Date, as
more fully provided in the Indenture.

<PAGE>

Payment of the principal of and interest on this Debenture will be
made in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts. Payments of
interest other than on an Interest Payment Date payable at maturity of this
Debenture will be made by check mailed to the registered holder hereof at the
address shown in the Register or, at the option of the registered holder
hereof, to such other place in the United States of America as registered
holder hereof shall designate to the Trustee in writing. At the request of a
registered holder of at least $10,000,000 aggregate principal amount of Series
__ Debentures, interest on such Debentures will be payable by wire transfer
within the continental United States in immediately available funds to the bank
account number specified in writing by such holder to the Registrar prior to
the Regular Record Date.

The principal amount hereof and interest due on the Stated Maturiy
Date or a Redemption Date (other than an Interest Payment Date) will be paid
only upon surrender of this Debenture at the principal corporate trust office
of First Fidelity Bank, National Association, Paying Agent, in Newark, New
Jersey, or at such other office or agency of the Paying Agent as the Company
shall designate by written notice to the registered holder of this Series __
Debenture.

The indebtedness evidenced by this Series __ Debenture is, to the
extent provided in the Indenture, subordinate and subject in right of payment
to the prior payment in full of all Senior Indebtedness, and this Series __
Debenture is issued subject to the provisions of the Indenture with respect
thereto. The registered holder of this Series __ Debenture, by accepting the
same, (a) agrees to and shall be bound by such provisions, (b) authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to acknowledge or effectuate the subordination so provided and (c)
appoints the Trustee his attorney-in-fact for any and all such purposes. The
Holder hereof, by his acceptance hereof, hereby waives all notice of the
acceptance of the subordination provisions contained herein and in the
Indenture by each holder of Senior Indebtedness, whether now outstanding or
hereafter incurred, and waives reliance by each such Holder upon said
provisions.
<PAGE>

This Series __ Debenture is one of a duly authorized series of
Debentures of the Company (herein sometimes referred to as the "Debentures"),
specified in the Indenture, limited in aggregate principal amount to
$___________, all issued or to be issued in one or more series under and
pursuant to an Indenture dated as of _________, 1994 executed and delivered
between the Company and First Fidelity Bank, National Association, as trustee
(the "Trustee"), as supplemented by the First Supplemental Indenture dated as
of __________, 1994 between the Company and the Trustee (said Indenture as so
supplemented being hereinafter referred to as the "Indenture"). Reference is
made to the Indenture and all Indentures supplemented thereto for a description
of the rights, limitations of rights, obligations, duties and immunities
thereunder of the Trustee, the Company and the registered holders of the
Debentures. By the terms of the Indenture, subordinated debentures (the
"Debentures") are issuable in series which may vary as to amount, date of
maturity, rate of interest and in other respects as in the Indenture provided.

[Redemption terms to be provided]

The Indenture contains provisions for defeasance at any time of the
entire indebtedness of this Series __ Debenture upon compliance by the Company
with certain conditions set forth therein.

Subject to certain exceptions in the Indenture which require the
consent of every Holder, the Company and the Trustee may amend the Indenture or
the Series __ Debentures or may waive future compliance by the Company with any
provisions of the Indenture or the Series __ Debentures (i) if the Partnership
is the sole holder of the Series __ Debentures, with the written consent of the
Special Representative or, if no Special Representative has been appointed, the
Partnership, at the direction of the holders of 66 % of the aggregate stated
liquidation preference of the Preferred Securities at the time outstanding, or
(ii) if the Partnership is not the sole Holder of the Series __ Debentures, of
at least 66 % in aggregate principal amount of the Series __ Debentures at the
time outstanding. Subject to certain exceptions in the Indenture,

<PAGE>

without the consent of any Debentureholder, the Company and the Trustee may
amend the Indenture or the Series __ Debentures to cure any ambiguity, defect
or inconsistency, to bind a successor to the obligations of the Indenture, to
provide for uncertificated Debentures in addition to certificated Debentures,
to comply with any requirements of the Debentures and the Securities and
Exchange Commission in connection with the qualification of the Indenture under
the TIA, or to make any change that, in the reasonable judgment of the Company,
does not adversely affect the rights of any Debentureholder. Amendments bind
all Holders and subsequent Holders.

No reference herein to the Indenture and no provision of this Series
__ Debenture or the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
premium, if any, and interest on this Debenture at the time and place and at
the rate and in the money herein prescribed.

So long as an Event of Default has not occurred and is continuing, the
Company shall have the right at any time and from time to time to extend the
interest payment period of the Series __ Debentures to up to 60 consecutive
months (the "Extended Interest Payment Period"), provided that no Extended
Interest Payment Period shall extend beyond the Stated Maturity Date or
Redemption Date of the Series __ Debentures. At the end of the Extended
Interest Payment Period, the Company shall pay all interest then accrued and
unpaid (together with interest thereon at the rate specified for the Series __
Debentures to the extent that payment of such interest is enforceable under
applicable law). During such Extended Interest Payment Period, neither the
Company nor any majority owned subsidiary shall declare or pay any dividend on,
redeem or purchase, acquire or make a liquidation payment with respect to any
of its capital stock. Prior to the termination of any such Extended Interest
Payment Period, the Company may further extend such Extended Interest Payment
Period, provided that such Extended Interest Payment Period together with all
such previous and further extensions thereof shall not exceed 60 consecutive
months. At the termination of any such Extended Interest Payment Period and
upon the payment of all amounts then due, the Company may select a new Extended
Interest Payment Period, subject to the foregoing restrictions.

Series __ Debentures are issuable only in registered form without
coupons in denominations of $25 and any integral multiple thereof. As provided
in the Indenture and subject to certain limitations therein set forth, this
Series __ Debenture is exchangeable for a like aggregate principal amount of
Series __ Debentures of this series of a different authorized denomination, as
requested by the registered holder surrendering the same.

<PAGE>

As provided in the Indenture and subject to certain limitations
therein set forth, this Series __ Debenture is transferable by the registered
holder hereof upon surrender of such Debenture for registration of transfer at
the office or agency of the Registrar accompanied by a written instrument or
instruments of transfer in form satisfactory to the Registrar duly executed by
the registered holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Series __ Debentures of authorized denominations and
for the same aggregate principal amount will be issued to the designated
transferee or transferees. No service charge will be made for any such
transfer, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in relation thereto.

Prior to presentment for registration of transfer of this Series __
Debenture, the Company, the Trustee, any Paying Agent and any Registrar may
deem and treat the registered holder hereof as the absolute owner hereof
(whether or not this Series __ Debenture shall be overdue and notwithstanding
any notice of ownership or writing hereon made by anyone other than the
Registrar) for the purpose of receiving payment of or on account of the
principal hereof and premium, if any, and interest due hereon and for all other
purposes, and neither the Company nor the Trustee nor any Paying Agent nor any
Registrar shall be affected by any notice to the contrary.

No recourse shall be had for the payment of the principal of or
premium, if any, the interest on this Series __ Debenture, or for any claim
based hereon, or otherwise in respect hereof, or based on or in respect of the
Indenture, against any incorporator, stockholder, officer or director, past,
present or future, as such, of the Company or of any predecessor or successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the consideration for
the issuance hereof, expressly waived and released.

Each term used in this Series __ Debenture which is defined in the
Indenture and not defined herein or in the First Supplemental Indenture shall
have the meaning assigned to it in the Indenture.

This Series __ Debenture shall not be valid until an authorized
officer of the Trustee manually signs and dates the Trustee's Certificate of
Authentication below.

<PAGE>

IN WITNESS WHEREOF, the Company has caused this Series __ Debenture to
be signed manually or by facsimile by its duly authorized officers and a
facsimile of its corporate seal to be affixed hereto or imprinted hereon.

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

By: ____________________________________

[SEAL] Name:
Title:

Attest:

______________________
Assistant Secretary

Dated: ___________, 1994
<PAGE>

TRUSTEE'S CERTIFICATE OF AUTHENTICATION

This is one of the Debentures of the series of Debentures referred to in the
within-mentioned First Supplemental Indenture.

FIRST FIDELITY BANK, NATIONAL ASSOCIATION, as Trustee

By: __________________________

Name

______________________________
Authorized Signatory

<PAGE>

ASSIGNMENT FORM

To assign this Debenture, fill in the form below: (I) or (we) assign
and transfer this Debenture to:

_______________________________________________________________
(Insert assignee's social security or tax I.D. number)

________________________________________________________________
(Print or type assignee's name, address and zip code)

and irrevocably appoint ______________________________ agent to transfer this
Debenture on the books of the Debenture Register. The agent may substitute
another to act for him.

Dated: ________________ Signature: ________________________
(Sign exactly as your name appears
on the other side of this
Debenture)

Signature Guaranty: ________________________

<PAGE>

EXHIBIT 4-4

PAYMENT AND GUARANTEE AGREEMENT

THIS PAYMENT AND GUARANTEE AGREEMENT ("Guarantee Agreement"), dated as of
___________, 1994, is executed and delivered by Public Service Electric and Gas
Company, a New Jersey corporation (the "Guarantor"), for the benefit of the
Holders (as defined below) from time to time of the Series A Preferred
Securities (as defined below) of Public Service Electric and Gas Capital, L.P.,
a New Jersey limited partnership (the "Partnership"), the general partner of
which is the Guarantor.

WHEREAS, the Partnership is issuing on the date hereof $______________
aggregate stated liquidation preference of limited partner interests of a
<PAGE>
series designated the __% Cumulative Monthly Income Preferred Securities,
Series A (the "Series A Preferred Securities"), and the Guarantor desires to
enter into this Guarantee Agreement for the benefit of all Holders, as provided
herein;

WHEREAS, the Partnership will loan the proceeds from the issuance and sale
of the Preferred Securities and the related capital contribution from the
Guarantor as the sole general partner of the Partnership (the "G.P. Capital
Contribution") to the Guarantor, and the Guarantor will issue Deferrable
Interest Subordinated Debentures in accordance with the Indenture (as defined
below) to evidence such loan; and

WHEREAS, the Guarantor desires to irrevocably and unconditionally agree to
the extent set forth herein to pay to the Holders the Guarantee Payments (as
defined below) and to make certain other undertakings on the terms and
conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and other consideration,
receipt of which is hereby acknowledged, the Guarantor, intending to be legally
bound hereby, agrees as follows:

ARTICLE I

As used in this Guarantee Agreement, each term set forth below, unless the
context otherwise requires, shall have the following meaning.

"Guarantee Payments" shall mean the following payments, without
duplication, to the extent not paid by the Partnership: (i) any accumulated and
unpaid monthly distributions on the Series A Preferred Securities to the extent
that the Partnership has funds on hand legally available therefor, (ii) the
Redemption Price (as defined below) payable with respect to any Series A
Preferred Securities called for redemption by the Partnership to the extent
that the Partnership has funds on hand legally available therefor, (iii) upon
liquidation of the Partnership, unless the Series A Subordinated Debentures are
distributed to the Holders, the lesser of (a) the Liquidation Distribution (as
defined below) and (b) the amount of assets of the Partnership available for
distribution to Holders in liquidation of the Partnership, and (iv) any
Additional Amounts (as defined in the action of the general partner creating
the Series A Preferred Securities under the Limited Partnership Agreement)
payable by the Partnership in respect of the Series A Preferred Securities.

"Holder" shall mean any person in whose name a Series A Preferred Security
is registered on the registration books maintained by the Partnership;
provided, however, that in determining whether the Holders of the requisite
percentage of Series A Preferred Securities have given any request, notice,
consent or waiver hereunder, "Holder" shall not include the Guarantor or any
entity owned more than 50% by the Guarantor, either directly or indirectly.

"Indenture" shall mean the Indenture, dated __________, 1994, between the
Guarantor and First Fidelity Bank, National Association, as Trustee, providing
for the issuance of the Guarantor's Deferrable Interest Subordinated
Debentures, including its __% Deferrable Interest Subordinated Debentures,
Series A (the "Series A Subordinated Debentures") in an amount equal to the
<PAGE>
aggregate stated liquidation preference of the Series A Preferred Securities
and the G.P. Capital Contribution.

"Liquidation Distribution" shall mean the aggregate of the stated
liquidation preference of $25 per Series A Preferred Security and all
accumulated and unpaid distributions to the date of payment.

"Redemption Price" shall mean the aggregate of $25 per Series A Preferred
Security and all accumulated and unpaid distributions to the date fixed for
redemption.

"Special Representative" shall mean any representative of the Holders
appointed pursuant to Section 13.02 of the Limited Partnership Agreement.

Each capitalized term used but not otherwise defined herein shall have
the meaning assigned to such term in the Amended and Restated Limited
Partnership Agreement of the Partnership dated as of ____________, 1994 (the
"Limited Partnership Agreement").

ARTICLE II

SECTION 2.01. The Guarantor hereby irrevocably and unconditionally agrees
to pay in full to the Holders the Guarantee Payments (except to the extent paid
by the Partnership), as and when due, to the fullest extent permitted by law,
regardless of any defense, right of set-off or counterclaim which the Guarantor
may have or assert against the Partnership or in the event that the Guarantor
has transferred its general partner interests in the Partnership to any direct
or indirect wholly owned subsidiary of the Guarantor (the "Subsidiary General
Partner"), against such Subsidiary General Partner. The Guarantor's obligation
to make a Guarantee Payment may be satisfied by direct payment by the Guarantor
to the Holders or by payment of such amounts by the Partnership to the Holders.
Notwithstanding anything to the contrary herein, the Guarantor retains all of
its rights under Section 4.01(b) of the Indenture to extend the interest
payment period on the Series A Subordinated Debentures and the Guarantor shall
not be obligated hereunder to pay during an Extension Period any monthly
distributions on the Series A Preferred Securities which are not paid by the
Partnership during such Extension Period.

SECTION 2.02. The Guarantor hereby waives notice of acceptance of this
Guarantee Agreement and of any liability to which it applies or may apply,
presentment, demand for payment, protest, notice of nonpayment, notice of
dishonor, notice of redemption and all other notices and demands.

SECTION 2.03. Except as otherwise set forth herein, the obligations,
covenants, agreements and duties of the Guarantor under this Guarantee
Agreement shall in no way be affected or impaired by reason of the occurrence
from time to time of any of the following:

(a) the release or waiver, by operation of law or otherwise,
of the performance or observance by the Partnership of any express or
implied agreement, covenant, term or condition relating to the Series
A Preferred Securities to be performed or observed by the
Partnership;

<PAGE>
(b) the extension of time for the payment by the Partnership
of all or any portion of the distributions, Redemption Price,
Liquidation Distribution or any other sums payable under the terms of
the Series A Preferred Securities or the extension of time for the
performance of any other obligation under, arising out of, or in
connection with, the Series A Preferred Securities;

(c) any failure, omission, delay or lack of diligence on the
part of the Holders or the Special Representative to enforce, assert
or exercise any right, privilege, power or remedy conferred on the
Holders or the Special Representative pursuant to the terms of the
Series A Preferred Securities, or any action on the part of the
Partnership granting indulgence or extension of any kind;

(d) the voluntary or involuntary liquidation, dissolution,
receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment
of debt of, or other similar proceedings affecting, the Partnership
or any of the assets of the Partnership;

(e) any invalidity of, or defect or deficiency in, any of the
Series A Preferred Securities; or

(f) the settlement or compromise of any obligation guaranteed
hereby or hereby incurred.

There shall be no obligation of the Holders to give notice to, or obtain the
consent of, the Guarantor with respect to the occurrence of any of the
foregoing.

SECTION 2.04. The Guarantor expressly acknowledges that (i) this Guarantee
Agreement will be deposited with the Partnership to be held for the benefit of
the Holders; (ii) in the event of the appointment of a Special Representative,
the Special Representative may enforce this Guarantee Agreement for such
purpose; (iii) if no Special Representative has been appointed, in the event
that a Subsidiary General Partner holds the general partner interests in the
Partnership, such Subsidiary General Partner has the right to enforce this
Guarantee Agreement on behalf of the Holders; (iv) the Holders of not less than
10% in aggregate stated liquidation preference of the Series A Preferred
Securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available in respect of this Guarantee Agreement
including the giving of directions to the General Partner or the Special
Representative as the case may be; and (v) if the General Partner or Special
Representative fails to enforce this Guarantee Agreement as above provided, any
Holder may institute a legal proceeding directly against the Guarantor to
enforce its rights under this Guarantee Agreement, without first instituting a
legal proceeding against the Partnership or any other person or entity.

SECTION 2.05. This is a guarantee of payment and not of collection. A
Holder or the Special Representative may enforce this Guarantee Agreement
directly against the Guarantor, and the Guarantor will waive any right or
remedy to require that any action be brought against the Partnership or any
other person or entity before proceeding against the Guarantor. The Guarantor
agrees that this Guarantee Agreement shall not be discharged except by payment
<PAGE>
of the Guarantee Payments in full (to the extent not paid by the Partnership)
and by complete performance of all obligations of the Guarantor contained in
this Guarantee Agreement.

SECTION 2.06. The Guarantor will be subrogated to all rights of the
Holders against the Partnership in respect of any amounts paid to the Holders
by the Guarantor under this Guarantee Agreement and shall have the right to
waive payment by the Partnership of any amount of distributions in respect of
which payment has been made to the Holders pursuant to Section 2.01 hereof;
provided, however, that the Guarantor shall not (except to the extent required
by mandatory provisions of law) exercise any rights which it may acquire by way
of subrogation or any indemnity, reimbursement or other agreement, in all cases
as a result of a payment under this Guarantee Agreement, if, at the time of any
such payment, any amounts remain due and unpaid under this Guarantee Agreement.
If any amount shall be paid to the Guarantor in violation of the preceding
sentence, the Guarantor agrees to pay over such amount to the Holders.

SECTION 2.07. The Guarantor acknowledges that its obligations hereunder
are independent of the obligations of the Partnership with respect to the
Series A Preferred Securities and that the Guarantor shall be liable as
principal and sole debtor hereunder to make Guarantee Payments pursuant to the
terms of this Guarantee Agreement notwithstanding the occurrence of any event
referred to in subsections (a) through (f), inclusive, of Section 2.03 hereof.

ARTICLE III

SECTION 3.01. So long as any Series A Preferred Securities remain
outstanding, the Guarantor shall not declare or pay any dividend on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any shares of
its capital stock (i) during any Extension Period, (ii) if at such time the
Guarantor shall be in default with respect to its payment or other obligations
hereunder or (iii) there shall have occurred and is continuing any event that,
with the giving of notice or the lapse of time or both, would constitute an
Event of Default under the Indenture. The Guarantor shall take all actions
necessary to ensure the compliance of its subsidiaries with this Section 3.01.

SECTION 3.02. So long as any Series A Preferred Securities are
outstanding, the Guarantor agrees to maintain its corporate existence; provided
that the Guarantor may consolidate with or merge with or into, or sell, convey,
transfer or lease all or substantially all of its assets (either in one
transaction or a series of transactions) to, any person, corporation,
partnership, limited liability company, joint venture association, joint stock
company, trust or unincorporated association if such entity formed by or
surviving such consolidation or merger or to which such sale, conveyance,
transfer or lease shall have been made, if other than the Guarantor, (i) is
organized and existing under the laws of the United States of America or any
state thereof or the District of Columbia, and (ii) shall expressly assume all
the obligations of the Guarantor under this Agreement.

SECTION 3.03. This Guarantee Agreement will constitute an unsecured
obligation of the Guarantor and will rank subordinate and junior in right of
payment to all general liabilities of the Guarantor.

ARTICLE IV

<PAGE>
This Guarantee Agreement shall terminate and be of no further force and
effect upon full payment of the Redemption Price of all Series A Preferred
Securities or upon full payment of the amounts payable to the Holders upon
liquidation of the Partnership; provided, however, that this Guarantee
Agreement shall continue to be effective or shall be reinstated, as the case
may be, if at any time any Holder must restore payments of any sums paid under
the Series A Preferred Securities or under this Guarantee Agreement for any
reason whatsoever.
ARTICLE V

SECTION 5.01. All guarantees and agreements contained in this Guarantee
Agreement shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders.
Except as provided in Section 3.02 hereof, the Guarantor may not assign its
obligations hereunder without the prior approval of the Holders of not less
than 66 2/3% of the aggregate stated liquidation preference of all Series A
Preferred Securities then outstanding.

SECTION 5.02. This Guarantee Agreement may only be amended by a written
instrument executed by the Guarantor; provided that, so long as any of the
Series A Preferred Securities remain outstanding, any such amendment that
adversely affects the holders of Series A Preferred Securities, any termination
of this Guarantee Agreement and any waiver of compliance with any covenant
hereunder shall be effected only with the prior approval of the Holders of not
less than 66 2/3% of the aggregate liquidation preference of all Series A
Preferred Securities then outstanding.

SECTION 5.03. All notices, requests or other communications required or
permitted to be given hereunder to the Guarantor shall be deemed given if in
writing and delivered personally or by recognized overnight courier or express
mail service or by facsimile transmission (confirmed in writing) or by
registered or certified mail (return receipt requested), addressed to the
Guarantor at the following address (or at such other address as shall be
specified by notice to the Holders):
Public Service Electric and Gas Company
80 Park Plaza, T6B
P.O. Box 570
Newark, New Jersey 07101

Facsimile No.: (201) 624-8964
Attention: Treasurer
All notices, requests or other communications required or permitted to be
given hereunder to the Holders shall be deemed given if in writing and
delivered by the Guarantor in the same manner as notices sent by the
Partnership to the Holders.

SECTION 5.04. This Guarantee Agreement is solely for the benefit of the
Holders and is not separately transferable from the Series A Preferred
Securities.

SECTION 5.05. THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY WITHOUT
GIVING EFFECT TO CONFLICT OF LAW PRINCIPLES THEREOF.

<PAGE>
THIS GUARANTEE AGREEMENT is executed as of the day and year first above
written.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
By:_____________________________________
Name:
Title:

<PAGE>

EXHIBIT 5
Public Service Electric and Gas Company
80 Park Plaza
Newark, NJ 07101

October 6, 1994

Securities and Exchange Commission 450 Fifth Street, N.W. Judiciary Plaza
Washington, DC 20549

Re: $210,000,000 of Preferred Securities
of Public Service Electric and Gas Capital, L.P.

Ladies and Gentlemen:

I am General Corporate Counsel of Public Service Electric and Gas
Company (the "Company") and in that capacity, have represented the Company in
connection with the proposed issuance from time to time by Public Service
Electric and Gas Capital, L.P., a New Jersey limited partnership ("Public
Service Capital"), of $210,000,000 stated liquidation preference of Cumulative
Monthly Preferred Securities (the "Preferred Securities"), representing limited
partner interests (the "Preferred Partner Interests") and the execution and
delivery by the Company of one or more Payment and Guaranty Agreements (the
"Guarantees") and the issuance of one or more series of Subordinated Debentures
(the "Subordinated Debentures") in connection therewith and the registration of
the Preferred Securities, the Guarantees and the Subordinated Debentures under
the Securities Act of 1933, as amended. The Subordinated Debentures will be
issued under an Indenture (the "Indenture") between the Company and First
Fidelity Bank, National Association, as trustee.

For purposes of giving the opinions hereinafter set forth, I have
examined the originals or copies of the following:

(a) the Certificate of Limited Partnership of the Partnership, dated
as of September 30, 1994 (the "Partnership Certificate"), as filed in the
office of the Secretary of State of the State of New Jersey (the "Secretary of
State") on September 30, 1994;

(b) the Agreement of Limited Partnership of the Partnership, dated as
of September 30, 1994;

(c) the registration statement (the "Registration Statement") on Form
S-3, including a related prospectus (the "Prospectus") and a prospectus
supplement, filed by the Company, and Public Service Capital with the
<PAGE>
Securities and Exchange Commission with respect to the Preferred Securities,
the Guarantees and the Subordinated Debentures;

(d) a form of Amended and Restated Limited Partnership Agreement of
the Partnership, attached as an exhibit to the Registration Statement (the
"Agreement"); and

(e) a form of Action of Public Service Capital relating to the
Preferred Partner Interests (the "Action").

The Agreement as amended and supplemented by the Action, is
hereinafter referred to as the "LP Agreement." Initially capitalized terms
used herein and not otherwise defined are used as defined in the LP Agreement.

The opinions expressed below are based on the following assumptions:

(a) the Registration Statement will become effective;

(b) the proposed transactions are carried out on the basis set forth
in the Registration Statement and in conformity with the authorizations,
approvals, consents or exemptions under the securities laws of various states
and other jurisdictions of the United States;

(i) the general partner of Public Service Capital will
authorize the issuance of, and determine the terms of, such series of Preferred
Securities;

(ii) the Indenture will have been executed and delivered by
the Company and the Board of Directors of the Company or a committee thereof
will have authorized the issuance of, and established the terms of, the series
of the Subordinated Debentures related to such series of Preferred Securities;

(iii) the Guarantee related to such series of Preferred
Securities will be executed and delivered by the Company in accordance with
appropriate resolutions of the Board of Directors of the Company or a committee
thereof;

(d) the Indenture will be qualified in accordance with the provisions
of the Trust Indenture Act of 1939, as amended;

(e) with respect to all documents examined by me, (i) the
authenticity of all documents submitted to me as authentic originals, (ii) the
conformity with the originals of all documents submitted to me as copies or
forms, and (iii) the genuineness of all signatures; and

(f) (i) the due authorization, execution and delivery by all parties
thereto of all documents examined by me, (ii) the receipt by each Preferred
Partner of a Certificate and the payment for the Preferred Partner Interests
acquired by it, in accordance with the LP Agreement and (iii) that the
Preferred Partner Interests are issued and sold to the Preferred Partners in
accordance with the Registration Statement and the LP Agreement.

<PAGE>
Based upon the foregoing, and upon my examination of such questions of
law and statutes of the State of New Jersey as I have considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
exceptions set forth herein, I am of the opinion that:

1. The Partnership has been duly formed and is validly existing in
good standing as a limited partnership under the laws of the State of New
Jersey.

2. Assuming that the Preferred Partners, as limited partners of the
Partnership, do not participate in the control of the business of the
Partnership, upon issuance and payment as contemplated by the LP Agreement, the
Preferred Partner Interests will represent valid and, subject to the
qualifications set forth herein, will be fully paid and nonassessable limited
partner interests in the Partnership, as to which the Preferred Partners, as
limited partners of the Partnership, will have no liability in excess of their
obligations to make payments provided for in the LP Agreement and their share
of the Partnership's assets and undistributed profits (subject to the
obligation of a Preferred Partner to repay any funds wrongfully distributed to
it).

3. There are no provisions in the LP Agreement the inclusion of
which, subject to the terms and conditions therein, or, assuming that the
Preferred Partners, as limited partners of the Partnership, take no action
other than actions permitted by the LP Agreement, the exercise of which, in
accordance with the terms and conditions therein, would cause the Preferred
Partners as limited partners of the Partnership, to be deemed to be
participating in the control of the business of the Partnership.

4. When properly executed, authenticated, delivered and paid for as
provided in the Indenture, the Subordinated Debentures will be legally issued,
valid and binding obligations of the Company.

5. When executed and delivered by the Company, the Guarantees will
be valid and binding obligations of the Company.

This opinion is limited to the laws of the State of New Jersey
(excluding the securities laws) and of the United States, and I have not
considered and express no opinion on the laws of any other jurisdiction.

I consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to me under the heading "Legal
Matters" in the Prospectus included in the Registration Statement.

Very truly yours,

/s/JAMES T. FORAN
JAMES T. FORAN
General Corporate Counsel

<PAGE>

EXHIBIT 8

Ballard Spahr Andrews & Ingersoll
1735 Market Street
Philadelphia, PA 19103

October 6, 1994

Public Service Electric
and Gas Company 80 Park Plaza Newark, NJ 07101-1171

Ladies and Gentlemen:

We have acted as special tax counsel to you (the "Company") in
connection with the registration of $210,000,000 stated liquidation preference
of Cumulative Monthly Income Preferred Securities of Public Service Electric
and Gas Capital, L.P., a New Jersey limited partnership, and the related
Guarantees and Subordinated Debentures of the Company, and hereby confirm to
you our opinion as set forth under the heading "United States Taxation" in the
Prospectus Supplement included in the Registration Statement.

Very truly yours,

/s/BALLARD SPAHR ANDREWS & INGERSOLL
BALLARD SPAHR ANDREWS & INGERSOLL

<PAGE>
EXHIBIT 23-1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in this Registration Statement of
Public Service Electric and Gas Company and Public Service Electric and Gas
Capital, L.P. on Form S-3 of the report of Deloitte & Touche dated February 18,
1994, appearing in and incorporated by reference in the Annual Report on Form
10-K of Public Service Electric and Gas Company for the year ended December 31,
1993 and to the reference to Deloitte & Touche under the heading "Experts" in
the Prospectus, which is part of this Registration Statement.

/s/DELOITTE & TOUCHE
DELOITTE & TOUCHE, LLP Parsippany, New Jersey

October 6, 1994

<PAGE>

EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM T-1

STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE

CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2)

FIRST FIDELITY BANK, NATIONAL ASSOCIATION
(Name of Trustee)

22-1147033
(Jurisdiction of Incorporation or (I.R.S. Employer
Organization if not a U. S. Bank) Identification No.)

175 West Broadway, Salem, New Jersey 08079
(Address of Principal Executive Offices) (Zip Code)

PUBLIC SERVICE ELECTRIC AND GAS COMPANY
(Name of Obligor)

NEW JERSEY 22-1212800
(State of Incorporation) (I.R.S. Employer
Identification No.)

80 PARK PLAZA, P.O. BOX 570, NEWARK, NEW JERSEY 07101
(Address of Principal Executive Offices) (Zip Code)

__% DEFFERRABLE INTEREST SUBORDINATED DEBENTURES
SERIES A
(Title of Indenture Securities)

<PAGE>
1. General information.

Furnish the following information as to the trustee:

(a) Name and address of each examining or supervisory authority to which
it is subject:

Comptroller of the Currency
United States Department of the Treasury
Washington, D.C. 20219

Board of Governors of the Federal Reserve System
Washington, D.C.

Federal Deposit Insurance Corporation
Washington, D.C. 20429

(b) Whether it is authorized to exercise corporate trust powers.

Yes.

2. Affiliations with obligor.

If the obligor is an affiliate of the trustee, describe each such
affiliation.

None.

3. List of Exhibits.

List below all exhibits filed as part of this statement of eligibility.

1. Copy of Articles of Association of the trustee as now in effect.
Incorporated herein by reference to Exhibit 1 filed with Form T-1, Registration
No. 22-73340.

2. Copy of Certificate of the Comptroller of the Currency dated January
11, 1994, evidencing the authority of the trustee to transact business.
Incorporated herein by reference to Exhibit 2 filed with Form T-1,
Registration No. 22-73340.
<PAGE>

3. Copy of the authorization of the trustee to exercise corporate trust
powers has heretofore been filed with the Securities and Exchange Commission as
Exhibit 3 filed with Form T-1, Registration Number 22-73340, has not been
amended since filing and is incorporated herein by reference.

4. Copy of existing by-laws of the trustee. Incorporated herein by
reference to Exhibit 4 filed with Form T-1, Registration No. 22-73340.

5. Copy of each indenture if the obligor is in default.

Not applicable.

6. Consent of the trustee required by Section 321(b) of the Act.
Incorporated herein by reference to Exhibit 6 filed with Form T-1, Registration
No. 22- 73340.

7. Copy of report of condition of the trustee at the close of business on
June 30, 1994, published pursuant to the requirements of its supervising
authority.

NOTE

The trustee disclaims responsibility for the accuracy or completeness of
information contained in this Statement of Eligibility and Qualification not
known to the trustee and not obtainable by it through reasonable investigation
and as to such information it has obtained from the obligor and has had to rely
or will obtain from the principal underwriters and will have to rely.

SIGNATURE

Pursuant to the requirements of the Trust Indenture Act of 1939 (as
amended), the trustee, First Fidelity Bank, National Association, a national
banking association organized and existing under the laws of the United States
of America, has duly caused this Statement of Eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of Newark
and State of New Jersey on the 6th day of October, 1994.

FIRST FIDELITY BANK, NATIONAL
ASSOCIATION

By: /s/ Diane Dowdell
-----------------
Diane Dowdell
Corporate Trust Officer
(Form T1)
(Ford) (8)
<PAGE>
EXHIBIT T-7
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of the First Fidelity Bank,
National Association of Salem in the state of New Jersey, at the close of
business on June 30, 1994, published in response to call made by Comptroller of
the Currency, under title 12, United States Code, Section 161. Charter Number
33869 Comptroller of the Currency Northeastern District. Statement of Resources
and Liabilities
ASSETS
Thousand of Dollars
Cash and balance due from depository institutions:
Noninterest-bearing balances and currency and coin......... 1,515,147
Interest-bearing balances.................................. 439,530
Securities................................................... /////////
Hold-to-maturity securities................................ 3,418,048
Available-for-sale securities.............................. 2,832,519
Federal funds sold and securities purchased under agreements //////////
to resell in domestic offices of the bank and of it //////////
Edge and Agreement subsidiaries, and in IBFs: //////////
Federal funds sold..................................... 558,540
Securities purchased under agreements to resell........ 276,261
Loans and lease financing receivables:
Loan and leases, net of unearned income......18,542,773
LESS: Allowance for loan and lease losses.......515,420
LESS: Allocated transfer risk reserve.................0
Loans and leases, net of unearned income, allowance, and
reserve................................................. 18,027,353
Assets held in trading accounts............................... 161,733
Premises and fixed assets (including capitalized leases)...... 337,978
Other real estate owned....................................... 135,958
Investment in unconsolidated subsidiaries and associated //////////
companies..................................................... 11,646
Customer's liability to this bank on acceptances outstanding... 194,720
Intangible assets............................................. 291,235
Other assets.................................................. 482,637
Total assets.................................................. 28,683,305
LIABILITIES
Deposits:
In domestic offices..................................... 22,688,126
Noninterest-bearing..........................4,564,800
Interest-bearing............................18,123,326
In foreign offices, Edge and Agreement subsidiaries,
and IBFs................................................ 713,517
Noninterest-bearing.............................15,866
Interest-bearing...............................697,651
Federal funds purchased and securities sold under agreements
to repurchase in domestic offices of the bank and of its
Edge and Agreement subsidiaries, and IBFs
Federal fund purchased.................................. 861,993
Securities sold under agreements to repurchase.......... 1,091,313
Demand notes issued to the U.S. Treasury...................... 0
Trading liabilities........................................... 0
Other borrowed money:......................................... /////////
With original maturity of one year or less.............. 390
With original maturity of more than one year............ 740
Mortgage indebtedness and obligations under capitalized leases 7,009
Bank's liability on acceptances executed and outstanding..... 197,334
Subordinated notes and debentures............................ 175,000
Other liabilities............................................ 422,642
Total liabilities............................................ 26,158,064
Limited-life preferred stock and related surplus............. 0
EQUITY CAPITAL
Perpetual preferred stock and related surplus................. 0
Common Stock.................................................. 430,000
Surplus....................................................... 985,034
Undivided profits and capital reserves........................ 1,138,808
Net unrealized holding gains (losses) on available-for-sale /////////
securities................................................... (28,601)
Cumulative foreign currency translation adjustments........... 0
Total equity capital.......................................... 2,525,241
Total liabilities, limited-life preferred stock and equity.... //////////
capital..................................................... 28,683,305
4

<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from Form
10-Q and Form 10-K and is qualified in its entirety by reference to such
financial statements. The referenced financial statements from Form 10-Q
are unaudited but, in the opinion of PSE&G's management, reflect all
adjustments, consisting only of normal recurring accruals.
</LEGEND>
<CIK> 0000081033
<NAME> PUBLIC SERVICE ELECTRIC AND GAS COMPANY
<MULTIPLIER> 1000

<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1993
<PERIOD-START> JAN-01-1994 JAN-01-1994
<PERIOD-END> JUN-30-1994 DEC-31-1994
<BOOK-VALUE> PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 10891018 10804380
<OTHER-PROPERTY-AND-INVEST> 382137 332205
<TOTAL-CURRENT-ASSETS> 1469540 1392797
<TOTAL-DEFERRED-CHARGES> 1631952 1430424
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 14374647 13959806
<COMMON> 2563003 2563003
<CAPITAL-SURPLUS-PAID-IN> 534395 534395
<RETAINED-EARNINGS> 1254553 1180532
<TOTAL-COMMON-STOCKHOLDERS-EQ> 4351951 4277930
150000 150000
459994 429994
<LONG-TERM-DEBT-NET> 4544509 4364437
<SHORT-TERM-NOTES> 0 0
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 671995 532728
<LONG-TERM-DEBT-CURRENT-PORT> 355173 62274
0 0
<CAPITAL-LEASE-OBLIGATIONS> 52216 52530
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3788809 4089913
<TOT-CAPITALIZATION-AND-LIAB> 14374647 13959806
<GROSS-OPERATING-REVENUE> 2871622 5287424
<INCOME-TAX-EXPENSE> 180763<F1> 307414<F2>
<OTHER-OPERATING-EXPENSES> 2170085 3995769
<TOTAL-OPERATING-EXPENSES> 2348384 4305839
<OPERATING-INCOME-LOSS> 523238 981585
<OTHER-INCOME-NET> 6158 8424
<INCOME-BEFORE-INTEREST-EXPEN> 529396 990009
<TOTAL-INTEREST-EXPENSE> 190819 389956
<NET-INCOME> 349552 614868
20424 38114
<EARNINGS-AVAILABLE-FOR-COMM> 329128 576754
<COMMON-STOCK-DIVIDENDS> 253900 493200
<TOTAL-INTEREST-ON-BONDS> 180841 364252
<CASH-FLOW-OPERATIONS> 166036 811080
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
<CAPTION>
<F1>State Income Taxes $991 and Federal Income Taxes and Federal Income Taxes
for Other Income $2,464 were incorporated into this line item for FDS purposes.
In the financial statements, State Income Taxes were included under Taxes -
Other and Federal Income Taxes for Other Income were included in Other Income -
Miscellaneous.
<F2>State Income Taxes of $1,280 and Federal Income Taxes for Other Income of
($2,656) were incorporated into this line item for FDS purposes. In the
referenced financial statements, State Income Taxes are included in Taxes -
Other and Federal Income Taxes are included in Other Income - Miscellaneous.
</FN>

</TABLE>