Exhibit 10.2


                         NEW YORK STATE ENERGY RESEARCH
                            AND DEVELOPMENT AUTHORITY


                                       AND


                         THE BROOKLYN UNION GAS COMPANY
                     d/b/a KEYSPAN ENERGY DELIVERY NEW YORK



                             PARTICIPATION AGREEMENT



                          Dated as of November 1, 2005





                                 - relating to -
                    $82,000,000 Gas Facilities Revenue Bonds
(The Brooklyn Union Gas Company d/b/a KeySpan Energy Delivery New York Project),
                                  2005 Series A


<PAGE>


<TABLE>
                                TABLE OF CONTENTS
<CAPTION>

                                                                                                                Page
                                                                                                                ----


                                    ARTICLE I

       DEFINITIONS; EFFECTIVE DATE AND DURATION OF PARTICIPATION AGREEMENT
<S>              <C>                                                                                            <C>
Section 1.01.     Definitions.....................................................................................2
Section 1.02.     Effective date of Participation Agreement; duration of Participation Agreement..................2

                                   ARTICLE II

                                 REPRESENTATIONS

Section 2.01.     Representations by the Authority................................................................2
Section 2.02.     Representations by the Company..................................................................3

                                   ARTICLE III

                   CONSTRUCTION OF PROJECTS; ISSUANCE OF BONDS

Section 3.01.     Company to cause construction of Project........................................................5
Section 3.02.     Sale of Bonds and deposit of proceeds; Liability under Bonds....................................5
Section 3.03.     Possession of Projects..........................................................................5
Section 3.04.     Operation, maintenance and repair...............................................................5
Section 3.05.     Investment of moneys in Funds under the Indenture...............................................5

                                   ARTICLE IV

                       CORPORATION OBLIGATION AND PAYMENTS

Section 4.02.     Prepayment to redeem Bonds......................................................................6
Section 4.03.     Obligation for payment absolute; deficiencies...................................................7
Section 4.04.     Administration Fees; expenses, etc..............................................................7
Section 4.05.     Compensation of Trustee and Paying Agents.......................................................8
Section 4.06.     Project not security for Bonds..................................................................8
Section 4.07.     Payment of taxes and assessments; no liens or charges...........................................8
Section 4.08.     Indemnification of Authority and Trustee........................................................9
Section 4.09.     Company to pay attorneys' fees and disbursements................................................9
Section 4.10.     No abatement of Administration Fees and other charges...........................................9
Section 4.11.     Prepayment of Company Obligation...............................................................10
Section 4.12.     Company Liable to Owners of Bonds in the Case of Certain Events of Taxability..................10


                                       i


<PAGE>


                                TABLE OF CONTENTS
                                   (continued)

                                                                                                                Page
                                                                                                                ----


                                    ARTICLE V

                                SPECIAL COVENANTS

Section 5.01.     No warranty as to suitability of Project.......................................................10
Section 5.02.     Authority's rights to inspect Project and plans and specifications.............................10
Section 5.03.     Company consent to amendment of Indenture......................................................10
Section 5.04.     Tax Covenant...................................................................................10
Section 5.05.     Company agrees to perform obligations imposed by Indenture.....................................11
Section 5.06.     Certificates as to defaults....................................................................11
Section 5.07.     Compliance with laws...........................................................................11
Section 5.08.     Consolidation, Merger or Sale of Assets........................................................11
Section 5.09.     Financial Statements of Company................................................................12
Section 5.10.     Recording and Filing...........................................................................12
Section 5.11.     Maintenance of Properties......................................................................13
Section 5.12.     Insurance......................................................................................13
Section 5.13.     Proper Books of Record and Account.............................................................13
Section 5.14.     Compliance with Laws...........................................................................13
Section 5.15.     Further Assurances.............................................................................13
Section 5.16.     Maintenance of Office or Agency................................................................13
Section 5.17.     Performance of and Compliance with Other Covenants.............................................14

                                   ARTICLE VI

                        DEFAULTS BY CORPORATION; REMEDIES

Section 6.01.     Section 6.01. Events of Default; Acceleration..................................................14
Section 6.02.     Events of Default Relating to Fees or Indemnification..........................................15
Section 6.03.     Judicial Proceedings by Trustee................................................................16
Section 6.04.     Rights of the Credit Facility Issuer; Other  Rights of the Trustee to
                  Enforce this Participation Agreement...........................................................16

                                   ARTICLE VII

                                  MISCELLANEOUS

Section 7.01.     Disposition of amounts after payment of Bonds..................................................16
Section 7.02.     Notices........................................................................................16
Section 7.03.     Successors and assigns.........................................................................17
Section 7.04.     Amendment of Participation Agreement...........................................................17
Section 7.05.     Assignment by Authority........................................................................17
Section 7.06.     Participation Agreement supersedes any prior agreements........................................17

                                       ii


<PAGE>


                                TABLE OF CONTENTS
                                   (continued)

                                                                                                                Page
                                                                                                                ----


Section 7.07.     Counterparts...................................................................................17
Section 7.08.     Severability...................................................................................17
Section 7.09.     Law and Place of Enforcement of this Participation Agreement...................................17
Section 7.10.     Bond Insurer Requirements......................................................................18
Section 7.11.     Parties in Interest............................................................................18
Section 7.12.     The Policy.....................................................................................18
Section 7.13.     Company Request to Transfer Bond Proceeds......................................................18
Section 7.14.     Delegation of Duties by Authority..............................................................18
Section 7.15.     Survival of Representations, Warranties and Covenants..........................................18
</TABLE>








                                      iii


<PAGE>


     This  PARTICIPATION  AGREEMENT,  dated as of November 1, 2005,  between NEW
YORK STATE ENERGY  RESEARCH AND  DEVELOPMENT  AUTHORITY,  a body  corporate  and
politic,  constituting a public benefit  corporation,  established  and existing
under and by virtue of the laws of the State of New York (the "Authority"),  and
THE  BROOKLYN  UNION GAS COMPANY  d/b/a  KEYSPAN  ENERGY  DELIVERY  NEW YORK,  a
corporation duly organized and existing and qualified to do business as a public
utility under the laws of the State of New York (the "Company"),

                                   WITNESSETH:

     WHEREAS,  pursuant to a special act of the  Legislature of the State of New
York (Title 9 of Article 8 of the Public  Authorities  Law of New York,  as from
time to time amended and supplemented,  herein called the "Act"),  the Authority
has been  established,  as a body  corporate and politic,  constituting a public
benefit corporation; and

     WHEREAS,  pursuant to the Act, the  Authority is empowered to contract with
any power  company to  participate  in the  incorporation  of  features in power
plants and the  construction of associated  facilities to the extent required by
the public interest in development,  health, recreation, safety, conservation of
natural resources and aesthetics; and

     WHEREAS,  the Authority is also  authorized  under the Act to borrow moneys
and issue its negotiable  bonds to provide  sufficient  moneys for achieving its
corporate  purposes,  including the refunding of outstanding  bonds and notes of
the Authority; and

     WHEREAS,  the Authority is also authorized  under the Act to enter into any
contracts  and to  execute  all  instruments  necessary  or  convenient  for the
exercise of its corporate powers and the fulfillment of its corporate  purposes;
and

     WHEREAS,  the Company is a public utility corporation doing business in the
State of New York; and

     WHEREAS,  the Company has requested that the Authority  issue bonds for the
purpose of refunding the  Authority's  Adjustable  Rate Gas  Facilities  Revenue
Bonds, Series 1989A (The Brooklyn Union Gas Company Project) and Adjustable Rate
Gas  Facilities  Revenue  Bonds,  Series 1989B (The  Brooklyn  Union Gas Company
Project), each issued pursuant to a Trust Indenture dated as of February 1, 1989
(together,  the "Prior Basic  Indenture"),  each of which was  supplemented by a
First  Supplemental  Indenture of Trust,  dated as of May 1, 1992 (together with
the Prior Basic Indenture,  the "Prior  Indenture"),  each between the Authority
and JPMorgan  Chase Bank,  N.A.,  as successor to  Manufacturers  Hanover  Trust
Company,  a  banking  corporation  organized  under the laws of the State of New
York, as trustee (in such capacity,  the "Prior Bond Trustee") (the bonds issued
under the Prior Indenture being the "Prior Bonds"), which were issued to provide
all or part of the funds for the acquisition,  construction, and installation of
certain  facilities for the local  furnishing of gas within The City of New York
(such facilities as further described in Exhibit A hereto  hereinafter  referred
to as the  "Project")  and, as part of such  participation,  that the  Authority
issue bonds pursuant to the Act to provide funds to refund the Prior Bonds; and


<PAGE>


     WHEREAS,  by Resolution No. 1093, adopted September 19, 2005, the Authority
has determined to issue its Gas Facilities Revenue Bonds (The Brooklyn Union Gas
Company  d/b/a KeySpan  Energy  Delivery New York  Project),  2005 Series A (the
"Bonds") in an  aggregate  principal  amount not to exceed  $82,000,000  for the
purpose of refunding the outstanding  principal  amount of the Prior Bonds,  all
the Bonds to be issued  under and secured by an  Indenture  of Trust dated as of
November 1, 2005 (the "Indenture") between the Authority and Citibank,  N.A., as
Trustee (the "Trustee"); and

     WHEREAS,  simultaneously  with the issuance and delivery of such bonds, the
Company will execute and deliver a promissory note dated the date of issuance of
such bonds (the  "Company  Obligation")  as evidence of its  obligation  to make
payments required by this Participation Agreement;

     NOW, THEREFORE,  for and in consideration of the premises and of the mutual
covenants  and  agreements  hereinafter  set forth,  it is hereby  agreed by and
between the parties as follows:

                                   ARTICLE I

                   DEFINITIONS; EFFECTIVE DATE AND DURATION OF
                             PARTICIPATION AGREEMENT

     Section  1.01.  Definitions.  Each of the terms used in this  Participation
Agreement  which is  defined  in Section  1.01 of the  Indenture  shall have the
meaning herein which such term is given in Section 1.01 of the Indenture.

     Section  1.02.  Effective  date of  Participation  Agreement;  duration  of
Participation  Agreement.  This  Participation  Agreement shall become effective
upon its execution and  delivery.  Concurrently  with the issuance of the Bonds,
(i) the  proceeds of the sale of such Bonds will be  transferred  by the Trustee
for deposit into the Prior Bond Fund as provided in Section  3.02  hereof.  This
Participation  Agreement  shall  continue  in full  force and  effect  until the
principal of and premium, if any, and interest on the Bonds have been fully paid
(or  provision  for their payment has been made and all such Bonds are deemed to
be no longer outstanding in accordance with the provisions of the Indenture) and
all sums to which the  Authority,  the Trustee and the Bond Insurer are entitled
hereunder  have been fully paid,  including  but not limited to amounts  payable
pursuant to Sections 4.05, 4.08 and 4.09 hereof.

                                   ARTICLE II

                                 REPRESENTATIONS

     Section 2.01. Representations by the Authority. The Authority represents as
follows:

          (a) The  Authority is a body  corporate  and politic,  constituting  a
     public benefit corporation,  established and existing under the laws of the
     State of New York;


                                       2
<PAGE>


          (b) The  Authority has full power and authority to execute and deliver
     this  Participation   Agreement,  the  Tax  Regulatory  Agreement  and  the
     Indenture  and to  consummate  the  transactions  contemplated  hereby  and
     thereby and perform its obligations hereunder and thereunder;

          (c) The Authority is not in default under any of the provisions of the
     laws of the State of New York  which  would  affect  its  existence  or its
     powers referred to in the preceding paragraph (b);

          (d)  The  Authority  has  determined  that  its  participation  in the
     Project, as contemplated by this Participation  Agreement, is in the public
     interest;

          (e) The  Authority has duly  authorized  the execution and delivery of
     this Participation Agreement and the Indenture; and

          (f) The execution and delivery of this Participation Agreement and the
     Tax Regulatory  Agreement,  and the consummation of the transactions herein
     contemplated  will not  violate  or cause a default  under  any  indenture,
     mortgage,  loan  agreement  or other  contract or  instrument  to which the
     Authority  is a  party  or by  which  it is  bound,  or to the  best of the
     Authority's  knowledge,  any  judgment,  decree,  order,  statute,  rule or
     regulation applicable to the Authority.

     Section 2.02.  Representations  by the Company.  The Company  represents as
follows:

          (a)  The  Company  is a  corporation  duly  incorporated  and in  good
     standing  under the laws of the State of New York,  is duly  qualified  and
     authorized  to engage in business  as a public  utility in the State of New
     York,  has power to enter  into,  execute and  deliver  this  Participation
     Agreement and the Tax  Regulatory  Agreement,  and to issue and deliver the
     Company  Obligation and by proper  corporate action has duly authorized the
     execution and delivery of this Participation  Agreement, the Tax Regulatory
     Agreement,  the  Insurance  Agreement  and the issuance and delivery of the
     Company Obligation;

          (b) The execution and delivery of this Participation Agreement and the
     issuance and delivery of the Company Obligation and the consummation of the
     transactions  herein  contemplated  will not conflict  with or constitute a
     breach of or a default under the Company's  Certificate of Incorporation or
     By-Laws  or any  judgment,  decree,  order,  statute,  rule  or  regulation
     applicable to the Company or any  indenture,  mortgage,  loan  agreement or
     other contract or instrument to which the Company is a party or by which it
     is bound;

          (c) The issuance and delivery of the Company Obligation by the Company
     and the  execution  and  delivery of this  Participation  Agreement  by the
     Company in the manner and for the purposes  herein set forth have been duly
     authorized by an order of the Public Service Commission of the State of New
     York; and


                                       3
<PAGE>


          (d) The Participation  Agreement, the Tax Regulatory Agreement and the
     Insurance  Agreement  have been duly  executed and delivered by the Company
     and  constitute  valid and  legally  binding  obligations  of the  Company,
     enforceable  against the Company in accordance with their respective terms,
     except as enforcement may be limited by applicable bankruptcy,  insolvency,
     moratorium,  reorganization  or other laws  relating  to or  affecting  the
     enforcement of creditors'  rights or contractual  obligations  generally or
     principles of equity or judicial discretion; and

          (e) All necessary authorizations for or approvals of the execution and
     delivery of this  Participation  Agreement and the issuance and delivery of
     the Company Obligation have been obtained by the Company; and

          (f) The Company agrees to reimburse the Bond Insurer  immediately  and
     unconditionally  upon  demand,  to the  extent  permitted  by law,  for all
     reasonable expenses,  including  attorneys' fees and expenses,  incurred by
     the Bond Insurer in connection with (i) the enforcement by the Bond Insurer
     of the Company's obligations,  or the preservation or defense of any rights
     of the Bond Insurer,  under this Indenture and any other document  executed
     in  connection  with the  issuance  of the  Bonds,  and  (ii) any  consent,
     amendment,  waiver or other  action with  respect to the  Indenture  or any
     related  document,  whether  or not  granted  or  approved,  together  with
     interest on all such  expenses  from and including the date incurred to the
     date of payment at  Citibank's  Prime Rate plus 3% or the maximum  interest
     rate permitted by law, whichever is less. In addition, the Insurer reserves
     the  right  to  charge a fee in  connection  with  its  review  of any such
     consent, amendment or waiver, whether or not granted or approved; and

          (g) The  Company  agrees  not to use the  Bond  Insurer's  name in any
     public  document  including,   without  limitation,   a  press  release  or
     presentation,  announcement  or  forum  without  the Bond  Insurer's  prior
     consent.  In the event that the Company is advised by counsel that it has a
     legal  obligation to disclose the Bond Insurer's name in any press release,
     public announcement or other public document, the Company shall provide the
     Bond Insurer with at least three (3) business days' prior written notice of
     its  intent  to use the Bond  Insurer's  name  together  with a copy of the
     proposed  use of the  Bond  Insurer's  name  and  of any  description  of a
     transaction with the Bond Insurer and shall obtain the Bond Insurer's prior
     consent  as to the  form  and  substance  of the  proposed  use of the Bond
     Insurer's name and any such description.

          (h) The  Company  shall  not  enter  into any  agreement  nor shall it
     consent to or  participate in any  arrangement  pursuant to which Bonds are
     tendered  or  purchased  for any  purpose  other  than the  redemption  and
     cancellation  or legal  defeasance  of such Bonds without the prior written
     consent of the Bond Insurer; and

          (i) The Company has  corporate  power to take all actions  required or
     permitted  to be taken by the  Company  by or  under,  and to  perform  and
     observe  the  covenants  and  agreements  on its  part  contained  in,  the
     Indenture.

     2. The  representations  and warranties of the Company set forth in the Tax
Regulatory  Agreement are hereby  incorporated  by reference as though fully set
forth herein.


                                       4
<PAGE>


                                  ARTICLE III

                   CONSTRUCTION OF PROJECTS; ISSUANCE OF BONDS

     Section  3.01.  Company to cause  construction  of Project.  1. The Company
represents  that it has caused the Project to be completed.  The Project belongs
to and is the property of the Company.  In order to  effectuate  the purposes of
this Participation  Agreement, the Company, in its own name, will do or cause to
be done all things requisite or proper for the fulfillment of the obligations of
the Company under this Participation Agreement.

     Section 3.02. Sale of Bonds and deposit of proceeds; Liability under Bonds.
1. In rder to provide funds for the refunding of the Prior Bonds,  the Authority
will issue, sell and deliver the Bonds to the initial  purchasers  thereof,  all
pursuant to and as provided in the Bond  Purchase  Agreement for the Bonds among
the  Authority,  the Company and the initial  purchasers of the Bonds,  and will
deposit  the  proceeds  of such  sale of the  Bonds in the  Prior  Bond  Fund as
provided in the Indenture.

     2. The Bonds shall not be general  obligations of the Authority,  and shall
not constitute an  indebtedness of or a charge against the general credit of the
Authority  or  give  rise  to any  pecuniary  liability  of the  Authority.  The
liability  of the  Authority  under the Bonds shall be  enforceable  only to the
extent provided in the Indenture, and the Bonds shall be payable solely from the
Company  Obligation  Payments  and any other  funds  held by the  Trustee in any
accounts  established  under the Indenture and  specifically  available for such
payment.  The  Bonds  shall not be a debt of the State of New York and the State
shall not be liable thereon.

     Section 3.03.  Possession of Projects. As owner of the Project, the Company
is entitled to possession of the Projects.

     Section 3.04.  Operation,  maintenance  and repair.  The Company  agrees to
proceed in good faith to maintain the  availability of the Project for use as an
authorized project under the Act.  Notwithstanding the foregoing,  the Authority
and the Company recognize that the Project will constitute  integrated  portions
of gas distribution,  production and storage  facilities of the Company and that
it is not feasiblt to administer the Project  separately  from such  facilities.
The Company  shall  operate  the Project  (with such  changes,  improvements  or
additions as the Company may deem desireable) as part of such facilities for the
joint useful lives of the Project and such  facilitites  and shall  maintain and
repair the Project in  conformity  with the  Company's  normal  maintenance  and
repair  programs for such  facilities;  provided  that the Company shall have no
obligation to operate, maintain or repair any element or item of the Project the
operation,  maintenance  or repair of which  becomes  uneconomic  to the Company
because of damage or destruction or obsolescence (including phsycial, functional
and economic  obsolescence),  or change in government standards and regulations,
or the  termination  by the Company of the operation of the  facilities to which
the element or item of the Project is an adjunct.

     Section 3.05. Investment of moneys in Funds under the Indenture. Any moneys
held as a part of any Fund created  under the Indenture  shall,  at the specific
written  direction  of an  Authorized  Company  Representative,  be  invested or
reinvested  by the Trustee as provided  in Article VI of the  Indenture.  In the
absence of any such written direction, amounts held in any fund or account shall
remain uninvested.


                                       5
<PAGE>


                                   ARTICLE IV

                       CORPORATION OBLIGATION AND PAYMENTS

     Section 4.01  Execution and delivery of Company  Obligation to Trustee.  In
order to evidence the  obligation  of the Company to the  Authority to repay the
advance of the proceeds of the Bonds,  the Authority hereby directs the Company,
and the  Company  hereby  agrees,  to  deliver or cause to be  delivered  to the
Trustee,  concurrently with the  authentication of and delivery by the Authority
of the  Bonds,  the  Company  Obligation  relating  to the  Bonds.  The  Company
Obligation shall be in substantially the form attached hereto as Exhibit B, with
only such changes,  omissions and insertions thereto as shall have been approved
by the Authority.  The Company shall be entitled to receive a credit against its
obligation  to pay the  principal of and  premium,  if any, and interest on, the
Company  Obligation in accordance  with the  Indenture.  The Company  Obligation
shall:

          (a)  be in an  aggregate  principal  amount  equal  to  the  aggregate
     principal amount of the Bonds then being  authenticated  and delivered (the
     "related Bonds");

          (b) provide for payments of interest equal to the payments of interest
     on the Bonds;

          (c) require payments of principal,  or principal plus a premium, equal
     to the payments required to be made on the Bonds;

          (d)  contain  redemption  provisions,  including  premium,  if any, or
     provisions  with  respect  to  amortization  of  principal,  together  with
     premium, if any, identical to the redemption or amortization  provisions of
     the Bonds;

          (e) require  that all  payments of  principal,  premium,  if any,  and
     interest on the Company  Obligation  be made to the Trustee in such coin or
     currency of the United States of America as at the time of payment shall be
     legal  tender for the  payment of public and private  debts,  and that each
     such payment be made on the due date for the  corresponding  payment on the
     Bonds;

          (f) provide  that the amount of any such  payment  shall be reduced by
     the amount, if any,  available under the Indenture on the due date for such
     payment and applied to the corresponding payment on the Bonds; and

          (g) provide for payment of amounts due under the Insurance Agreement.

     Section 4.02. Prepayment to redeem Bonds. Whenever any Bonds are redeemable
in whole or in part (other than pursuant to Section 9.06 of the Indenture),  the
Authority will redeem the same at the written direction of an Authorized Company
Representative,  and the Company will pay, as a prepayment  of the amount due on
the Company Obligation corresponding to such Bonds, an amount equal to the total
cost of such redemption,  less the amount,  if any, in the Bond Fund on the date
fixed for such redemption and available for such redemption payment.


                                       6
<PAGE>


     Section 4.03.  Obligation for payment absolute;  deficiencies.  The Company
agrees that its obligation to make the Company Obligation  Payments at the times
and in the  amounts  provided in the  Company  Obligation  and to make all other
payments  provided  for in  this  Participation  Agreement  shall  be  absolute,
irrevocable  and  unconditional  and shall not be subject to any defense  (other
than payment) or any rights of setoff,  recoupment,  abatement,  counterclaim or
deduction  and  without  any  rights of  suspension,  deferment,  diminution  or
reduction it might  otherwise have against the Authority or Trustee or the owner
of any Bond.  The Company will not suspend or  discontinue  any such payments or
terminate this Participation Agreement for any cause including, without limiting
the  generality  of the  foregoing,  the  unenforceability  (because of judicial
decision  or  otherwise)  or the  impossibility  of  performance  of the Company
Obligation obligations,  or any breach by the Authority of any obligation to the
Company,  whether  under this  Participation  Agreement or any  indebtedness  or
liability at any time owing to the Company by the  Authority or the  destruction
by fire or other casualty of any Project or any portion  thereof,  or the taking
of title  thereto  or the use  thereof by the  exercise  of the power of eminent
domain or  condemnation  or any  change in the tax or other  laws of the  United
States, the State or any political subdivision of either thereof.  Except to the
extent provided in the first and second sentences in this Section 4.03,  nothing
contained  herein  shall  constitute  a waiver or release by the  Company of any
right,  claim or  cause of  action  which  the  Company  may  have  against  the
Authority,  the Trustee or others,  including  but not limited to, those rights,
causes of action or claims which may arise out of the breach of their respective
obligations or the inaccuracy of their respective warranties, provided, however,
that the Company  may pursue any such right,  claim or cause of action only by a
separate proceeding or action and not by counterclaim or setoff and the bringing
of such separate  proceeding or action shall not affect the Company's  absolute,
irrevocable  and  unconditional  obligation  to make  payments  pursuant to this
Section  4.03.  No  provisions  set forth  herein  shall  constitute a waiver or
release  by the  Authority  of any  right,  claim or cause of  action  which the
Authority may have against the Company,  the Trustee or others,  including,  but
not limited to, those rights,  causes of action or claims which arise out of the
breach of their  respective  obligations or the  inaccuracy of their  respective
warranties.  No provisions set forth herein shall constitute a waiver or release
by the Trustee of any right, claim or cause of action which the Trustee may have
against the Company,  or others,  including,  but not limited to, those  rights,
causes of action or claims  which  arise out of the  breach of their  respective
obligations or the inaccuracy of their  respective  warranties.  Notwithstanding
anything herein to the contrary,  if for any reason Company Obligation Payments,
together  with other moneys held by the Trustee in any account and  specifically
available  for such purpose,  would not be sufficient to make the  corresponding
payments of  principal  of and  premium,  if any, and interest on the Bonds when
such  payments are due, the Company will pay the amounts  required  from time to
time to make up any such deficiency.

     Section  4.04.  Administration  Fees;  expenses,  etc. In order to defray a
portion  of  the  expenses   incurred  by  the  Authority  in   conducting   and
administering its gas facility financing programs,  the Company shall pay to the
Authority an initial Administration Fee in the amount of $205,000 on the date of
authentication and delivery of the Bonds to the initial purchasers and an annual
Administrative  Fee on  November 1 of each year  (commencing  November  1, 2006)


                                       7
<PAGE>


until the Bonds are no longer outstanding in the amount of $10,660. In addition,
the Company  shall  deliver to the Authority a check payable to the State of New
York with respect to the bond issuance  charge  applicable to the Bonds pursuant
to Section 2976 of the Public Authorities Law in the amount of $574,000.

     In addition to such Administration  Fees, the Company will pay or reimburse
the Authority upon its request for all reasonable  expenses,  disbursements  and
advances  incurred or made by the Authority  (including  printing  costs and the
reasonable fees,  expenses and disbursements of its counsel and bond counsel) in
connection  with this  Participation  Agreement,  the  Company  Obligation,  the
Municipal Bond Insurance Policy, the Tax Regulatory Agreement, the Bond Purchase
Agreement, the Indenture or any transaction, instrument or event contemplated by
any such document.

     Section 4.05. Compensation of Trustee and Paying Agents. The Company agrees
to pay to the Trustee until the principal of,  premium,  if any, and interest on
the Bonds  shall have been fully  paid:  (i) an amount  equal to the  initial or
acceptance fee of the Trustee and the annual fee of the Trustee for its ordinary
services  rendered  and its  ordinary  expenses  incurred  as Trustee  under the
Indenture,  as and when the same become due; (ii) reasonable fees and charges of
the Trustee,  as Registrar and Paying Agent,  and any other Registrar and Paying
Agent for the Bonds for acting as Registrar and Paying Agent, as provided in the
Indenture,  as  and  when  the  same  become  due;  (iii)  reasonable  fees  and
disbursements  of counsel to the  Trustee,  as and when the same become due; and
(iv)  the  reasonable  fees  and  charges  of  the  Trustee  for  the  necessary
extraordinary  services rendered by it and extraordinary expenses incurred by it
under the Indenture, as and when the same become due; provided, that the Company
may, without creating a default  hereunder,  contest in good faith the necessity
for  any  such  extraordinary   services  or  extraordinary   expenses  and  the
reasonableness  of any such fees,  charges or expenses.  Such fees,  charges and
expenses  shall  be  paid  directly  to  the  Trustee  for  its  own  use or for
disbursement to the Registrar and Paying Agent, as the case may be.

     Section 4.06. Project not security for Bonds. It is expressly recognized by
the parties  that the Project will not  constitute  any part of the security for
the Bonds. The principal  security for the Bonds shall be the Company Obligation
and the absolute,  irrevocable  and  unconditional  obligation of the Company to
make the Company Obligation Payments.

     Section 4.07.  Payment of taxes and assessments;  no liens or charges.  The
Company will (a) pay, when the same shall become due, all taxes and assessments,
including income, profits,  property or excise taxes, if any, or other municipal
or governmental charges,  imposed,  levied or assessed by the Federal,  state or
any  municipal  government  upon the  Authority or the Trustee in respect of any
payments  (other than  payments  made pursuant to Sections 4.04 and 4.05 hereof)
made or to be made  pursuant  to this  Participation  Agreement  or the  Company
Obligation, and (b) pay or cause to be discharged,  within sixty (60) days after
the same shall  accrue,  any lien or charge upon any such  payment made or to be
made under this Participation Agreement, provided, that the Company shall not be
required  to pay any such tax or  assessment  so long as (i) the  Company at its
expense contests by appropriate  legal  proceedings  conducted in good faith and
with due  diligence  the  amount,  validity  or  application  of any  such  tax,
assessment or charge,  (ii) such proceedings shall have the effect of suspending
the collection thereof from the Authority and the Trustee, and (iii) the Company


                                       8
<PAGE>


shall indemnify and hold the Authority and the Trustee harmless from any losses,
costs, charges, expenses (including attorneys' fees and expenses), judgments and
liabilities  arising  in  respect  of such tax,  assessment  or  charge  and the
non-payment thereof.

     Section 4.08.  Indemnification of Authority and Trustee.  Any obligation of
the Authority created by or arising out of this Participation Agreement shall be
a  limited  obligation  of  the  Authority,  payable  solely  from  the  Company
Obligation  Payments and any other funds held by the Trustee under the Indenture
and available for such payment, and shall not constitute an indebtedness of or a
charge  against the general  credit of the Authority and shall not constitute or
give rise to any  pecuniary  liability of the  Authority;  nevertheless,  if the
Authority  shall  incur any such  pecuniary  liability,  then in such  event the
Company shall indemnify and hold the Authority  harmless by reason thereof.  The
Company  releases the Authority and the Trustee from,  agrees that the Authority
and the Trustee  shall not be liable for, and agrees to  indemnify  and hold the
Authority and the Trustee harmless from, any liability for any loss or damage to
property or any injury to or death of any person that may be  occasioned  by any
cause whatsoever  arising out of the construction or operation of any Project or
the financing  thereof.  The Company agrees to indemnify and hold the Authority,
its members,  officers and employees harmless from any losses,  costs,  charges,
expenses   (including   attorneys'  fees  and   disbursements),   judgments  and
liabilities  incurred by it or them, as the case may be, in connection  with any
action,  suit or proceeding  instituted  or  threatened  in connection  with the
transactions contemplated by this Participation Agreement so long as it or they,
as the  case may be,  have  acted in good  faith to carry  out the  transactions
contemplated by this  Participation  Agreement.  The Company agrees to indemnify
and hold the Trustee and any director, officer, employee or agent of the Trustee
harmless in connection  with any loss,  liability,  claim or reasonable  expense
(including costs and expenses of litigation, and of investigation, counsel fees,
damages,  judgments and amounts paid in settlement),  action, suit or proceeding
instituted or threatened  in connection  with or arising under the  transactions
contemplated by this  Participation  Agreement in the manner provided in Article
XIII of the  Indenture,  except for its own willful  misconduct or negligence in
carrying out the transactions contemplated by this Participation Agreement.

     Section 4.09.  Company to pay  attorneys'  fees and  disbursements.  If the
Company  shall  default  under  any  of the  provisions  of  this  Participation
Agreement and the Authority or the Trustee shall employ attorneys or incur other
expenses for the collection of payments due under this  Participation  Agreement
or for the  enforcement  of  performance  or  observance  of any  obligation  or
agreement on the part of the Company contained in this Participation  Agreement,
the  Company  will on demand  therefor  reimburse  the  reasonable  fees of such
attorneys and such other reasonable disbursements so incurred.

     Section 4.10. No abatement of Administration  Fees and other charges. It is
understood  and  agreed  that so long as any  Bonds  are  outstanding  under the
Indenture,  Administration  Fees and  other  charges  payable  to the  Authority
pursuant to this  Participation  Agreement  shall  continue to be payable at the
times and in the amounts herein  specified,  whether or not any Project,  or any
portion thereof,  shall have been destroyed by fire or other casualty,  or title
thereto or the use thereof shall have been taken by the exercise of the power of
eminent domain, and that there shall be no abatement of any such  Administration
Fees and other charges by reason thereof.


                                       9
<PAGE>


     Section  4.11.  Prepayment  of Company  Obligation.  The Company  shall not
prepay any Company  Obligation  or any portion  thereof  except as  necessary in
connection  with the  redemption  prior to  maturity  of all or a portion of the
Bonds, or upon  acceleration of maturity of the Bonds or pursuant to Article XVI
of the Indenture.

     Section  4.12.  Company  Liable to  Owners of Bonds in the Case of  Certain
Events of  Taxability.  The Company  confirms  and agrees that if as a result of
action by the Company,  the owner of the Project as of the date  hereof,  or any
successor  owner of the Project,  the interest on the Bonds is  determined to be
included  for federal  income tax purposes in the gross income of any owner of a
Bond  (other  than a  "substantial  user" of the  Project or a "related  person"
within  the  meaning of  section  147(a)(1)  of the  Code),  as  evidenced  by a
published  or  private  ruling  of the  Internal  Revenue  Service  or a  final,
nonappealable judicial decision by a court of competent  jurisdiction,  then the
Company,  in addition to its  obligation to redeem the Bonds pursuant to Section
2.05(c) of the  Indenture,  shall be liable to the affected  owners of the Bonds
for any taxes,  penalties  and  interest  assessed  against  such  owners by the
Internal Revenue Service and attributable to the Bonds.

     The Authority and the Trustee agree not to object to the intervention in or
participation  by the Company at its own expense in any proceedings by or before
the Internal  Revenue  Service or any court relating to whether  interest on the
Bonds is includable  for federal  income tax purposes in the gross income of any
owner of a Bond  (other than a  "substantial  user" of the Project or a "related
person" within the meaning of Section 147(a)(1) of the Code).

                                   ARTICLE V

                                SPECIAL COVENANTS

     Section 5.01. No warranty as to suitability of Project. The Authority makes
no warranty, either express or implied, as to the actual or designed capacity of
any Project,  as to the suitability of any Project for the purposes specified in
this Participation  Agreement,  as to the condition of any Project,  or that any
Project will be suitable for the Company's purposes or needs.

     Section  5.02.   Authority's  rights  to  inspect  Project  and  plans  and
specifications.  The Authority  shall have the right at all reasonable  times to
examine and  inspect any and all records of the Company  relating to the Project
and,  to  the  extent  reasonably  available  to  the  Company,  the  plans  and
specifications therefor.

     Section  5.03.  Company  consent to amendment of  Indenture.  The Authority
shall not adopt any  indenture  supplemental  to or  amendatory of the Indenture
which affects the rights or obligations of the Company without the prior consent
of the Company as evidenced by a certificate  in writing signed by an Authorized
Company Representative.

     Section 5.04. Tax Covenant. Notwithstanding any other provision hereof, the
Company  covenants  and agrees that it will not take or  authorize or permit any
action to be taken  with  respect  to any  Project,  or the  proceeds  of Bonds,
including  any  amounts  treated as proceeds of Bonds for any purpose of Section
103 or any related  provisions of the Code, which will result in the loss of the


                                       10
<PAGE>


exclusion  of  interest on the Bonds from gross  income for  Federal  income tax
purposes  under  Section 103 of the Code  (except for any Bond during any period
while any such Bond is held by a person  referred  to in  Section  147(a) of the
Code).  This  provision  shall control in case of conflict or ambiguity with any
other provision of this Participation Agreement. In furtherance of such covenant
and agreement,  the Authority and the Company will enter into the Tax Regulatory
Agreement and the Company hereby agrees to comply with the provisions thereof.

     Section 5.05. Company agrees to perform  obligations  imposed by Indenture.
The Company  agrees to perform such  obligations as may be required of it by the
provisions of the Indenture.

     Section 5.06.  Certificates as to defaults. The Company shall file with the
Trustee,  on or  before  the  first  day of the  month in which  the  Bonds  are
delivered  and on the  anniversary  of  such  date  as  long  as the  Bonds  are
outstanding,  a  certificate  signed  by an  Authorized  Company  Representative
stating that,  to the best of his or her  knowledge and belief,  the Company has
kept, observed,  performed and fulfilled each and every one of its covenants and
obligations  contained  herein  and  there  does  not  exist at the date of such
certificate  any  default  hereunder  or,  if any such  default  shall so exist,
specifying the same and the nature and status thereof. The Company shall deliver
to the Trustee,  as soon as possible and in any event within five days after the
Company  becomes aware of the occurrence of any default  hereunder or under this
Indenture,  a certificate signed by an Authorized Company Representative setting
forth the details of such default and the action  which the Company  proposes to
take with respect thereto.

     Section 5.07. Compliance with laws. The Company will do or cause to be done
all things  necessary  on its part to preserve and keep in full force and effect
its  corporate  existence  and rights  and such  corporate  and  public  utility
franchises, rights, licenses and permits as are necessary for the conduct of its
business;  provided  that the Company may  terminate  or abandon,  or permit the
termination or abandonment of, any such right,  franchise,  license or permit if
in the  opinion  of  the  Company's  Board  of  Directors,  the  termination  or
abandonment  thereof is either necessary or in the best interests of the Company
and, in any such case, will not have a material  adverse effect on the Company's
ability to pay amounts with respect to the Company Obligation in accordance with
their  terms  or  otherwise  to  comply  with the  terms  of this  Participation
Agreement.  The  Company  will use its best  efforts  to comply in all  material
respects  with all  applicable  laws,  rules and  regulations  and orders of any
governmental authority,  non-compliance with which would have a material adverse
effect on its business,  financial  condition or results of  operations  (to the
extent the Company deems it can reasonably  comply while  maintaining its public
utility  operations) or would materially  adversely affect the Company's ability
to perform its  obligations  hereunder or under the Company  Obligation,  except
laws, rules, regulations or orders being contested in good faith.

     Section 5.08. Consolidation, Merger or Sale of Assets. The Company will not
consolidate  with or permit  itself to be merged into any other  corporation  or
corporations,   or  sell,  lease,  transfer  or  otherwise  dispose  of  all  or
substantially  all of its properties  and assets,  except in the manner and upon
the terms and conditions set forth in this Section 5.08.


                                       11
<PAGE>


     Nothing contained in this  Participation  Agreement shall prevent (and this
Participation  Agreement shall be construed as permitting and  authorizing)  any
lawful consolidation or merger of the Company with or into any other corporation
or corporations lawfully authorized to acquire and operate the properties of the
Company, or a series of consolidations or mergers, or successive  consolidations
or  mergers,  in which the Company or its  successor  or  successors  shall be a
party, or any sale of all or substantially  all the properties of the Company as
an  entirety to a  corporation  lawfully  authorized  to acquire and operate the
same;  provided that,  upon any  consolidation,  merger or sale, the corporation
formed by such  consolidation,  or into which such merger may be made, or making
such purchase  shall execute and deliver to the Trustee an  instrument,  in form
reasonably   satisfactory  to  the  Trustee,   whereby  such  corporation  shall
effectually  assume  the due and  punctual  payment  of the  principal  of,  and
premium, if any, and interest on, the Company Obligation  according to its tenor
and the  due and  punctual  performance  and  observance  of all  covenants  and
agreements  to be  performed  by the  Company  pursuant  to  this  Participation
Agreement, the Tax Regulatory Agreement and the Company Obligation.

     Every such successor corporation shall possess, and may exercise, from time
to time, each and every right and power hereunder of the Company, in its name or
otherwise;  and any act,  proceeding,  resolution or  certificate  by any of the
terms of this  Participation  Agreement and the Company  Obligation  required or
provided to be done,  taken and  performed or made,  executed or verified by any
board or officer of the Company  shall and may be done,  taken and  performed or
made, executed or verified with like force and effect by the corresponding board
or officer of any such successor corporation.

     If consolidation,  merger or sale or other transfer is made as permitted by
this Section,  the  provision of this Section  shall  continue in full force and
effect and no further  consolidation,  merger or sale or other transfer shall be
made except in compliance with the provisions of this Section.

     Section  5.09.  Financial  Statements  of Company.  The  Company  agrees to
furnish the Trustee with a copy of its annual  report to  stockholders  for each
year, beginning with the year 2005, on or before [May 15] of the subsequent year
or as soon thereafter as it is reasonably available.  The Company further agrees
to furnish to the Trustee and to any owner of the Bonds if  requested in writing
by such owner all financial statements which it sends to its shareholders,  and,
to the extent it shall no longer be a publicly owned company,  the Company shall
provide a copy of its audited annual financial statements.

     Section 5.10.  Recording and Filing.  The Company hereby  covenants that it
will cause all financing statements related to the Indenture and all supplements
thereto and this Participation Agreement and all supplements thereto, as well as
such other security agreements, financing statements and all supplements thereto
and other  instruments  as may be required  from time to time to be kept,  to be
recorded and filed in such manner and in such places as may from time to time be
required by law in order to preserve  and protect  fully the security of Holders
and the rights of the  Trustee  hereunder,  and to take or cause to be taken any
and all other action  necessary to perfect the security  interest created by the
Indenture.


                                       12
<PAGE>


     Section 5.11. Maintenance of Properties.  So long as the Company Obligation
remains  outstanding and unpaid,  the Company will at all times make or cause to
be made such expenditures for repairs,  maintenance and renewals,  or otherwise,
as shall be necessary to maintain its  properties in good repair,  working order
and condition as an operating  system or systems to the extent necessary to meet
the Company's  obligations under the Public Service Law of the State of New York
and the Participation Agreement.

     Section  5.12.  Insurance.  So  long  as  the  Company  Obligation  remains
outstanding and unpaid, the Company will keep or cause to be kept its properties
that are of an insurable nature, insured against loss or damage by fire or other
risks, the risk of which in the opinion of an Authorized Company  Representative
(who  shall  be an  officer  or  employee  of the  Company  responsible  for the
management of such risks) is customarily  insured against by companies similarly
situated and operating like  properties,  to the extent that property of similar
character is, in such Authorized Company Representative's  opinion,  customarily
insured  against by such companies,  either (a) by reputable  insurers or (b) in
whole  or in part in the  form of  reserves  or of one or more  insurance  funds
created by the Company, whether alone or with other Companys.

     Section  5.13.  Proper Books of Record and Account.  So long as the Company
Obligation remains outstanding and unpaid, the Company will at all times keep or
cause to be kept proper  books of record and  account,  in which full,  true and
correct entry will be made of all dealings, business and affairs of the Company,
including proper and complete entries to capital or property  accounts  covering
property  worn out,  obsolete,  abandoned or sold,  all in  accordance  with the
requirements  of any  system of  accounting  or keeping  accounts  or the rules,
regulations or orders  prescribed by a regulatory  commission with  jurisdiction
over the rates of the Company giving rise to at least fifty-one percent (51%) of
the Company's  gross  revenues,  or if there are no such  requirements or rules,
regulations or orders,  then in compliance  with generally  accepted  accounting
principles.

     Section  5.14.  Compliance  with Laws.  So long as the  Company  Obligation
remains   outstanding  and  unpaid,  the  Company  agrees  to  use  commercially
reasonable  efforts to comply in all material respects with all applicable laws,
rules and regulations and orders of any governmental  authority,  non-compliance
with which  would  have a material  adverse  effect on its  business,  financial
condition  or results of  operations  (to the  extent the  Company  deems it can
reasonably  comply while  maintaining  its public  utility  operations) or would
materially  adversely  affect the Company's  ability to perform its  obligations
hereunder,  except laws,  rules,  regulations or orders being  contested in good
faith.

     Section  5.15.  Further   Assurances.   The  Company  will  make,  execute,
acknowledge  and  deliver,  or  cause  to be made,  executed,  acknowledged  and
delivered,  to the  Trustee  any and  all  such  further  acts,  instruments  or
assurances as may be reasonably  required for effectuating the intention of this
Participation Agreement and the Company Obligation.

     Section  5.16.  Maintenance  of Office or Agency.  The Company shall at all
times keep, in New York, New York, or another location in the State of New York,
an office or agency  where  notices  and  demands  with  respect to the  Company
Obligation and this Participation  Agreement may be served, and shall, from time
to time,  give  written  notice to the Trustee of the location of such office or
agency.


                                       13
<PAGE>


     Section 5.17.  Performance  of and  Compliance  with Other  Covenants.  The
Company  will  perform  and comply with each of the  covenants  set forth in the
Indenture  dated as of November 1, 2005 between the  Authority  and the Trustee,
together with the  definitions of all of the terms defined in such Indenture and
used in or  otherwise  applicable  therein,  being hereby  incorporated  in this
Participation  Agreement by reference as if such provisions and definitions were
set forth in full herein.

                                   ARTICLE VI

                        DEFAULTS BY CORPORATION; REMEDIES

     Section 6.01. Section 6.01. Events of Default; Acceleration. In case one or
more of the following events of default shall have occurred and be continuing;

          (a) failure by the  Company to pay when due any amount  required to be
     paid under this Participation  Agreement or the Company  Obligation,  which
     failure  causes a default in the payment when due of the  principal  of, or
     premium, if any, or interest on, any of the Bonds; or

          (b) failure by the  Company to pay when due any amount  required to be
     paid under  Section 4.11 of this  Participation  Agreement,  which  failure
     causes an Event of Default to occur  pursuant to  paragraph  (a) of Section
     12.01 of the Indenture; or

          (c) failure on the part of the Company  duly to observe or perform any
     other of the covenants or  agreements on the part of the Company  contained
     in the Participation  Agreement (other than failure to pay amounts required
     to be paid  under  Sections  4.04,  4.05  and  4.08),  the  Tax  Regulatory
     Agreement  or in the  Company  Obligation  for a period of ninety (90) days
     after the date on which  written  notice  of such  failure,  requiring  the
     Company  to remedy the same,  shall  have been given to the  Company by the
     Authority or the Trustee; or

          (d) the occurrence of an Event of Bankruptcy of the Company;

then,  and in any such event,  the Trustee (as assignee of the  Authority)  may,
with the consent of the Bond Insurer  (provided  that the Bond Insurer is not in
default under the Policy),  and/or the  direction of the Bond Insurer  (provided
that the Bond Insurer is not in default under the Policy),  or, upon the written
request or direction of the owners of not less than twenty-five percent (25%) in
aggregate principal amount of the Bonds then outstanding with the consent of the
Bond Insurer  shall,  proceed to protect and enforce all rights of the owners of
Bonds and the  Trustee and as  permitted  by the  Indenture  and the laws of the
State of New York, by such means or appropriate judicial proceedings as shall be
suitable or deemed by it most effective,  including suits or special proceedings
at law or in equity, or otherwise,  for specific  enforcement of any covenant or
agreement contained in the Participation Agreement, or to require the Company to
perform its duty under the Participation Agreement. Any amounts collected by the


                                       14
<PAGE>


Trustee  pursuant to action taken here shall be applied in  accordance  with the
Indenture.  In  addition,  if at any time the  principal of the Bonds shall have
been declared to be due and payable by acceleration pursuant to the terms of the
Indenture,  the Company Obligation shall thereupon become and be immediately due
and  payable,  subject  to such  declaration  with  respect  to the Bonds  being
annulled pursuant to Section 12.03 of the Indenture.  Furthermore,  in the event
of a Company default under the Insurance Agreement, the Company Obligation shall
thereupon become and be immediately due and payable.

     The right or  obligation  of the  Trustee to make any such  declaration  as
aforesaid,  however,  is  subject  to the  condition  that if, at any time after
declaration,  but before all the Bonds shall have  matured by their  terms,  the
principal of,  premium,  if any, and interest on, the Company  Obligation  which
shall have become due and payable  otherwise than by such  declaration,  and all
other sums payable under this Participation Agreement,  except the principal of,
and interest on, the Company  Obligation which shall have become due and payable
by such  declaration,  shall  have been paid or  provision  satisfactory  to the
Trustee shall have been made for such payment,  and the  reasonable  expenses of
the  Trustee  and of the owners of the Bonds  shall  have been  paid,  including
reasonable  attorneys'  fees paid or incurred,  and all defaults  hereunder  and
under the Bonds or under the  Indenture,  except as to the payment of  principal
and interest due and payable solely by reason of such declaration, shall be made
good or be secured to the satisfaction of the Trustee or provision deemed by the
Trustee to be adequate shall be made therefore, then and in every such case, the
Bond Insurer  (unless the Bond Insurer is then in default under the Policy),  or
the  owners of a  majority  in  aggregate  principal  amount  of the Bonds  then
outstanding,  with the  consent of the Bond  Insurer,  by written  notice to the
Authority  and to the  Trustee,  may  rescind  such  declaration  and annul such
default in its entirety, or, if the Trustee shall have acted in the absence of a
written request of the owners of at least twenty-five percent (25%) in aggregate
principal  amount of the  outstanding  Bonds,  and if there  shall not have been
theretofore  delivered to the Trustee  written  direction to the contrary by the
owners of a majority in aggregate  principal  amount of the  outstanding  Bonds,
then any such  declaration  shall ipso facto be deemed to be  rescinded  and any
such default and its consequences shall ipso facto be deemed to be annulled, but
no such  rescission  and  annulment  shall  extend to or affect  any  subsequent
default or impair or exhaust any right or power consequent thereon.

     In case the Trustee  shall have  proceeded  to enforce any right under this
Participation  Agreement or the Company  Obligation and such  proceedings  shall
have been discontinued or abandoned for any reason or shall have been determined
adversely  to the  Trustee,  then  and in  every  such  case  the  Company,  the
Authority,  the Bond Insurer and the Trustee shall be restored  respectively  to
their former positions and rights hereunder, and all rights, remedies and powers
of the Company,  the Authority,  the Bond Insurer and the Trustee shall continue
as though no such proceedings had been taken.

     Section 6.02.  Events of Default  Relating to Fees or  Indemnification.  In
case the  Company  shall have  failed to pay  amounts  required to be paid under
Sections 4.04,  4.05 and 4.08,  which event shall have continued for a period of
ninety  (90)  days  after  the date on which  written  notice  of such  failure,
requiring  the Company to remedy the same,  shall have been given to the Company
by the Authority or the Trustee,  the Authority or the Trustee may take whatever
action at law or in equity as may  appear  necessary  or  desirable  to  enforce
performance or observance of any  obligations or agreements of the Company under
said Sections 4.04, 4.05 and 4.08.


                                       15
<PAGE>


     Section 6.03.  Judicial  Proceedings  by Trustee.  Upon the  occurrence and
continuance of an event of default under this Article, the Trustee may, and upon
the  written  request of the  owners of at least  twenty-five  percent  (25%) in
aggregate  principal amount of the Bonds then outstanding  shall,  institute any
actions or  proceedings  at law or in equity for the  collection  of any amounts
then due and unpaid on the Company Obligation, and may prosecute any such action
or  proceeding  to  judgment  or final  decree,  and may  collect  in the manner
provided by law the moneys adjudged or decreed to be payable.

     Section 6.04.  Rights of the Credit  Facility  Issuer;  Other Rights of the
Trustee to Enforce this Participation Agreement. Notwithstanding anything herein
to the contrary,  any judicial proceedings of the Trustee under Section 6.03 may
be instituted  only with the written  consent of the Credit  Facility  Issuer or
Bond Insurer and shall be instituted by the Trustee at the written  direction of
the Credit Facility Issuer or Bond Insurer.

     Nothing in this Participation Agreement shall limit any other rights of the
Trustee to enforce this Participation Agreement.

                                  ARTICLE VII

                                  MISCELLANEOUS

     Section 7.01.  Disposition  of amounts after payment of Bonds.  Any amounts
remaining in the funds  created  under the  Indenture  after  payment in full of
principal of, and premium,  if any, and interest on all the Bonds,  or provision
for payment  thereof  having been made in accordance  with the provisions of the
Indenture,  and payment of all the fees, charges and expenses of the Trustee and
Registrar  and Paying Agents in accordance  with this  Participation  Agreement,
shall belong to and be paid to the Company by the Trustee in accordance with the
provisions of the Indenture.

     Section  7.02.  Notices.  All  notices,  certificates,  requests  or  other
communications between the Authority, the Company and the Trustee required to be
given  under  this  Participation  Agreement  or under  the  Indenture  shall be
sufficiently  given and shall be deemed given when  delivered or mailed by first
class  mail,  postage  prepaid,  addressed  as  follows:  if to  the  Authority,
Authority, at 17 Columbia Circle, Albany, NY 12203; Attention:  Treasurer; if to
the Company,  at One  MetroTech  Center,  Brooklyn,  NY  11201-3851;  Attention:
Treasurer; if to the Bond Insurer with respect to the Bonds, at 125 Park Avenue,
5th Floor, New York, NY 10017,  Attention:  Manager, Global Utilities; if to the
Registered  Owners of the  Bonds,  to the  address  last  appearing  on the Bond
Register for such  Registered  Owner;  and if to the Trustee,  at 388  Greenwich
Stree, 14th Floor, New York, NY 10013, Attention: Agency & Trust, KeySpan Bonds.
A duplicate  copy of each notice,  certificate,  request or other  communication
given hereunder to the Authority, the Company or the Trustee shall also be given
to the others.  The Company,  the Authority and the Trustee may, by notice given
hereunder,  designate  any further or different  addresses  to which  subsequent
notices, certificates, requests or other communications shall be sent.


                                       16
<PAGE>


     Section 7.03.  Successors and assigns.  This Participation  Agreement shall
inure to the benefit of and shall be binding upon the Authority, the Company and
their respective successors and assigns.

     Section 7.04.  Amendment of  Participation  Agreement.  This  Participation
Agreement may not be amended  except by an  instrument in writing  signed by the
parties  hereto and, if such  amendment  occurs after the issuance of the Bonds,
upon compliance with the provisions of Article XV of the Indenture.

     Section  7.05.  Assignment by  Authority.  The  Authority  shall assign its
rights under and interest in this Participation Agreement (except the rights and
interest of the  Authority  under  Article III hereof and Sections  4.04,  4.07,
4.08,  4.09,  and 4.10  hereof) to the  Trustee  pursuant to the  Indenture,  as
security for payment of the  principal  of and premium,  if any, and interest on
the  Bonds  but such  assignment  shall be  subject  to the  provisions  of this
Participation  Agreement.  In addition, the Trustee shall have the same power as
the Authority to enforce from time to time the rights of the Authority set forth
in Article III hereof, subject to the provisions of this Participation Agreement
relating to the amendment  hereof.  Except as provided in this Section 7.05, the
Authority will not sell,  assign,  transfer,  convey or otherwise dispose of its
interest in this  Participation  Agreement during the term of this Participation
Agreement.

     Section 7.06.  Participation  Agreement  supersedes  any prior  agreements.
Subject to Section 1.02 hereof,  this  Participation  Agreement  supersedes  any
other prior agreements or  understandings,  written or oral, between the parties
with respect to the transactions  contemplated hereby,  except the Bond Purchase
Agreement,  dated  October 25,  2005 by and among the  Authority,  the  Company,
Morgan  Stanley  &  Co.  Incorporated,   BNY  Capital  Markets,  Inc.  Sovereign
Securities Corporation, LLC and The Williams Capital Group, L.P.

     Section   7.07.   Counterparts.   This   Participation   Agreement  may  be
simultaneously executed in counterparts. Each such counterpart so executed shall
be deemed to be an original,  and all together shall  constitute but one and the
same instrument.

     Section  7.08.  Severability.  If any clause,  provision or section of this
Participation  Agreement be held illegal,  invalid or unenforceable by any court
or administrative body, such determination shall be construed and enforced as if
such illegal or invalid or  unenforceable  clause,  provision or section had not
been  contained  in this  Participation  Agreement.  In case  any  agreement  or
obligation contained in this Participation  Agreement be held to be in violation
of law, then such agreement or obligation shall be deemed to be the agreement or
obligation  of the  Authority  or the  Company,  as the case may be, to the full
extent permitted by law.

     Section 7.09. Law and Place of Enforcement of this Participation Agreement.
This  Participation  Agreement  shall be construed and interpreted in accordance
with the laws of the State of New York and all suits and actions  arising out of
this  Participation  Agreement  shall  be  instituted  in a court  of  competent
jurisdiction in the State of New York.


                                       17
<PAGE>


     Section 7.10.  Bond Insurer  Requirements.  The Company  shall,  as soon as
practicable  after  the  filing or  availability  thereof,  provide  to the Bond
Insurer  the  Company's  quarterly  and  annual  financial  statements  and  the
Company's annual report.

     The Company  further  agrees  that it will  permit the Bond  Insurer (i) to
discuss  financial  affairs or any  information  the Bond Insurer may reasonably
request  regarding  the  security  for the Bonds  which are insured by such Bond
Insurer with  representatives of the Company and (ii) to permit the Bond Insurer
to have access to the Project and have access to and to make copies of all books
and records  relating to the Bonds which are insured by such Bond Insurer at any
reasonable time.

     Section 7.11. Parties in Interest.  Except as herein otherwise specifically
provided, nothing in this Agreement expressed or implied is intended or shall be
construed to confer upon any Person other than the Company,  the Authority,  the
Trustee,  each Bond  Insurer,  any right,  remedy or claim under or by reason of
this  Agreement,  this Agreement being intended to be for the sole and exclusive
benefit of the Company,  the  Authority,  the Trustee,  the Bond Insurer and the
owners of the Bonds.

     Section 7.12. The Policy.  The Company  acknowledges that it will cause the
Bond Insurer to deliver the Policy insuring  payment of the regularly  scheduled
principal of and interest on the Bonds.

     Section 7.13. Company Request to Transfer Bond Proceeds. The Company hereby
requests  the  Authority  to direct the Trustee to transfer  the proceeds of the
Bonds, pursuant to Section 9.01 of the Indenture,  for deposit in the Prior Bond
Fund created pursuant to Article IX of the Prior Indenture.

     Section 7.14.  Delegation  of Duties by Authority.  It is agreed that under
the  terms of this  Participation  Agreement  and also  under  the  terms of the
Indenture the Authority  has  delegated  certain of its duties  hereunder to the
Company. The fact of such delegation shall be deemed a sufficient  compliance by
the Authority to satisfy the duties so delegated and the Authority  shall not be
liable  in any way by  reason  of acts done or  omitted  by the  Company  or any
Authorized  Company  Representative.  The Authority  shall have the right at all
times to act in reliance upon the authorization, representation or certification
of an Authorized Company Representative unless such reliance is in bad faith.

     Section 7.15.  Survival of Representations,  Warranties and Covenants.  The
respective  agreements,  representations,  warranties  and  covenants  set forth
herein will remain in full force and will survive the  execution and delivery of
this Participation Agreement.


                                       18
<PAGE>


                  IN WITNESS WHEREOF, the parties hereto have caused this
Participation Agreement to be duly executed as of the day and year first written
above.

                                        NEW YORK STATE ENERGY RESEARCH
                                        AND DEVELOPMENT AUTHORITY


                                        By
                                            ----------------------
                                            President

(SEAL)

ATTEST:


--------------------------------
      Assistant Secretary

                                       THE BROOKLYN UNION GAS COMPANY d/b/a
                                       KEYSPAN ENERGY DELIVERY NEW YORK


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

(SEAL)

ATTEST:


--------------------------------
         Secretary





                                       19
<PAGE>




                                    EXHIBIT A

        (To Participation Agreement dated as of November 1, 2005, between
          New York State Energy Research and Development Authority and
     The Brooklyn Union Gas Company d/b/a KeySpan Energy Delivery New York)


                           DESCRIPTION OF THE PROJECT









                                      A-1


<PAGE>



                                    EXHIBIT B

        (To Participation Agreement dated as of November 1, 2005, between
          New York State Energy Research and Development Authority and
     The Brooklyn Union Gas Company d/b/a KeySpan Energy Delivery New York)


                         FORM OF CORPORATION OBLIGATION








                                      B-1



<PAGE>