BGS BONDABLE TRANSITION PROPERTY SERVICING AGREEMENT

Transition Agreement

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Title: BGS BONDABLE TRANSITION PROPERTY SERVICING AGREEMENT
Governing Law: New Jersey Date: 10/7/2005

Exhibit 10.2

BGS BONDABLE TRANSITION PROPERTY SERVICING AGREEMENT

between

PSE&G TRANSITION FUNDING II LLC

Issuer

and

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

Servicer

Dated as of September 23, 2005

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TABLE OF CONTENTS

Page

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ARTICLE I Definitions............................................................................................1

Section 1.01. Definitions...............................................................................1

Section 1.02. Other Definitional Provisions.............................................................1

ARTICLE II Appointment and Authorization of Servicer.............................................................2

Section 2.01. Appointment of Servicer; Acceptance of Appointment........................................2

Section 2.02. Authorization.............................................................................2

Section 2.03. Dominion and Control over Transferred BGS Bondable Transition Property....................2

ARTICLE III Billing Services.....................................................................................3

Section 3.01. Duties of Servicer........................................................................3

Section 3.02. Collection and Allocation of the BGS Transition Bond Charge...............................4

Section 3.03. Payment of TBC Collections................................................................4

Section 3.04. Servicing and Maintenance Standards.......................................................6

Section 3.05. Servicer's Certificates...................................................................7

Section 3.06. Annual Statement as to Compliance.........................................................7

Section 3.07. Annual Independent Certified Public Accountants' Report...................................7

Section 3.08. BGS Bondable Transition Property Documentation............................................8

Section 3.09. Computer Records; Audits of Documentation.................................................8

Section 3.10. Defending Transferred BGS Bondable Transition Property Against Claims.....................9

Section 3.11. Opinions of Counsel.......................................................................9

ARTICLE IV Services Related to BGS Transition Bond Charge Adjustments...........................................10

Section 4.01. BGS Transition Bond Charge Adjustments...................................................10

ARTICLE V The Servicer..........................................................................................10

Section 5.01. Representations and Warranties of Servicer...............................................10

Section 5.02. Indemnities of Servicer; Release of Claims...............................................12

Section 5.03. Merger or Consolidation of, or Assumption of the Obligations of, Servicer................14

Section 5.04. Assignment of Servicer's Obligations.....................................................15

Section 5.05. Limitation on Liability of Servicer and Others...........................................15

Section 5.06. PSE&G Not To Resign as Servicer..........................................................16

Section 5.07. Monthly Servicing Fee....................................................................16

Section 5.08. Servicer Expenses........................................................................16

Section 5.09. Subservicing.............................................................................16

Section 5.10. No Servicer Advances.....................................................................17

Section 5.11. Remittances..............................................................................17

Section 5.12. Protection of Title......................................................................17

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TABLE OF CONTENTS

(continued)

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ARTICLE VI Servicer Default.....................................................................................18

Section 6.01. Servicer Default.........................................................................18

Section 6.02. Notice of Servicer Default...............................................................19

Section 6.03. Waiver of Past Defaults..................................................................19

Section 6.04. Appointment of Successor.................................................................19

Section 6.05. Cooperation with Successor...............................................................20

ARTICLE VII Miscellaneous Provisions............................................................................20

Section 7.01. Amendment................................................................................20

Section 7.02. Notices..................................................................................22

Section 7.03. Limitations on Rights of Others..........................................................22

Section 7.04. Severability.............................................................................22

Section 7.05. Separate Counterparts....................................................................23

Section 7.06. Headings.................................................................................23

Section 7.07. GOVERNING LAW............................................................................23

Section 7.08. Assignment to the Trustee................................................................23

Section 7.09. Nonpetition Covenants....................................................................23

Section 7.10. Termination..............................................................................23

ANNEX 1 TBC Adjustment Process and Reports--

PSE&G Transition Funding II LLC

APPENDIX A Master Definitions

EXHIBIT A Servicing Procedures

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BGS BONDABLE TRANSITION PROPERTY SERVICING AGREEMENT, dated as of

September 23, 2005, by and between PSE&G TRANSITION FUNDING II LLC, a Delaware

limited liability company, as issuer (the "Issuer"), and PUBLIC SERVICE

ELECTRIC AND GAS COMPANY, a New Jersey corporation ("PSE&G"), as the servicer

of the BGS Bondable Transition Property hereunder (together with each

successor to PSE&G (in the same capacity) pursuant to Section 5.03, 5.04 or

6.04, the "Servicer").

W I T N E S S E T H:

WHEREAS the Servicer is willing to service the Transferred BGS

Bondable Transition Property purchased from the Seller by the Issuer; and

WHEREAS the Issuer, in connection with ownership of Transferred BGS

Bondable Transition Property, desires to engage the Servicer to carry out the

functions described herein.

NOW, THEREFORE, in consideration of the premises and the mutual

covenants herein contained and other good and valuable consideration, the

receipt and sufficiency of which are hereby acknowledged, and intending to be

legally bound hereby, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01. Definitions. Capitalized terms used but not otherwise

defined herein have the meanings assigned to them in Appendix A hereto.

Section 1.02. Other Definitional Provisions.

(a) "Agreement" means this BGS Bondable Transition Property Servicing

Agreement, as the same may be amended, supplemented or otherwise modified from

time to time.

(b) Non-capitalized terms used herein which are defined in the

Competition Act, as the context requires, have the meanings assigned to such

terms in the Competition Act, but without giving effect to amendments to the

Competition Act after the date hereof which have a material adverse effect on

the Issuer or the BGS Transition Bondholders.

when used in any certificate or other document made or delivered pursuant

hereto unless otherwise defined therein.

(d) The words "hereof", "herein", "hereunder" and words of similar

import when used in this Agreement shall refer to this Agreement as a whole

and not to any particular provision of this Agreement; Section, Annex,

Schedule and Exhibit references contained in this Agreement are references to

Sections, Annexes, Schedules and Exhibits in or to this Agreement unless

otherwise specified; and the term "including" shall mean "including without

limitation".

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(e) The definitions contained in this Agreement are applicable to the

singular as well as the plural forms of such terms.

ARTICLE II

APPOINTMENT AND AUTHORIZATION OF SERVICER

Section 2.01. Appointment of Servicer; Acceptance of Appointment.

Subject to Section 5.06 and Article VI, the Issuer hereby appoints the

Servicer, and the Servicer hereby accepts such appointment, to perform the

Servicer's obligations pursuant to this Agreement on behalf of and for the

benefit of the Issuer in accordance with the terms of this Agreement. This

appointment and the Servicer's acceptance thereof may not be revoked except in

accordance with the express terms of this Agreement.

Section 2.02. Authorization. With respect to all or any portion of

the Transferred BGS Bondable Transition Property, the Servicer shall be, and

hereby is, authorized and empowered by the Issuer to:

(a) execute and deliver, on behalf of itself, the Issuer, or

both, as the case may be, any and all instruments, documents or

notices, and

(b) on behalf of itself, the Issuer, or both, as the case

may be, make any filing and participate in proceedings of any kind

with any governmental authorities, including with the BPU.

The Issuer shall furnish the Servicer with such documents as have

been prepared by the Servicer for execution by the Issuer, and with such other

documents as may be in the Issuer's possession, as necessary or appropriate to

enable the Servicer to carry out its servicing and administrative duties

hereunder. Upon the written request of the Servicer, the Issuer shall furnish

the Servicer with any powers of attorney or other documents necessary or

appropriate to enable the Servicer to carry out its duties hereunder.

Section 2.03. Dominion and Control over Transferred BGS Bondable

Transition Property. Notwithstanding any other provision herein, the Servicer

and the Issuer agree that the Issuer shall have dominion and control over the

Transferred BGS Bondable Transition Property, and the Servicer, in accordance

with the terms hereof, is acting solely as the servicing agent of the Issuer

with respect to the Transferred BGS Bondable Transition Property. The Servicer

hereby agrees that it shall not take any action that is not authorized by this

Agreement, the Competition Act or the Financing Order, that is not consistent

with its customary procedures and practices, or that shall impair the rights

of the Issuer with respect to the Transferred BGS Bondable Transition

Property, in each case unless such action is required by law or court or

regulatory order.

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ARTICLE III

BILLING SERVICES

Section 3.01. Duties of Servicer. The Servicer, as agent for the

Issuer (to the extent provided herein), shall have the following duties:

(a) Duties of Servicer Generally. The Servicer will manage,

service, administer and make collections in respect of the BGS

Transition Bond Charge. The Servicer's duties will include:

(i) obtaining meter reads, calculating and billing

the BGS Transition Bond Charge in accordance with the

Financing Order and collecting (from Customers and Third

Parties, as applicable) all TBC Collections;

(ii) responding to inquiries by Customers, Third

Parties, the BPU, or any federal, local or other State

governmental authority with respect to the BGS Transition

Bond Charge;

(iii) delivering bills to customers and Third

Parties, accounting for TBC Collections, investigating and

resolving delinquencies, processing and depositing

collections, making periodic remittances and furnishing

periodic reports to the Issuer, the BPU, the Trustee and the

Rating Agencies;

(iv) selling, as the agent for the Issuer, as its

interest may appear, defaulted or written off accounts in

accordance with the Servicer's usual and customary practices

for accounts of its own electric service customers; and

(v) taking action in connection with BGS Transition

Bond Charge Adjustments as is set forth herein.

Anything to the contrary notwithstanding, the duties of the

Servicer set forth in this Agreement shall be qualified in their

entirety by the Competition Act, the Financing Order and any BPU

Regulations, as in effect at the time such duties are to be

performed. Without limiting the generality of this Section 3.01(a),

in furtherance of the foregoing, the Servicer hereby agrees that it

shall also have, and shall comply with, the duties and

responsibilities set forth in Annex 1 which, among other things,

relate to data acquisition, usage and bill calculation, billing,

customer service functions, collections, payment processing and

remittance.

(b) Notification of Laws and Regulations. The Servicer shall

immediately notify the Issuer, the BPU, the Trustee and the Rating

Agencies in writing of any laws or BPU Regulations hereafter

promulgated that have a material adverse effect on the Servicer's

ability to perform its duties under this Agreement.

Issuer, the BPU, the Trustee or any Rating Agency, the Servicer shall

provide to the Issuer, the BPU, the Trustee or the Rating Agencies,

as the case may be, any public financial information in

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respect of the Servicer, or any material information regarding the

Transferred BGS Bondable Transition Property to the extent it is

reasonably available to the Servicer, that may be reasonably

necessary and permitted by law for the Issuer, the BPU, the Trustee

or the Rating Agencies to monitor the performance by the Servicer

hereunder. In addition, so long as any of the BGS Transition Bonds of

any Series are outstanding, the Servicer shall provide to the Issuer,

the BPU and to the Trustee, within a reasonable time after written

request therefor, any information available to the Servicer or

reasonably obtainable by it that is necessary to calculate the BGS

Transition Bond Charge.

Section 3.02. Collection and Allocation of the BGS Transition Bond

Charge.

(a) The Servicer shall use all reasonable efforts, consistent with

its customary servicing procedures, to collect all amounts owed in respect of

the BGS Transition Bond Charge as and when the same shall become due and shall

follow such collection procedures as it follows with respect to collection

activities that the Servicer conducts for itself or others. The Servicer shall

not change the amount of or reschedule the due date of any scheduled payment

of the BGS Transition Bond Charge, except as contemplated in this Agreement or

as required by law or court or BPU Regulations; provided, however, that the

Servicer may take any of the foregoing actions to the extent that such action

would be in accordance with customary billing and collection practices of the

Servicer with respect to billing and collection activities that it conducts

for itself. The Servicer shall enforce the obligations of any Third Parties

providing billing and collection services with respect to the BGS Transition

Bond Charge.

(b) As specified in the Petition and the Financing Order, any amounts

received by the Servicer from a Customer that represent a partial payment

toward an outstanding balance will be applied in the following manner:

(i) to sales taxes (which the Servicer collects as trustee

for the State of New Jersey and not for its own account or for that

of the Issuer);

(ii) pro rata to the BGS Transition Bond Charge and the

Servicer's other charges and taxes, where any of such charges are in

arrears, based on their proportion to the Servicer's total charges in

arrears for that period; and

(iii) pro rata to the BGS Transition Bond Charge and the

Servicer's other charges and taxes, where any of such charges are

current charges, based on their proportion to the Servicer's total

current charges assessed for that period.

PSE&G's other charges may include gas charges which may be billed together

with electric charges, the market transition charge, the MTC-Tax and all other

charges which PSE&G and any Third Party may be authorized to bill and collect

from Customers on account of electric and gas service. If there is more than

one Series of BGS Transition Bonds, the Servicer shall allocate partial

payments among such Series, pro rata, based on the respective outstanding

amounts payable with respect to such Series.

Section 3.03. Payment of TBC Collections. (a) The Servicer shall

prepare annually a Collections Curve for each Billing Month, based on

statistically significant random sampling of actual TBC Collections. With the

exception of the Monthly Servicing Fee, which the Servicer is

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entitled to withhold from TBC Collections pursuant to Section 5.07 hereof, the

Servicer agrees to remit TBC Collections for each Billing Month to the Trustee

for deposit in the Collection Account not later than the corresponding

Reconciliation Date or Dates following such Billing Month. In addition, the

Servicer agrees to make periodic payments on account of TBC Collections to the

Trustee for deposit in the Collection Account as follows:

(i) on each Monthly Remittance Date, for so long as the

Servicer has satisfied the conditions of Section 5.11(b), the

Servicer shall remit to the Trustee for each of the seven preceding

Billing Months an amount equal to the amount of TBC Collections

estimated to have been received during the preceding calendar month,

based on the applicable Collections Curve then in effect for those

seven preceding Billing Months, and

(ii) on each Daily Remittance Date, for so long as the

Servicer has not satisfied the conditions of Section 5.11(b), the

Servicer shall remit to the Trustee for the Billing Month in which

such Daily Remittance Date occurs and for each of the six preceding

Billing Months an amount equal to the amount of TBC Collections

estimated to have been received during the Business Day which is two

Business Days preceding such Daily Remittance Date for those seven

Billing Months (including the Billing Month in which such Daily

Remittance Date occurs), including (for the first Daily Remittance

Date following a period when the Servicer had been remitting on a

monthly Remittance Date) any amounts on deposit with the Servicer

(for the Billing Month and any prior Billing Month) prior to such

Daily Remittance Date during a period when the Servicer had been

remitting on a Monthly Remittance Date, provided that,

(x) in the case of each such Billing Month other than the

Billing Month in which such Daily Remittance Date occurs,

such estimate shall be made by dividing (1) the amount of

TBC Collections estimated to be received during the calendar

month in which such Daily Remittance Date occurs ("the

current remittance month"), based on the applicable

Collections Curve then in effect, for each of those six

preceding Billing Months, divided by (2) the number of

Business Days in the current remittance month,

(y) in the case of the Billing Month in which such Daily

Remittance Date occurs, such estimate shall be made, by

first, determining the amount of TBC Collections estimated

to be received during that Billing Month, based on the

applicable Collections Curve then in effect, for each day on

which bills are sent in such Billing Month (each, a "Billing

Day"; such estimated TBC Collections during such Billing

Month for each Billing Day being the "Billing Month

Estimated Collections" for such Billing Day),

second, dividing the amount of the Billing Month Estimated

Collections for such Billing Day by the number of Business

Days remaining in such

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Billing Month (for each Billing Day, the "Daily Billing

Month Estimated Collections" for such Billing Month),

third, for each Daily Remittance Date during such Billing

Month, summing the amount of the Daily Billing Month

Estimated Collections for each Billing Day in such Billing

Month through the Business Day which is two Business Days

preceding such Daily Remittance Date, and

(z) for each Daily Remittance Date, any unremitted Daily Billing

Month Estimated Collections received in the preceding

Billing Month on a Business Day that is two Business Days

preceding such Daily Remittance Date in accordance with

subclause (y) above shall be remitted on such Daily

Remittance Date.

(b) On or before each Reconciliation Date, the Servicer shall

determine whether there exists a Curve Payment Shortfall or an Excess Curve

Payment by comparing the actual TBC Collections to the Collection Curve

Payments previously made to the Trustee in respect of (i) for each Annual

Reconciliation Date, each of the twelve Billing Months beginning 19 months

before the month in which such Reconciliation Date occurs (or from the first

Series Issuance Date, if less than 19 months have elapsed), and (ii) for each

Monthly Reconciliation Date, the Billing Month that is eight months prior to

the Billing Month in which such Reconciliation Date occurs. In the event that

there is a Curve Payment Shortfall with respect to the applicable Billing

Months or Billing Month, as the case may be, the Servicer shall pay the Curve

Payment Shortfall to the Trustee for deposit into the Collection Account on

that Reconciliation Date. In the event that there is an Excess Curve Payment

for the applicable Billing Months or Billing Month, as the case may be, the

Servicer may either (A) reduce the amount that the Servicer is required to

remit to the Trustee for deposit in the Collection Account on the following

Remittance Date (and, if necessary, succeeding Remittance Dates) by the amount

of the Excess Curve Payment, or (B) require the Trustee to pay to the Servicer

from the General Subaccount the amount of the Excess Curve Payment, which upon

payment shall become the property of the Servicer.

Collections collected by it for the benefit of the Issuer and that all amounts

will be remitted by the Servicer in accordance with this Agreement without any

surcharge, fee, offset, charge or other deduction and without making any claim

to reduce its obligation to remit all TBC Collections collected by it, except

(i) as set forth in clause (b) above, (ii) the Monthly Servicing Fee which it

may withhold pursuant to Section 5.07 hereof and (iii) late fees permitted by

Section 5.07.

Section 3.04. Servicing and Maintenance Standards. The Servicer

shall, on behalf of the Issuer:

(a) manage, service, administer and make collections in

respect of the Transferred BGS Bondable Transition Property with

reasonable care and in material compliance with applicable law,

including all applicable BPU Regulations, using the same degree of

care and diligence that the Servicer exercises with respect to

billing and collection activities that the Servicer conducts for

itself and others;6

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(b) follow standards, policies and procedures in performing

its duties as Servicer that are customary in the electric

distribution industry;

customary servicing procedures, to enforce and maintain the Issuer's

and the Trustee's rights in respect of the Transferred BGS Bondable

Transition Property; and

(d) calculate the BGS Transition Bond Charge in compliance

with the Competition Act, the Financing Order and any applicable

tariffs; and

(e) invoice Customer in accordance with the procedures set

forth in Exhibit A.

except where the failure to comply with any of the foregoing would not

materially and adversely affect the Issuer's or the Trustee's interest in the

Transferred BGS Bondable Transition Property. The Servicer shall follow such

customary and usual practices and procedures as it shall deem necessary or

advisable in its servicing of the Transferred BGS Bondable Transition

Property, which, in the Servicer's judgment, may include the taking of legal

action pursuant to Section 3.10 or otherwise. Notwithstanding the foregoing,

the Servicer shall not change its customary and usual practices and procedures

in any manner that would materially and adversely affect the Issuer's or the

Trustee's interest in the Transferred BGS Bondable Transition Property unless

it shall have provided the Rating Agencies with prior written notice.

Section 3.05. Servicer's Certificates. The Servicer will provide to

the Issuer, the BPU and to the Trustee the statements and certificates

specified in Annex 1.

Section 3.06. Annual Statement as to Compliance.

The Servicer shall deliver to the Issuer, the BPU, the Trustee and

each Rating Agency, on or before March 31 of each year beginning March 31,

2006 to and including March 31 succeeding the retiring of the BGS Transition

Bonds, an Officers' Certificate, stating that:

(a) a review of the activities of the Servicer during the

preceding calendar year (or relevant portion thereof in the case of

the first such Officer's Certificate) and of its performance under

this Agreement has been made under such officers' supervision, and

(b) to the best of such officers' knowledge, based on such

review, the Servicer has fulfilled all its obligations under this

Agreement throughout such period or, if there has been a default in

the fulfillment of any such obligation, describing each such default

and its status.

Section 3.07. Annual Independent Certified Public Accountants'

Report.

(a) The Servicer shall cause a firm of independent certified public

accountants (which may also provide other services to the Servicer or the

Seller) to prepare, and the Servicer shall deliver to the Issuer, the BPU to

the Trustee and to each Rating Agency, on or before March 31 of each year,

beginning March 31, 2006 to and including the March 31 succeeding the

retirement of all BGS Transition Bonds, a report addressed to the Servicer

(the "Annual Accountant's

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Report"), which may be included as part of the Servicer's customary auditing

activities, to the effect that such firm has performed certain procedures in

connection with the Servicer's compliance with its obligations under this

Agreement during the preceding calendar year (or, in the case of the first

Annual Accountant's Report, the period of time from the Initial Transfer Date

until December 31, 2005), identifying the results of such procedures and

including any exceptions noted. In the event such accounting firm requires the

Trustee or the Issuer to agree or consent to the procedures performed by such

firm, the Issuer shall direct the Trustee in writing to so agree; it being

understood and agreed that the Trustee will deliver such letter of agreement

or consent in conclusive reliance upon the direction of the Issuer, and the

Trustee will not make any independent inquiry or investigation as to, and

shall have no obligation or liability in respect of, the sufficiency, validity

or correctness of such procedures.

(b) The Annual Accountant's Report shall also indicate that the

accounting firm providing such report is independent of the Servicer within

the meaning of the Code of Professional Ethics of the American Institute of

Certified Public Accountants.

Section 3.08. BGS Bondable Transition Property Documentation. To

assure uniform quality in servicing the Transferred BGS Bondable Transition

Property and to reduce administrative costs, the Servicer shall keep on file,

in accordance with its customary procedures, all BGS Bondable Transition

Property Documentation, it being understood that the Servicer is acting solely

as the servicing agent and custodian for the Issuer with respect to the BGS

Bondable Transition Property Documentation.

Section 3.09. Computer Records; Audits of Documentation.

(a) Safekeeping. The Servicer shall maintain accurate and complete

accounts, records and computer systems pertaining to the Transferred BGS

Bondable Transition Property and the BGS Bondable Transition Property

Documentation in accordance with its standard accounting procedures and in

sufficient detail to permit reconciliation between payments or recoveries on

(or with respect to) the BGS Transition Bond Charge and the TBC Collections

from time to time remitted to the Trustee pursuant to Section 3.03 and to

enable the Issuer to comply with this Agreement and the Indenture. The

Servicer shall conduct, or cause to be conducted, periodic audits of the BGS

Bondable Transition Property Documentation held by it under this Agreement and

of the related accounts, records and computer systems, in such a manner as

shall enable the Issuer and the Trustee, as pledgee of the Issuer, to verify

the accuracy of the Servicer's record keeping. The Servicer shall promptly

report to the Issuer, the BPU and to the Trustee any failure on the Servicer's

part to hold the BGS Bondable Transition Property Documentation and maintain

its accounts, records and computer systems as herein provided and promptly

take appropriate action to remedy any such failure. Nothing herein shall be

deemed to require an initial review or any periodic review by the Issuer or

the Trustee of the BGS Bondable Transition Property Documentation. The

Servicer's duties to hold the BGS Bondable Transition Property Documentation

on behalf of the Issuer set forth in this Section 3.09, to the extent such BGS

Bondable Transition Property Documentation has not been previously transferred

to a successor Servicer, shall terminate three years after the earlier of the

date on which (i) the Servicer is succeeded by a successor Servicer pursuant

to the provisions of this Agreement or (ii) no BGS Transition Bonds of any

Series are outstanding.

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(b) Maintenance of and Access to Records. The Servicer shall maintain

the BGS Bondable Transition Property Documentation at 80 Park Plaza, Newark,

New Jersey or at such other office as shall be specified to the Issuer, the

BPU and to the Trustee by written notice not later than 30 days prior to any

change in location. The Servicer shall permit the Issuer, the BPU and the

Trustee or their respective duly authorized representatives, attorneys, agents

or auditors at any time during normal business hours to inspect, audit and

make copies of and abstracts from the Servicer's records regarding the

Transferred BGS Bondable Transition Property, the BGS Transition Bond Charge

and the BGS Bondable Transition Property Documentation. The failure of the

Servicer to provide access to such information as a result of an obligation or

applicable law (including BPU Regulations) prohibiting disclosure of

information regarding customers shall not constitute a breach of this Section

3.09(b).

Section 3.10. Defending Transferred BGS Bondable Transition Property

Against Claims. The Servicer shall institute and maintain any action or

proceeding necessary to compel performance by the BPU or the State of New

Jersey of any of their obligations or duties under the Competition Act or the

Financing Order with respect to the Transferred BGS Bondable Transition

Property, and the Servicer agrees to take such legal or administrative

actions, including defending against or instituting and pursuing legal actions

and appearing or testifying at hearings or similar proceedings, as may be

reasonably necessary to block or overturn any attempts to cause a repeal of,

modification of or supplement to the Competition Act or the Financing Order,

as the case may be, or the rights of holders of Transferred BGS Bondable

Transition Property that would be adverse to BGS Transition Bondholders. The

costs of any such action reasonably allocated by the Servicer to the

Transferred BGS Bondable Transition Property shall be payable from TBC

Collections as an Operating Expense in accordance with the Indenture. The

Servicer's obligations pursuant to this Section 3.10 shall survive and

continue notwithstanding the fact that the payment of Operating Expenses

pursuant to the Indenture may be delayed (it being understood that the

Servicer may be required to advance its own funds to satisfy its obligations

under this Section 3.10).

Section 3.11. Opinions of Counsel. The Servicer shall deliver to the

Issuer, the BPU and to the Trustee:

(a) promptly after the execution and delivery of this

Agreement and of the Sale Agreement and of each amendment hereto or

thereto, and on each Transfer Date, an Opinion of Counsel either:

(i) to the effect that, in the opinion of such

counsel, all UCC filings that are necessary to fully

preserve and protect the interests of the Trustee in the

Transferred BGS Bondable Transition Property have been

executed and will be filed as required, and reciting the

details of such filings or referring to prior Opinions of

Counsel in which such details are given, or

(ii) to the effect that, in the opinion of such

counsel, no such action is necessary to preserve and protect

such interest; and

(b) within 90 days after the beginning of each calendar year

beginning with the first calendar year beginning more than three full

calendar months after the Initial

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Transfer Date, an Opinion of Counsel, dated as of a date during such

90-day period, either:

(i) to the effect that, in the opinion of such

counsel, all UCC filings have been executed and filed that

are necessary to preserve fully and protect fully the

interest of the Trustee in the Transferred BGS Bondable

Transition Property, and reciting the details of such

filings or referring to prior Opinions of Counsel in which

such details are given, or

(ii) to the effect that, in the opinion of such

counsel, no such action is necessary to preserve and protect

such interest.

Each Opinion of Counsel referred to in clause (a) or (b) above shall specify

any action necessary (as of the date of such opinion) to be taken in the

following year to preserve and protect such interest.

ARTICLE IV

SERVICES RELATED TO BGS TRANSITION BOND CHARGE ADJUSTMENTS

Section 4.01. BGS Transition Bond Charge Adjustments. The Servicer

shall perform the calculations and take the actions relating to adjusting the

BGS Transition Bond Charge, as set forth in Annex 1.

ARTICLE V

THE SERVICER

Section 5.01. Representations and Warranties of Servicer. The

Servicer makes the following representations and warranties as of each

Transfer Date, on which the Issuer has relied and will rely in acquiring

Transferred BGS Bondable Transition Property and in entering into this

Agreement. The representations and warranties shall survive the execution and

delivery of this Agreement, the sale of the Transferred BGS Bondable

Transition Property to the Issuer and the pledge thereof to the Trustee

pursuant to the Indenture.

(a) Organization and Good Standing. The Servicer is a corporation

duly organized and in good standing under the laws of the State of its

incorporation, with the corporate power and authority to own its properties

and to conduct its business as such properties are currently owned and such

business is presently conducted and to execute, deliver and carry out the

terms of this Agreement, and has the power, authority and legal right to

service the Transferred BGS Bondable Transition Property.

(b) Due Qualification. The Servicer is duly qualified to do business

as a foreign corporation in good standing, and has obtained all necessary

licenses and approvals in, all jurisdictions in which the ownership or lease

of property or the conduct of its business (including the servicing of the

Transferred BGS Bondable Transition Property as required by this Agreement)

requires such qualifications, licenses or approvals (except where the failure

to so qualify would not be reasonably likely to have a material adverse effect

on the Servicer's

<PAGE>

business, operations, assets, revenues, properties or prospects or adversely

affect the servicing of the Transferred BGS Bondable Transition Property).

authority to execute and deliver this Agreement and to carry out its terms;

and the execution, delivery and performance of this Agreement have been duly

authorized by the Servicer by all necessary corporate action.

(d) Binding Obligation. This Agreement constitutes a legal, valid and

binding obligation of the Servicer enforceable against the Servicer in

accordance with its terms subject to bankruptcy, receivership, insolvency,

reorganization, moratorium or other laws affecting creditors' rights generally

from time to time in effect and to general principles of equity (regardless of

whether considered in a proceeding in equity or at law).

(e) No Violation. The consummation of the transactions contemplated

by this Agreement and the fulfillment of the terms hereof will not conflict

with, result in any breach of any of the terms and provisions of, or

constitute (with or without notice or lapse of time) a default under, the

articles of incorporation or by-laws of the Servicer, or any indenture,

agreement or other instrument to which the Servicer is a party or by which it

is bound; or result in the creation or imposition of any Lien upon any of its

properties pursuant to the terms of any such indenture, agreement or other

instrument; or violate any law or any order, rule or regulation applicable to

the Servicer of any court or of any federal or State regulatory body,

administrative agency or other governmental instrumentality having

jurisdiction over the Servicer or its properties.

(f) Approvals. Except for filings with the BPU for adjusting the BGS

Transition Bond Charge pursuant to Section 4.01 and Annex 1, filing of

financing statements under the UCC and UCC continuation filings, no approval,

authorization, consent, order or other action of, or filing with, any court,

federal or State regulatory body, administrative agency or other governmental

instrumentality is required in connection with the execution and delivery by

the Servicer of this Agreement, the performance by the Servicer of the

transactions contemplated hereby or the fulfillment by the Servicer of the

terms hereof, except those that have been obtained or made.

(g) No Proceedings. There are no proceedings or investigations

pending or, to the Servicer's best knowledge, threatened before any court,

federal or State regulatory body, administrative agency or other governmental

instrumentality having jurisdiction over the Servicer or its properties:

(i) seeking to prevent the issuance of the BGS Transition

Bonds or the consummation of any of the transactions contemplated by

this Agreement or any of the other Basic Documents;

(ii) seeking any determination or ruling that might

materially and adversely affect the performance by the Servicer of

its obligations under, or the validity or enforceability against the

Servicer of, this Agreement or any of the other Basic Documents; or

<PAGE>

(iii) relating to the Servicer and which might materially

and adversely affect the federal or State income, gross receipts or

franchise tax attributes of the BGS Transition Bonds.

(h) Reports and Certificates. Each report and certificate delivered

in connection with any filing made to the BPU by the Servicer on behalf of the

Issuer with respect to the BGS Transition Bond Charge or BGS Transition Bond

Charge Adjustments will constitute a representation and warranty by the

Servicer that each such report or certificate, as the case may be, is true and

correct in all material respects; provided, however, that to the extent any

such report or certificate is based in part upon or contains assumptions,

forecasts or other predictions of future events, the representation and

warranty of the Servicer with respect thereto will be limited to the

representation and warranty that such assumptions, forecasts or other

predictions of future events are reasonable based upon historical performance.

Section 5.02. Indemnities of Servicer; Release of Claims.

(a) The Servicer shall be liable in accordance herewith only to the

extent of the obligations specifically undertaken by the Servicer under this

Agreement.

(b) The Servicer shall indemnify the Issuer and the Trustee (for

itself and on behalf of the BGS Transition Bondholders) and each of their

respective trustees, members, managers, officers, directors, employees and

agents for, and defend and hold harmless each such Person from and against,

any and all Losses that may be imposed upon, incurred by or asserted against

any such Person as a result of:

(i) the Servicer's willful misconduct, recklessness or gross

negligence in the performance of its duties or observance of its

covenants under this Agreement or the Servicer's reckless disregard

of its obligations and duties under this Agreement;

(ii) the Servicer's breach of any of its representations or

warranties in this Agreement; and

(iii) litigation and related expenses relating to its status

and obligations as Servicer,

provided, however, that the Servicer shall not be liable for any Losses

resulting from the willful misconduct or gross negligence of any Person

indemnified pursuant to this Section 5.02 (each, an "Indemnified Person") or

resulting from a breach of a representation or warranty made by such

Indemnified Person in any of the Basic Documents that gives rise to the

Servicer's breach.

Promptly after receipt by an Indemnified Person of notice of its involvement

in any action, proceeding or investigation, such Indemnified Person shall, if

a claim for indemnification in respect thereof is to be made against the

Servicer under this Section 5.02, notify the Servicer in writing of such

involvement. Failure by an Indemnified Person to so notify the Servicer shall

relieve the Servicer from the obligation to indemnify and hold harmless such

Indemnified Person under this Section 5.02 only to the extent that the

Servicer suffers actual prejudice as a result of such failure. With respect to

any action, proceeding or investigation brought by a third party for

<PAGE>

which indemnification may be sought under this Section 5.02, the Servicer

shall be entitled to assume the defense of any such action, proceeding or

investigation. Upon assumption by the Servicer of the defense of any such

action, proceeding or investigation, the Indemnified Person shall have the

right to participate in such action or proceeding and to retain its own

counsel (including local counsel), and the Servicer shall bear the reasonable

fees, costs and expenses of such separate counsel. The Indemnified Person

shall not settle or compromise or consent to the entry of any judgment with

respect to any pending or threatened claim, action, suit or proceeding in

respect of which indemnification may be sought under this Section 5.02

(whether or not the Servicer is an actual or potential party to such claim or

action) unless the Servicer agrees in writing to such settlement, compromise

or consent and such settlement, compromise or consent includes an

unconditional release of the Servicer from all liability arising out of such

claim, action, suit or proceeding.

officers, directors and agents for, and defend and hold harmless each such

Person from and against, any and all Losses that may be imposed upon, incurred

by or asserted against any such Person as a result of the acceptance or

performance of the trusts and duties contained herein and in the Indenture,

except to the extent that any such Loss is due to the willful misconduct, bad

faith or gross negligence of the Trustee; provided, however, that the

foregoing indemnity is extended to the Trustee solely in its individual

capacity and not for the benefit of the BGS Transition Bondholders or any

other Person. Such amounts with respect to the Trustee shall be deposited and

distributed in accordance with the Indenture.

(d) Any Servicer that is not subject to retail electric rate

regulation by the BPU shall indemnify electric ratepayers in the historic

service territory of PSE&G for any and all Losses (including, but not limited

to, increased BGS Transition Bond Charges) that may be imposed upon or

incurred by such retail electric ratepayers as a result of:

(i) any such Servicer's willful misconduct, recklessness or

gross negligence in the performance of its obligations, duties and

covenants under this Agreement;

(ii) any such Servicer's breach of any of its

representations or warranties in this Agreement; and

(iii) litigation and related expenses relating to any such

Servicer's status and obligations as Servicer.

The BPU shall be entitled to enforce this Section 5.02(d) for the benefit of

retail electric ratepayers in the historic service territory of PSE&G. If so

directed by the BPU, any successor Servicer that is not subject to retail

electric rate regulation by the BPU and that is obligated to make payments

pursuant to this Section 5.02(d) shall make such payments either to the

Trustee, for deposit to the Collection Account and for allocation to the

Reserve Subaccount therein, or to such other person or account as shall be

specified by the BPU.

(e) The Servicer's indemnification obligations under Section 5.02(b)

and (c) for events occurring prior to the removal or resignation of the

Trustee or the termination of this Agreement shall survive the resignation or

removal of the Trustee or the termination of this

<PAGE>

Agreement and shall include reasonable costs, fees and expenses of

investigation and litigation (including the Issuer's and the Trustee's

reasonable attorneys' fees and expenses).

(f) Except to the extent expressly provided for in the Basic

Documents (including the Servicer's claims with respect to the Monthly

Servicing Fees and the Seller's claim for payment of the purchase price of the

Transferred BGS Bondable Transition Property), the Servicer hereby releases

and discharges the Issuer (including its Member, Managers, officers, employees

and agents, if any), and the Trustee (including its respective officers,

directors and agents) (collectively, the "Released Parties") from any and all

actions, claims and demands whatsoever, which the Servicer shall or may have

against any such Person relating to the Transferred BGS Bondable Transition

Property or the Servicer's activities with respect thereto other than any

actions, claims and demands arising out of the willful misconduct, bad faith

or gross negligence of the Released Parties.

(g) The Servicer will not indemnify any person for any loss, damages,

liability, obligation, claim, action, suit or payment resulting solely from a

downgrade in the ratings on the BGS Transition Bonds or for any consequential

damages, including any loss of market value of the BGS Transition Bonds,

resulting from any default or any downgrade of the ratings on the BGS

Transition Bonds.

Section 5.03. Merger or Consolidation of, or Assumption of the

Obligations of, Servicer. Any Person:

(a) into which the Servicer may be merged or consolidated

and which succeeds to all or the major part of the electric

distribution business of the Servicer,

(b) which results from the division of the Servicer into two

or more Persons and which succeeds to all or the major part of the

electric distribution business of the Servicer,

which the Servicer shall be a party and which succeeds to all or the

major part of the electric distribution business of the Servicer,

(d) which may succeed to the properties and assets of the

Servicer substantially as a whole and which succeeds to all or the

major part of the electric distribution business of the Servicer, or

(e) which may otherwise succeed to all or the major part of

the electric distribution business of the Servicer,

which Person in any of the foregoing cases executes an agreement of assumption

to perform every obligation of the Servicer under this Agreement, shall be the

successor to the Servicer hereunder without the execution or filing of any

document or any further act by any of the parties to this Agreement; provided,

however, that:

(i) immediately after giving effect to such

transaction, no representation or warranty made pursuant to

Section 5.01 shall have been

<PAGE>

breached and no Servicer Default, and no event that, after

notice or lapse of time, or both, would become a Servicer

Default, shall have occurred and be continuing;

(ii) the Servicer shall have delivered to the

Issuer, the BPU and the Trustee an Officers' Certificate and

an Opinion of Counsel each stating that such consolidation,

merger or succession and such agreement of assumption comply

with this Section 5.03 and that all conditions precedent, if

any, provided for in this Agreement relating to such

transaction have been complied with;

(iii) the Servicer shall have delivered to the

Issuer, the BPU and to the Trustee an Opinion of Counsel

either:

(A) stating that, in the opinion of such

counsel, all filings to be made by the Servicer,

including UCC filings, that are necessary fully to

preserve and protect the interests of the Trustee

in the Transferred BGS Bondable Transition Property

have been executed and filed and reciting the

details of such filings, or

(B) stating that, in the opinion of such

counsel, no such action is necessary to preserve

and protect such interests;

(iv) the Rating Agencies shall have received prior

written notice of such transaction; and

(v) the Servicer shall have delivered to the

Issuer, the BPU and the Trustee an opinion of independent

tax counsel (as selected by, and in form and substance

reasonably satisfactory to, the Servicer, and which may be

based on a ruling from the Internal Revenue Service) to the

effect that, for federal income tax purposes, such

consolidation or merger will not result in a material

adverse federal income tax consequence to the Servicer, the

Issuer, the Trustee or the then existing BGS Transition

Bondholders.

The Servicer shall not consummate any transaction referred to in subclauses

(a), (b), (c), (d) or (e) above except upon execution of the above described

agreement of assumption and compliance with subclauses (i), (ii), (iii), (iv)

and (v) above. When any Person acquires the properties and assets of the

Servicer substantially as a whole and becomes the successor to the Servicer in

accordance with the terms of this Section 5.03, then upon the satisfaction of

all of the other conditions of this Section 5.03, the Servicer shall

automatically and without further notice be released from its obligations

hereunder.

Section 5.04. Assignment of Servicer's Obligations. The Servicer may

assign any or all of its obligations hereunder to any successor if either (i)

the Rating Agency Condition and any other condition specified in the Financing

Order have been satisfied, or (ii) the Servicer is replaced by a successor

pursuant to Section 5.03 hereof.

Section 5.05. Limitation on Liability of Servicer and Others. The

Servicer shall not be liable to the Issuer or the Trustee, except as provided

under this Agreement, for any action taken or for refraining from the taking

of any action pursuant to this Agreement or for errors in

<PAGE>

judgment; provided, however, that this provision shall not protect the

Servicer against any liability that would otherwise be imposed by reason of

willful misconduct, bad faith or gross negligence in the performance of its

duties or by reason of reckless disregard of obligations and duties under this

Agreement. The Servicer and any director, officer, employee or agent of the

Servicer may rely in good faith on the advice of counsel reasonably acceptable

to the Trustee or on any document of any kind, prima facie properly executed

and submitted by any Person, respecting any matters arising under this

Agreement.

Except as provided in this Agreement, the Servicer shall not be under any

obligation to appear in, prosecute or defend any legal action that is not

incidental to its duties to service the Transferred BGS Bondable Transition

Property in accordance with this Agreement or related to its obligation to pay

indemnification, and that in its reasonable opinion may cause it to incur any

expense or liability.

Section 5.06. PSE&G Not To Resign as Servicer. Subject to the

provisions of Sections 5.03 and 5.04, PSE&G shall not resign from the

obligations and duties imposed on it as Servicer under this Agreement except

upon a determination that the performance of its duties under this Agreement

shall no longer be permissible under applicable law. Notice of any such

determination permitting the resignation of PSE&G shall be communicated to the

Issuer, the BPU, the Trustee and each Rating Agency at the earliest

practicable time (and, if such communication is not in writing, shall be

confirmed in writing at the earliest practicable time), and any such

determination shall be evidenced by an Opinion of Counsel to such effect

delivered to the Issuer, the BPU and the Trustee concurrently with or promptly

after such notice. No such resignation shall become effective until a

successor Servicer has assumed the servicing obligations and duties hereunder

of the Servicer in accordance with Section 6.04.

Section 5.07. Monthly Servicing Fee. The Issuer agrees to pay the

Servicer the Monthly Servicing Fee with respect to all Series of BGS

Transition Bonds. On any Monthly Remittance Date, the Servicer shall be

entitled to withhold the amount of the Monthly Servicing Fee from TBC

Collections as compensation under this Agreement unless the Trustee has

notified the Servicer in writing that the Issuer does not hold sufficient

funds to pay amounts owed in such month to the Trustee. For so long as PSE&G

is the Servicer, the Monthly Servicing Fee shall be $1,250. The Servicer shall

be entitled to retain as additional compensation net investment income on TBC

Collections related to the Transferred BGS Bondable Transition Property

received by the Servicer during any Collection Period prior to remittance to

the Collection Account and the late fees, if any, paid by Customers to the

Servicer. The foregoing fees constitute a fair and reasonable price for the

obligations to be performed by the Servicer.

Section 5.08. Servicer Expenses. Except as otherwise expressly

provided herein, the Servicer shall be required to pay all expenses incurred

by it in connection with its activities hereunder, including fees and

disbursements of independent accountants and counsel, taxes imposed on the

Servicer and expenses incurred in connection with reports to BGS Transition

Bondholders and shall not be entitled to any additional payment or

reimbursement therefor.

Section 5.09. Subservicing. The Servicer may at any time appoint a

subservicer to perform all or any portion of its obligations as Servicer

hereunder; provided, however, the Rating Agency Condition shall have been

satisfied in connection therewith; and provided further that

<PAGE>

the Servicer shall remain obligated and be liable to the Issuer, the Trustee

and the BGS Transition Bondholders for the servicing and administering of the

Transferred BGS Bondable Transition Property in accordance with the provisions

hereof without diminution of such obligation and liability by virtue of the

appointment of such subservicer and to the same extent and under the same

terms and conditions as if the Servicer alone were servicing and administering

the Transferred BGS Bondable Transition Property. The fees and expenses of the

subservicer shall be as agreed between the Servicer and its subservicer from

time to time, and none of the Issuer, the Trustee or the BGS Transition

Bondholders shall have any responsibility therefor. Any such appointment shall

not constitute a Servicer resignation under Section 5.06.

Section 5.10. No Servicer Advances. The Servicer shall not make any

advances of interest on or principal of the BGS Transition Bonds.

Section 5.11. Remittances.

(a) The Servicer shall remit TBC Collections (from whatever source)

in accordance with Section 3.03(a)(ii), and all proceeds of other Collateral

of the Issuer, if any, received by the Servicer, to the Trustee for deposit

pursuant to the Indenture, not later than each Daily Remittance Date. The

Servicer shall promptly remit any Indemnity Amounts paid or received by it

immediately to the Trustee for deposit pursuant to the Indenture.

(b) Notwithstanding the foregoing clause (a), as long as:

(i) PSE&G or any successor to PSE&G's electric

distribution business remains the Servicer,

(ii) no Servicer Default has occurred and is

continuing, and,

(iii) with respect to Moody's and Fitch only, PSE&G

maintains a long-term rating on its senior, unsecured debt

of "Baa2" by Moody's and "BBB" by Fitch, or better, or, if

the senior, unsecured debt of PSE&G is downgraded to "Baa3"

by Moody's or "BBB-" by Fitch, PSE&G shall received within

30 days of such downgrading, confirmation from Moody's and

Fitch that remittances in accordance with Section 3.03(a)(i)

will not adversely affect their respective ratings on the

BGS Transition Bonds, or if the long-term, unsecured debt of

PSE&G is downgraded below "Baa3" by Moody's or "BBB-" by

Fitch, PSE&G shall have received within 48 hours of such

downgrading, confirmation from Moody's and Fitch that

remittances in accordance with Section 3.03(a)(i) will not

adversely affect their respective ratings on the BGS

Transition Bonds,

the Servicer need not make the daily remittances required by clause (a), but

in lieu thereof, shall remit all TBC Collections (from whatever source) in

accordance with Section 3.03(a)(i), and all proceeds of other Collateral of

the Issuer, if any, received by the Servicer during any Collection Period, to

the Trustee for deposit pursuant to the Indenture, not later than the

corresponding Monthly Remittance Date.

Section 5.12. Protection of Title. The Servicer shall execute and

file such filings and cause to be executed and filed such filings, all in such

manner and in such places as may be

<PAGE>

required by law fully to preserve, maintain and protect the interests of the

Trustee in the Transferred BGS Bondable Transition Property, including all

filings required under the UCC relating to the transfer of

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