July 31, 1998


William J. Catacosinos
c/o MarketSpan Corporation
175 East Old Country Road
Hicksville, NY  11801

Dear Dr. Catacosinos:

            The letter agreement (the  "Agreement")  confirms our  understanding
and agreement with respect to your retirement from MarketSpan  Corporation  (the
"Company") and its affiliates as follows:

                  RETIREMENT.  Effective  as of July 31,  1998 (the  "Retirement
Date"), you will retire from the Company and its affiliates.  You hereby resign,
effective  as of the  Retirement  Date,  from the  position  of Chief  Executive
Officer of the Company and all other positions and  directorships  that you hold
with the Company  and any of its  affiliates;  your  position as Chairman of the
Board of Directors of the Company; as an officer and employee of the Company and
its affiliates; and as a member of the Board of Directors (and any subcommittees
thereof) and any similar  governing  body of the Company and its  affiliates  on
which you currently serve as a member.

                  FULL SATISFACTION.

            You hereby  acknowledge  and agree that except for the items  listed
below you will not be entitled to any compensation or benefits from the Company,
its affiliates,  or the Long Island Lighting Company  ("LILCO") (or any of their
respective predecessors or successors), including, without limitation, any other
severance or termination benefits. The Company for itself and its successors and
assigns hereby acknowledges and agrees that you are entitled to and will receive
the following:

     payment of the  accrued,  but unpaid  portion,  of your  annual base salary
through the Retirement Date;

                  continued   coverage  under  the  Company's   welfare  benefit
programs for employees and executives until May 29, 2003 (the fifth  anniversary
of the date of your  termination of employment  with LILCO)  pursuant to Section
2(B) of the Long Island Lighting Company Executive Employment Agreement dated as
of August 4, 1995 between you and LILCO (the "Change of Control Agreement"), the
provisions of which Section 2(B) are hereby  incorporated by reference into this
Agreement;

                  the Company's payment, on your behalf, of the Gross-Up Payment
and other  payments  described  in, and  determined  in the manner set forth in,
Paragraph 4 below;




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                                        2



                  your  existing  rights to benefits,  under the  Company's  tax
qualified  retirement plans,  Retirement Income  Restoration Plan,  Supplemental
Death and  Retirement  Benefits Plan (as to which the Company agrees to maintain
the insurance  contract currently in place or, in the event the Company adopts a
group residual insurance program ("GRIP") for its executives,  the Company shall
simultaneously  provide you with the option of obtaining your existing insurance
benefit through GRIP), group health plan and group life insurance plan; and

     the  Company's  performance  of the  obligations  set forth in  Paragraph 3
below.

                  INDEMNIFICATION.

                  Section 7.5 of the Amended and Restated  Agreement and Plan of
Exchange  and Merger  dated as of June 26, 1997  ("Section  7.5" and the "Merger
Agreement")  and  Article  XIV of the  Company's  Certificate  of  Incorporation
("Article  XIV") are hereby  incorporated  into this  Agreement by reference and
shall continue in full force and effect for your benefit.

                  Without  intending any  limitation on the scope of Section 7.5
and Article XIV, the Company agrees that (i) Section 7.5 of the Merger Agreement
shall extend to and include  actions or omissions  occurring after the Effective
Time (as defined in the Merger Agreement),  and (ii) Section 7.5 and Article XIV
shall extend to and cover all actions,  investigations or proceedings  presently
or hereafter brought, or threatened to be brought against you with respect to or
relating  in whole or in part to (x) any act or  omission  (or  disclosure  with
respect  thereto) in  connection  with the  combination  reflected by the Merger
Agreement  and/or the transactions  involving LILCO and LIPA, which  combination
and transactions  were consummated on May 28, 1998,  and/or (y) any compensation
or benefits (or disclosures  with respect  thereto) that were or are received by
you or any other officer,  director or employee from or on behalf of the Company
or its affiliates,  LILCO or its affiliates,  or any of its or their  respective
successors or assigns, including without limitation, any severance,  retirement,
incentive, change of control, bonus or contract benefits or payments.

                  Reference is made to the Executive Employment Agreements Trust
dated as of March 20, 1987 between  LILCO and Clarence  Goldberg as Trustee (the
"Trust"), which covers all former LILCO directors, officers or employees who had
entered into Executive  Employment  Agreements.  The Company hereby consents and
agrees  that  any  funds up to the  amounts  not  covered  by  insurance  due to
deductible  and/or self insured  retention and otherwise  available in the Trust
may be used to discharge the Company's indemnification obligations to you or any
other of such  directors,  officers  or  employees  to the extent not  otherwise
covered by insurance. Nothing herein shall be construed as requiring the Company
to  contribute  any  additional  funds to the  Trust or to limit  the  Company's
obligations hereunder should such funds in the Trust be insufficient.

                  Reference is made to Section  7.5(b) of the Merger  Agreement,
which requires the Company,  for a period of six years after the Effective Time,
to either maintain in effect or obtain certain  insurance  policies with respect
to the  obligations  of the Company set forth in Section 7.5. The Company agrees
that the coverage of those policies shall include the obligations of the Company
set forth in this  Paragraph  3 as well as in Section  7.5,  for a period of six
years from the Retirement Date.




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                                        3



                  The Company  hereby  represents  and  warrants  that:  (i) the
provisions of this  Paragraph 3 have been duly  authorized  by the Company;  and
(ii) pursuant to this Paragraph 3 the Board has duly  authorized  advancement of
reasonable  expenses  incurred or to be incurred in your  defense of any action,
investigation or proceeding  presently or hereafter  brought or threatened to be
brought against you,  subject only to receipt of your  undertaking to repay such
amounts  as and to the  extent  required  by law,  which  undertaking  is  being
furnished simultaneously herewith.

                  The  Company  agrees  that the  sole  applicable  standard  of
conduct that has to be met by you, for purposes of indemnification under Section
7.5, Article XIV and this Paragraph 3, is the standard  established  pursuant to
Section 721 of the New York Business Corporation Law as presently in effect.

                  The Company agrees to use its best efforts to provide you with
notice of actions, investigations and proceedings involving you.

                  GROSS-UP PAYMENT.

                  The  provisions  of  Section  2(G) of the  Change  of  Control
Agreement  ("Section  2(G)")  are hereby  incorporated  into this  Agreement  by
reference  and  shall  continue  in  full  force  and  effect;   PROVIDED  that,
notwithstanding  the provisions of Section 2(G), the Company's  obligation  with
respect to the Gross-Up  Payment (as defined in Section 2(G)) shall be satisfied
by the  Company's  payment of the  Gross-Up  Payment  directly  to the  Internal
Revenue Service on your behalf. You agree that notwithstanding the provisions of
Section 2(G), the Company shall make no initial Gross-Up Payment.

                  In the event that the Excise Tax (as defined in Section  2(G))
is  subsequently  finally  determined to be greater than or less than the amount
referred to in Paragraph 4(a) above,  the provisions of the second  paragraph of
Section  2(G)(i) and of Section 2G(ii) of the Change of Control  Agreement shall
apply to any recalculation and payment of the Gross-Up Payment.

                  You agree to  promptly  notify  the  Company in writing of any
claim by the Internal  Revenue  Service that, if  successful,  would require the
payment by the  Company of any  additional  amount  pursuant to  Paragraph  4(b)
above. You shall not pay such claim prior to the expiration of the 30-day period
following the date on which you give such notice to the Company (or such shorter
period  ending on the date that any payment of taxes with  respect to such claim
is due). Upon receipt by the Company of such notice,  the Company shall pay such
claim prior to the expiration of such period unless the Company  notifies you in
writing  prior to the  expiration of such period that it desires to contest such
claim.

If the Company so notifies you, you will:

     give the  Company  any  information  reasonably  requested  by the  Company
relating to such claim;

                          take such action in connection  with  contesting  such
      claim as the  Company  shall  reasonably  request in writing  from time to
      time, including, without limitation, accepting


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                                        4



     legal  representation  but only with respect to such claim,  by an attorney
     selected by the Company and reasonably acceptable to you;

                          cooperate  with  the  Company  in good  faith in order
      effectively  to contest  such  claim and  permit the  Company to take such
      steps as the Company  reasonably  deems  necessary to effectively  contest
      such claim; and

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

PROVIDED,  however,  that the Company shall bear and pay directly all reasonable
costs and expenses (including without limitation,  legal fees,  accounting fees,
additional interest and penalties) incurred in connection with any such contest,
as well as any  reasonable  costs and expenses  incurred by you in the course of
your  cooperation,  and shall  indemnify and hold you harmless,  on an after-tax
basis,  for any Excise Tax or income tax (including  interest and penalties with
respect thereto) finally imposed.

                  CONFIDENTIAL  INFORMATION.  You agree  that you shall  hold in
confidence and not directly or indirectly  disclose or use or copy or make lists
of any  confidential  information  or  proprietary  data of the  Company  or its
affiliates or LILCO  (including their  respective  predecessors),  except to the
extent  disclosure  is authorized in writing  pursuant to  authorization  by the
Board of  Directors  of the Company or  required by any court or  administrative
agency,  or called for by a subpoena or document  request  issued in litigation.
The  Company  agrees  that  it  shall  hold in  confidence  your  personnel  and
compensation  records,  except to the extent  disclosure is authorized by you in
writing or required by any court or  administrative  agency,  or called for by a
subpoena or document request issued in litigation.  Confidential  information or
proprietary  data shall not  include  any  information  known  generally  to the
public.

                  BOOKS AND  RECORDS.  The Company  agrees to provide you with a
copy of (a) your employment records maintained by LILCO, and (b) your employment
records maintained by the Company.  The Company also agrees to make available to
you and/or your counsel all books and records of LILCO and/or  MarketSpan  which
you  reasonably  require  for  defense  of any  actions or  proceedings,  or for
response to any investigations.

                  PUBLIC ANNOUNCEMENTS.  The Company agrees that a press release
will be issued  concerning your  retirement in a form  reasonably  acceptable to
you. The Company and you represent and agree that neither party (including their
respective agents) will make or solicit any comments, statements, or the like to
the  media  or to  others  that  are  or  may be  considered  to be  derogatory,
detrimental  or  disparaging  to the good name or business  reputation of either
party or their respective agents.

                  RELEASE.  Each party  acknowledges  that the  Satisfaction and
Release  between you and LILCO dated May 28,  1998,  is binding upon the Company
and  its  successors  and  assigns,  and  you and  your  heirs,  administrators,
successors and assigns.  The Company, for itself and its successors and assigns,
subsidiaries and affiliates (collectively,  the "Releasors") hereby releases and
forever  discharges you and your heirs,  administrators,  successors and assigns
from any and all obligations,



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claims,  demands,  suits and actions of every kind that the  Releasors or any of
one them now has or may have against you by reason of any matter, cause or thing
whatsoever  from  the  beginning  of the  world  to the day of the  date of this
Agreement,  excepting the obligations of this Agreement and those provisions and
agreements  incorporated  herein by reference.  You for yourself and your heirs,
administrators,  successors and assigns hereby release and forever discharge the
Company, and its subsidiaries, affiliates, successors and assigns (collectively,
the  "Releasees")  from any and all  obligations,  claims,  demands,  suits  and
actions of every kind that you now have or may have against the Releasees or any
of them by reason of any matter, cause or thing whatsoever from the beginning of
the world to the day of the date of this Agreement, excepting the obligations of
this  Agreement  and those  provisions  and  agreements  incorporated  herein by
reference.

                  SETTLEMENTS.  The  Company  shall make best  efforts to ensure
that  any  settlements  made  by  the  Company  of  any  action   proceeding  or
investigation  in any way related to you,  shall include a release of all claims
against you.

                  MISCELLANEOUS.  For a period of twelve  months  following  the
Retirement  Date,  the  Company  agrees to provide you with (a) an office at the
Company's executive office at 175 East Old Country Road,  Hicksville,  New York,
which office shall be comparable to that currently in use by a senior  executive
of the Company, (b) the services of a secretary, and (c) unrestricted use of the
automobile  and  security  driver  which  you  are  currently  using  (with  any
replacement  which may be  required).  In addition,  the Company  will  maintain
security at your home at least equal to that presently  provided for a period of
no more than twelve months from the  Retirement  Date. The Company agrees to pay
upon  presentation  of invoices for the reasonable  attorneys' fees and expenses
incurred by you in the negotiation and preparation of this Agreement.

                  EQUITABLE RELIEF.  Each party acknowledges and agrees that the
remedies  available  at law for a  breach  or  threatened  breach  of any of the
provisions of this Agreement  calling for performance  other than the payment of
money (including without limitation  Paragraphs 5, 6 and 10) would be inadequate
and, in  recognition  of this fact,  both parties  agree that, in the event of a
breach or  threatened  breach,  in addition to any  remedies at law,  each party
shall  be  entitled  to  obtain   equitable  relief  in  the  form  of  specific
performance,  temporary  restraining order or permanent  injunction or any other
equitable remedy that may be available.

     NO ADMISSION OF LIABILITY.  Nothing herein shall constitute or be deemed to
constitute an admission of liability by you or by the Company.

                  SEVERABILITY.  The  provisions  of  this  Agreement  shall  be
regarded  as  divisible,  and if any of said  provision  or any part  hereof are
declared  invalid or  unenforceable  by a court of competent  jurisdiction,  the
validity and  enforceability of the remainder of such provisions or parts hereof
and the applicability thereof shall not be affected thereby.

     AMENDMENT.  This Agreement may not be amended or modified except by written
instrument executed by you and the Company.



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                                        6



     GOVERNING  LAW. This  Agreement and the rights and  obligations,  hereunder
shall be governed and construed in accordance  with the laws of the State of New
York.

                  NOTICES.  All notices hereunder shall be in writing and deemed
properly  given if  delivered  and  receipted or if mailed by  registered  mail,
return  receipt  requested or by recognized  overnight  service.  Notices to the
Company  shall  be  directed  to  the  Corporate   Secretary  at  the  Company's
headquarters  offices in Hicksville,  New York. Notices to you shall be directed
to your home address at 222 Cleft Road, Mill Neck, New York 11765.  Either party
may designate, by written notice, another address or addresses for such notices.

                  ENTIRE AGREEMENT/COUNTERPARTS.  This Agreement is binding upon
the  Company  and its  successors  and  assigns,  and upon  you and your  heirs,
administrators,  successors  and  assigns.  This  Agreement,  together  with the
specific  contract  provisions  and plans  expressly  incorporated  by reference
herein,  constitutes the entire  agreement  between the parties  relating to the
subject matter hereof.  All other agreements  between you and the Company or its
affiliates or LILCO (or any of their respective  predecessors)  relating to your
employment  or the  termination  of your  employment  are hereby  void and of no
further force and effect;  PROVIDED that the  Satisfaction and Release dated May
28, 1998  between you and LILCO shall remain in effect and shall be binding upon
the Company. This Agreement may be executed in counterparts, each of which shall
constitute an original and which together shall constitute a single instrument.

                  AUTHORITY. The Company hereby represents and warrants that the
Execution of this  Agreement has been duly  authorized by the Board of Directors
of the  Company,  and a  resolution  to that effect  shall be  delivered  to you
forthwith on the Retirement Date.



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                                        7



            If this  letter  correctly  sets  forth  your  understanding  of our
agreement with respect to the foregoing  matters,  please so indicate by signing
below on the line provided for your signature.

Very truly yours,

MARKETSPAN CORPORATION


By /s/ Robert B. Catell 
-----------------------
Name:  Robert B. Catell
Title: Chairman and Chief Executive Officer




Reviewed, approved and agreed as of the date hereof:

/s/ William J. Catacosinos