PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED DEFERRED COMPENSATION PLAN FOR DIRECTORS

(a)

An individual who serves as a Director and is not otherwise employed by the Company or any of its subsidiaries shall be eligible to participate in the Plan if he or she elects to have payment of his or her annual retainer, his or her fees or his or her annual retainer and fees in respect of a Plan Period deferred as provided herein.

(b)

All elections to defer must be made in the calendar year prior to the year that the services giving rise to the compensation are performed. The election shall be made by written notice to the Plan filed with the Company’s Secretary prior to the first day of such Plan Period or, in the case of a Director who first becomes eligible during a Plan Period, not later than 30 days after he or she first becomes eligible. Except as otherwise provided herein, each such election shall be irrevocable.

(c)

Special One-Time Election to Rescind 2005 Deferrals – Not later than December 30, 2005, Participants who had elected to defer compensation during 2005 may, by written notice, the form of which shall be designated and published by the Committee, rescind his/her election to defer 2005 compensation and such amounts shall be currently paid to the Participant.

(d)

Special One-Time Election to Change Distribution Elections with respect to 2005, 2006, 2007 or 2008 Deferrals – Not later than December 31, 2008, Participants who had elected to defer compensation during 2005, 2006, 2007 or 2008 may, by

written notice in a form approved by the Committee, elect to change the distribution elections with respect to any such deferrals.

(a)

An account shall be established for each eligible electing Director (a “Participant”) which shall be designated as his or her Deferred Compensation Account. If a Participant elects to have payment deferred of his or her annual retainer, the amount of the annual retainer payable to him or her with respect to a Plan Period shall be credited, in four equal installments on or about the last day of March, June, September and December in the Plan Period to which such retainer relates, to his or her Deferred Compensation Account, subject to the provisions of Section 5(c). If a Participant elects to have payment deferred of his or her fees, the amount of each fee payable to him or her for attendance at a meeting during a Plan Period shall be credited to his or her Deferred Compensation Account on or about the first business day following such meeting. The Company shall not be required to segregate any amounts credited to the Deferred Compensation Accounts, which shall be established merely as an accounting convenience. Amounts credited to the Deferred Compensation Accounts shall at all times remain solely the property of the Company subject to the claims of its general creditors and available for the Company’s use for whatever purpose desired.

(b)

A Director, except a Director not actively serving on the Board on April 1, 2000, may direct investment of his or her Account among the Investment Funds (hereinafter defined) (in the manner established by the Committee) in multiples of one percent; provided, however, that the Committee shall not be obligated to effectuate any such investment direction. The amounts credited to a Deferred Compensation Account shall accrue earnings credits as determined by the Investment Fund(s) selected by the Director. In the case of (i) Director not actively serving on the Board on April 1, 2000 and (ii) a Director who fails to provide a designation of Investment Funds, each such Director shall be deemed to have designated 100 percent of his or her Account to be invested in the Investment Fund that determines income accrual with reference to the prime commercial lending rate of JPMorgan Chase Bank (formerly, the Chase Manhattan Bank). Except with respect to an investment election related to (a) an election made within 30 days of April 1, 2000 and (b) any Investment Fund which is discontinued during a Plan Year, each of which shall be effective immediately, a Director’s investment election may be changed annually and will be effective from January 1 of the Plan Year next following receipt of the Director’s investment election form.

Each Director’s Account shall be credited with a rate of return on the last day of March, June, September and December equal to the rate of return experienced by the Investment Fund selected by the Director for the same period. The fair market

value of each Investment Fund shall be determined by the Committee and shall represent the fair market value of all securities and other property held by the Investment Fund.

(c)

‘Investment Fund’ - the fund or funds selected by the Committee from time to time and included in Schedule C of the Plan which shall serve as a means of measuring the increase or decrease of each Director’s Account. The Committee may, in its discretion, add or discontinue any Investment Fund available under the Plan. The Committee shall provide each affected Director with the opportunity, without limiting or otherwise impairing any other right of such Director regarding changes in investment directions, to redirect the allocation of his or her Account invested in any discontinued Investment Fund among the other Investment Funds available under the Plan, including any replacement investment vehicle.

(d)

If, prior to the end of a Plan Period, a Participant becomes an employee of the Company or one of its subsidiaries or dies or ceases for any reason to be a Director, or if the effective date of participation by a Participant for any Plan Period shall be other than the first day thereof, he or she will be entitled to be credited with that proportion of the annual retainer for the full Plan Period which the number of days of his or her participation in the Plan during such Plan Period bears to the total number of days in such Plan Period.

          6. PAYMENT.

(a)

Following termination of a Participant’s service on the Board, the Company shall distribute his or her Deferred Compensation Account.

(b)

By written notice to the Plan filed with the Company’s Secretary, a Participant may elect to have distribution of his or her Deferred Compensation Account commence either (1) on the 30th day following the date of termination of the Participant’s service on the Board, (2) on the 15 ^th day of January next following the date of termination of the Participant’s service on the Board or (3) on the 15 ^th day of January of any calendar year following termination of the Participant’s service on the Board, but not later than the January following the Participant’s 71st birthday, unless the Participant is still a Director at such time, in which case distribution shall commence on the 30 ^th day following the date the Participant ceases to be a Director. Any such election, or any change in such election (by such subsequent written notice to the Secretary of the Company), shall apply only to future deferrals. In the event no election is made as to the commencement of distribution, such distribution shall commence on the 30th day following the date the Participant ceases to be a Director of the Company.

(c)

By written notice to the Plan filed with the Company’s Secretary, a Participant may elect to receive the distribution of his or her Deferred Compensation Account in the form of (1) one lump-sum payment, or (2) annual distributions over a

period selected by the Participant of up to ten years. In the event a lump-sum payment is made under the Plan, the amount then standing to the Participant’s credit in his or her Deferred Compensation Account, including earnings credits provided in Section 5(b) to the date of distribution, shall be paid to the Participant on the date determined under Section 6(b). In the case of a distribution over a period of years, the Company shall pay to the Participant, commencing on the date determined under Section 6(b), annual installments from the amount then standing to his or her credit in his or her Deferred Compensation Account, including earnings credits on the unpaid balance at the rate provided in Section 5(b) to the date of distribution. The amount of each installment shall be determined by dividing the then unpaid balance, plus earnings credits, in the Participant’s Deferred Compensation Account by the number of installments remaining to be paid. If a Participant does not make an election as to the manner of distribution of his or her Deferred Compensation Account, such distribution shall be made in the form of annual installments paid over a five-year period.

(d)

The payment of all distributions shall be made in money by check, except that the portion of a Participant’s Deferred Compensation Account that is allocated to the Investment Fund based upon the performance of this Corporation’s common stock may elect to receive distributions with respect to that portion of his/her Deferred Compensation Account in shares of common stock. Any amounts related to fractional shares shall be paid in money by check.

(e)

In the event of a Participant’s death, the balance of the Participant’s Deferred Compensation Account shall be distributed to the Participant’s Beneficiary(ies) in annual installments over a period of not more than five years, in accordance with the Participant’s election on Schedule B to the Plan filed with the Secretary of the Company. Any change in the period over which such payments are made shall only apply to future deferrals. Such distribution shall be made in a manner consistent with Section 6(c) of the Plan and shall commence on the 30th day following the Participant’s death. Additional annual payments for distributions made over a period of more than one year shall be made on the yearly anniversaries of such date. In the event of a Participant’s death after distribution of this Deferred Compensation Account has commenced, any election under this Section 6(d) shall not extend the time of payment of his or her Deferred Compensation Account beyond the time when distribution would have been completed if the Participant had lived. A Participant may change Beneficiary designations by filing a subsequent Schedule B with the Secretary of the Company. If a Participant does not make an election as to the manner of distribution of his or her Deferred Compensation Account in the event of his or her death, any such distribution shall be made as a lump-sum payment to his or her estate on the 30th day following the Participant’s death.

(f)

Participants may, (i) by notice filed with the Company prior to December 31 ^st of any year, make changes of distribution elections on a prospective basis; (ii) by

notice filed with the Company, make changes of distribution elections with respect to prior deferred compensation as long (A) any such new distribution election is made at least one year prior to the date that the commencement of the distribution would otherwise have occurred and (B) the revised commencement date is at least five years later than the date that the commencement of the distribution would otherwise have occurred; (iii) Special One-Time Election - by notice filed with the Company prior to December 31, 2005, make a one-time election to change any distribution election previously made with respect to compensation deferred on or before December 31, 2005; (iv) Special One-Time Election - Participants may, by notice filed with the Company prior to December 31, 2008, make a one-time election to change any distribution election previously made with respect to compensation deferred during 2005, 2006, 2007 or 2008.

(g)

Notwithstanding any other provision of the Plan, if the Committee shall dete