GENERATION PURCHASE RIGHT AGREEMENT

                                 by and between

                         LONG ISLAND LIGHTING COMPANY,
                                   AS SELLER,



                                      AND



                          LONG ISLAND POWER AUTHORITY,
                                   AS BUYER,


                           Dated as of June 26, 1997








                               TABLE OF CONTENTS
                               -----------------


                                                                   Page
                                                                   ----
                                   ARTICLE 1
                     DEFINITIONS AND RULES OF CONSTRUCTION

Section 1.1 Definitions. ........................................... 2
Section 1.2 Rules of Construction. ................................. 4

                                   ARTICLE 2
                                 PURCHASE RIGHT

Section 2.1 Purchase Right. ........................................ 4
Section 2.2 Exercisability. ........................................ 5
Section 2.3 Method of Exercise. .................................... 5
Section 2.4 Exercise Date. ......................................... 5
Section 2.5 Request for Confirmation. .............................. 5
Section 2.6 Effect of Notice. ...................................... 6
Section 2.7 Closing Date. .......................................... 6
Section 2.8 Payment and Delivery of Interests. ..................... 6
Section 2.9 Provision of Corporate Records. ........................ 6
Section 2.10 Non-Recourse. ......................................... 7

                                   ARTICLE 3
                               THE PURCHASE PRICE

Section 3.1 Purchase Price. ........................................ 7
Section 3.2 Arbitration. ........................................... 7
Section 3.3 Disclosure of Third Party Offers. ...................... 7

                                   ARTICLE 4
                         REPRESENTATIONS AND WARRANTIES

Section 4.1 Representations and Warranties of Seller and Genco. .... 8
Section 4.2 Provision of Additional Schedules upon Exercise. ....... 14
Section 4.3 Representations and Warranties of Buyer ................ 15

                                   ARTICLE 5
                                   COVENANTS

Section 5.1 Covenants of Seller. ................................... 15
Section 5.2 Covenants of Buyer. .................................... 18
Section 5.3 Additional Agreements. ................................. 19

                                   ARTICLE 6
                               GENERAL PROVISIONS

Section 6.1 Notices. ............................................... 20
Section 6.2 Headings. .............................................. 21
Section 6.3 Miscellaneous. ......................................... 21
Section 6.4 Assignment. ............................................ 21
Section 6.5 Schedules. ............................................. 21
Section 6.6 Waiver; Amendment. ..................................... 22
Section 6.7 Issue Taxes. ........................................... 22
Section 6.8 Fees and Expenses. ..................................... 22
Section 6.9 Alternative Dispute Resolution. ........................ 22



                      GENERATION PURCHASE RIGHT AGREEMENT


This GENERATION PURCHASE RIGHT AGREEMENT ("Agreement") is made and
entered into as of the 25th day of June 1997, by and between LONG ISLAND
LIGHTING COMPANY, a New York corporation ("Seller", also referred to herein as
"LILCO"), and LONG ISLAND POWER AUTHORITY, a corporate municipal instrumentality
and political subdivision of the State of New York ("Buyer", also referred to
herein as "LIPA"), acknowledged and agreed to, as of the Closing (as
herein defined), by __________________________ * , a New York limited
liability company ("Genco").

                                    RECITALS

     WHEREAS,  Parent (as therein defined),  Seller, Buyer, and LIPA ACQUISITION
CORP., a New York corporation  ("LIPA Sub"),  entered into an AGREEMENT AND PLAN
OF EXCHANGE  AND MERGER (the  "Merger  Agreement"),  dated as of June 25,  1997,
pursuant  to which (i) LIPA Sub is to merge with and into  Seller;  (ii)  Seller
undertakes  to form an entity for the purpose of  receiving  certain  assets and
properties  of LILCO;  and (iii) Seller is to enter into a  generation  purchase
right agreement in substantially the form of this Agreement.

     WHEREAS,  Genco  will own and have all  right,  title and  interest  to the
Generating  Facilities  (as  defined  herein) at or prior to the  Closing.

     NOW, THEREFORE,  in consideration of the foregoing and the mutual covenants
and  agreements   hereinafter   set  forth  and  for  other  good  and  valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

                                   ARTICLE 1
                     DEFINITIONS AND RULES OF CONSTRUCTION

     Section 1 Definitions. All capitalized terms used in this Agreement and not
otherwise  defined shall have the meanings  assigned to them in the Power Supply
Agreement, dated as of the date hereof, between LILCO and Buyer, attached to the
Merger  Agreement as Exhibit B (the "Power  Supply  Agreement").  The  following
terms,  as used  herein,  shall have the  respective  meanings set forth in this
Section 1.1:

          "  Additional  Assets"  means  assets  other  than  interests  in real
          property  reasonably  required for the  Business (as defined  herein),
          including,  without  limitation any fuel supply agreements (other than
          Basic Agreements), spare parts and fuel inventory on site.

          " Agreement"  means this  Generation  Purchase Right Agreement and all
          Exhibits and Schedules annexed hereto, as the same may be amended from
          time to time.

          "Audited  Balance Sheet" has the meaning assigned to it in Section 2.6
          herein.

          "Business"  means the business of operating the Generating  Facilities
          (as defined herein) as it is operated on the date hereof.

          " Closing" has the meaning assigned to it in the Merger Agreement.

          " Closing Date" has the meaning assigned to it in Section 2.7 herein.

          "Confirmation" has the meaning assigned to it in Section 2.5 herein.

          " Contract"  means any contract,  agreement,  purchase  order,  lease,
          indenture,  mortgage,  loan agreement,  note,  guarantee,  commitment,
          undertaking or arrangement of any kind.

          " Easements" has the meaning assigned to it in Section 5.3(d) herein.

          "Engineer's  Report"  has the  meaning  assigned  to it in Section 2.1
          herein.

          "Exercise Date" has the meaning assigned to it in Section 2.4 herein.

          " Fair  Market  Value"  means the  amount  that a willing  buyer and a
          willing seller,  neither of whom is under any compulsion to sell or to
          buy, would be willing to pay or receive, as the case may be, in an all
          cash  transaction in an orderly  market for the  Interests;  provided,
          however,  that the  Additional  Assets  shall be  deemed  to have been
          transferred to Genco prior to the Exercise Date.

          " GAAP" means United States generally accepted accounting principles.

          "Generating Facilities" means the electric generating facilities to be
          owned  by  Genco  as  defined  in  Section  1.27 of the  Power  Supply
          Agreement.

          " Generating Properties" has the meaning assigned to it in Section 2.1
          herein. " HSR Act" means the Hart-Scott-Rodino  Antitrust Improvements
          Act of 1976, as amended,  including the Premerger  Notification  Rules
          promulgated thereunder.

          "  Interests"  means all of the limited  liability  company  interests
          (whether direct, indirect or contingent) in Genco.

          " Investment Bankers" has the meaning assigned to it in Section 3.1(a)
          herein.

          " Laws" means, with respect to any Person, any foreign,  United States
          Federal,  state  or  local  laws,  statutes,   ordinances,   rules  or
          regulations applicable to such Person.

          " Liens"  means,  with respect to any asset,  property or right of any
          Person,  any mortgage,  lien,  pledge,  charge,  security  interest or
          encumbrance of any kind in respect of such asset, property or right.

          " Material Adverse Effect" means,  with respect to a Person,  an event
          or circumstance  which could reasonably be expected to have a material
          adverse  effect on the  business,  operations,  properties,  financial
          condition, results of operations or prospects of such Person.

          "Permit"  means  any  permit,  license,  approval,  consent,  order or
          authorization of any Governmental Authority.

          "  Person"  means,  unless  otherwise  specified,  a  natural  person,
          corporation,   society,  partnership,  joint  venture,  unincorporated
          association or other entity, including a Governmental Authority.

          "  Purchase  Price" has the  meaning  assigned  to it in  Section  3.1
          herein.

          " Securities  Act" means the Securities  Act of 1933, as amended,  and
          the rules and  regulations  promulgated  thereunder by the  Securities
          and Exchange Commission.

          " Taxes"  means all  taxes,  assessments  and  charges  imposed by any
          United States Federal,  state or local taxing authority or any foreign
          taxing authority,  including, without limitation,  interest, penalties
          and additions thereto.

          Certain other terms are defined elsewhere in this Agreement.


Section 2 Rules of Construction. Unless the context otherwise
requires:

          (a) Words in the singular include the plural,  and words in the plural
     include the singular;

          (b) Provisions apply to successive events and transactions;

          (c) An accounting term not otherwise  defined has the meaning assigned
     to it in accordance with GAAP;

          (d) "Herein", "hereof" and other words of similar import refer to this
     Agreement as a whole and not to any  particular  Article,  Section or other
     subdivision of this Agreement;

          (e) Words in the  masculine  gender  include the  feminine  gender and
     words in feminine gender include the masculine gender; and

          (f)  The  Article  and  Section  headings  used or  contained  in this
     Agreement are for  convenience  of reference  only and shall not affect the
     construction of this Agreement.

                                   ARTICLE 2

                                 PURCHASE RIGHT

     Section 1  Purchase  Right.  Subject  to the terms and  conditions  of this
Agreement,  Seller  hereby  grants  to Buyer the  right to  purchase  all of the
outstanding  Interests (the "Right") at the price, in the manner and at the time
specified  in this  Article 2. No later than nine months  from the date  hereof,
LIPA's  consulting  engineer  will identify with respect to each of the existing
Generating  Facilities,  the  specific  size and  location of  interests in real
property required for the operation of such Generating Facility (the "Generating
Properties"),  subject to any Request for  Confirmation  pursuant to Section 2.5
(the  "Engineer's  Report").  Such property  shall be transferred to Genco at or
prior to the Closing.  To the extent that, prior to the Exercise Date, Genco has
any  right,  title or  interest  in real  property  other  than  the  Generating
Properties,  Genco may transfer  such right,  title or interest to Seller or any
affiliate or subsidiary of Seller, provided, however, that the value of any such
right, title or interest  transferred by Genco prior to the Closing shall not be
reflected in the Purchase Price calculated pursuant to Section 3.1 herein.

     Section 2  Exercisability.  Subject to the further terms of this Agreement,
the Right shall become  exercisable  at any time after the third  anniversary of
the date of the Closing.  The Right shall expire and cease to be  exercisable at
12:01 a. m. on the fourth anniversary of the Closing.

     Section 3 Method of Exercise. The Right may be exercised only by the giving
of written notice to the Seller in such form and in such manner as is prescribed
in Section 6.1 herein.  Notice must be accompanied by: (i)  certification by the
Chairman or Executive Director of LIPA that the exercise


<PAGE>




of the Right has been affirmatively approved by the vote of two thirds of all
members of the entire LIPA Board of Trustees; (ii) a copy of the related
resolutions of the LIPA Board of Trustees certified as true and correct by the
Chairman or Executive Director of LIPA; (iii) evidence reasonably satisfactory
to Seller of the approval of the exercise of the Right and of any financing
required to exercise the Right by the Public Authorities Control Board; and (iv)
Buyer's election either (x) to operate the Generating Facilities by itself or by
an Affiliate or (y) to retain Seller or an Affiliate of Seller to operate the
Generating Facilities pursuant to Section 5.3( c).

     Section 4 Exercise  Date.  The date of  exercise  of the Right shall be the
date on which the Notice is  delivered  to the Seller,  during  normal  business
hours,  at its  address  as  provided  in  Section  6.1 of this  Agreement  (the
"Exercise Date").

     Section 5 Request for Confirmation.  Seller shall be entitled to appoint an
additional independent consulting engineer to consider the Engineer's Report and
shall provide Buyer within thirty business days of the receipt of the Engineer's
Report  either:  (i) notice  that it intends  to waive  Confirmation  (as herein
defined); or (ii) a request for Confirmation, in which case a copy of the report
of Seller's  independent  consulting engineer shall be given to Buyer and to its
independent   consulting  engineer  within  90  days  of  Seller's  request  for
Confirmation.  In the event  Seller  requests  Confirmation,  the parties are to
select an  independent  consulting  engineer to identify with respect to each of
the  Generating  Facilities  the  specific  size and  location  of land  parcels
required for the operation of such Generating Facility (the  "Confirmation") and
such Confirmation will be conclusive and binding on the parties.

     Section 6 Effect of Notice.

          (a) Upon  receipt  of the  Notice,  Buyer  shall be  legally  bound to
     purchase,  and Seller shall be legally bound to sell, all of the Interests,
     subject to: (i) the receipt of  Confirmation  or Seller's  waiver  thereof;
     (ii) the provisions of Section 4.2; (iii) Buyer's right not to purchase the
     Interests  if on the Closing Date any of the  representations  set forth in
     Section 4.1 are  inaccurate  in any  material  respect;  and (iv) the other
     terms and conditions contained herein.

          (b) Upon receipt of the Notice,  Seller will: (i) cause to be prepared
     and  delivered  to Buyer not later than the 90th day after such  receipt an
     audited balance sheet of Genco as of the quarter- end immediately preceding
     the date of such exercise (the  "Audited  Balance  Sheet") and (ii) provide
     Buyer and the Investment  Bankers with  reasonable  access to the books and
     records of Genco.

     Section 7 Closing  Date.  The closing of this  Agreement  will be on a date
scheduled  by LIPA not later than 90 days after the final  determination  of the
Purchase  Price  pursuant to Section 3.1  hereunder  (the  "Closing  Date") at a
location to be agreed upon by the parties  hereto  following the Exercise  Date.
The Closing Date may be extended by the written agreement of the parties hereto.

     Section 8 Payment and Delivery of Interests.  On the Closing  Date,  Seller
shall deliver to Buyer documents sufficient to cause the entire right, title and
interest in and to all  outstanding  Interests  to be  transferred  of record to
Buyer and in  consideration  thereof Buyer shall pay to Seller an amount in cash
equal to the Purchase Price. All such payments and deliveries shall be deemed to
occur  simultaneously  as a single  transaction  and no such payment or delivery
shall be effective unless all such payments and deliveries have been made.


<PAGE>




     Section 9 Provision of Corporate  Records.  Seller shall arrange as soon as
practicable following the Closing Date for transportation,  at Seller's cost, to
Buyer of the  records in  Seller's  possession  relating to the assets of Genco,
including, without limitation, all agreements, litigation files and filings with
governmental  agencies  relating  to the  Generating  Facilities,  except to the
extent such items are already in the possession of Buyer.

     Section  10  Non-  Recourse.   The  sale  and  purchase  of  the  Interests
transferred  hereunder  shall be made on an "as- is" basis  without  recourse to
Seller, and without  representation,  covenant or warranty by Seller, express or
implied,  except in each case as expressly set forth in this  Agreement.  Seller
makes  no  representation  and  takes  no  responsibility  with  respect  to the
financial  condition of Genco.  In  particular,  the parties  hereby agree that,
without  limiting the  generality  of the  foregoing,  Buyer assumes any and all
obligations  pursuant  to then  existing  Contracts  of Genco,  in  addition  to
assuming any and all  obligations  with respect to any  pension,  employment  or
insurance arrangements maintained by Genco.

                                   ARTICLE 3

                               THE PURCHASE PRICE

     Section 1 Purchase Price.  The purchase price for the Interests (" Purchase
Price") shall be the Fair Market Value of the Interests,  to be determined as of
the Exercise Date by two independent  nationally  recognized  investment banking
firms experienced in the valuation of comparable property, one of which shall be
appointed by each of Buyer and Seller  (collectively,  the "Investment Bankers")
to negotiate and agree upon Fair Market Value.  In  determining  the Fair Market
Value,  the  Investment  Bankers  shall  consider  all of the terms of the Power
Supply Agreement for the term of such agreement.

     Section 2 Arbitration.  If the Investment  Bankers are not able to agree on
the Fair Market Value or such  appropriate  interest rate, then Buyer and Seller
will select a mutually agreeable  independent  nationally  recognized investment
banking firm  experienced  in the valuation of comparable  properties to provide
its determination of the Fair Market Value,  which will be used to determine the
Purchase Price and will be conclusive and binding on the parties.

     Section 3  Disclosure  of Third  Party  Offers.  If at any time  within six
months of the Exercise Date and prior to the Closing Date Buyer has received any
binding or serious  offers from any third  party to purchase  some or all of the
assets of Genco,  Buyer shall disclose the terms and existence of such offers to
Seller and to the Investment  Bankers.  If Buyer agrees to any such third- party
offers and consummates such transaction  within 3 months after the Closing Date,
Seller will pay to Buyer 50% of Buyer's reasonable  incremental  financing costs
(excluding  interest or other costs of carry), if any, and including legal fees,
underwriter's compensation and other costs of issuance,  specifically related to
such financing, if any, up to $2 million.


<PAGE>





                                   ARTICLE 4

                         REPRESENTATIONS AND WARRANTIES

     Section 1  Representations  and Warranties of Seller and Genco.  Except for
the  representation  and warranty  contained  in Section 4.1( a), the  following
representations   and  warranties  are  furnished  solely  for  the  purpose  of
facilitating  the  determination of Fair Market Value and shall not preclude the
Investment  Bankers from  pursuing such due diligence as they require to perform
their obligations hereunder. Seller and Genco, jointly and severally,  represent
and warrant to the Buyer at the Closing and on the Closing Date that,  except as
disclosed  to Buyer in writing on the date  hereof and as updated in writing not
later than the date the Audited  Balance Sheet is delivered and further  updated
in  writing  by Seller  prior to the  determination  of Fair  Market  Value (the
"Schedule"):

          (a) Ownership of Interests.  On the Closing Date,  Seller will own and
     hold,  beneficially,  the entire right, title and interest in and to all of
     the then existing  Interests free and clear of all Liens. As of the Closing
     Date,  there  will  be  no  outstanding   subscriptions,   options,  calls,
     contracts,  voting trusts,  proxies or other  commitments,  understandings,
     restrictions,  arrangements,  rights or  warrants,  including  any right of
     conversion or exchange under any outstanding security,  instrument or other
     agreement,  obligating  Genco to  issue,  deliver  or sell,  or cause to be
     issued,  delivered or sold,  additional  Interests,  or obligating Genco to
     grant, extend or enter into any such agreement or commitment.

          (b) Execution and Enforceability. Seller has and Genco will have as of
     the Closing all  requisite  power and authority to execute and deliver this
     Agreement and to perform each of their  obligations  hereunder.  Seller has
     and Genco  will  have as of the  Closing  duly  authorized  the  execution,
     delivery and  performance of this  Agreement.  This Agreement is the legal,
     valid and  binding  obligation  of Seller and will be the legal,  valid and
     binding  obligation  of Genco as of the Closing,  and  (assuming  that this
     Agreement  has been duly  authorized,  executed and  delivered by Buyer) is
     enforceable against Seller and Genco in accordance with its terms.

          (c)  Organization  and  Qualification  of Genco.  On the Closing Date,
     Genco is a limited liability  company duly organized,  validly existing and
     in good standing  under the laws of the State of New York and will have all
     requisite power and authority to conduct its business as then conducted and
     to own and lease its properties and assets. On the Closing Date, Genco will
     be qualified to do business and in good  standing in each  jurisdiction  in
     which the  ownership of its  property or the conduct of its  business  then
     requires such qualification.

          (d) No Violations or Conflicts.  Neither the execution and delivery of
     this Agreement by Seller or Genco nor the  consummation of the transactions
     contemplated  by this Agreement (i) results in a violation or breach of, or
     constitutes  a  default  or an event of  default  under,  any bond or other
     material Contract,  Permit,  instrument or other obligation to which Seller
     or Genco is a party, or (ii) violates any Laws, writ, judgment,  injunction
     or court decree.

          (e)  Consents  and  Approvals.  Except as  otherwise  provided in this
     Agreement, no consent, approval or authorization of, or declaration, filing
     or registration with, any Governmental  Authority is required to be made or
     obtained by Genco or Seller in connection with the execution,  delivery and
     performance of this Agreement by Genco or Seller.  No consent,  approval or
     authorization by, or notice to, any


<PAGE>




other Person is required to be made or obtained by Genco or Seller in connection
with the execution, delivery and performance of this Agreement by Genco or
Seller. On the Closing Date, all notices or other actions required to be made or
taken, if any, pursuant to any applicable Laws to permit the closing of this
Agreement will have been made and taken.

     (f) Compliance with Laws;  Permits.  The operations and activities of Genco
are in  compliance  with all Laws and neither  Seller or Genco has  received any
notice  to the  contrary.  Genco has all  material  Permits  required  for it to
conduct the Business and no material violations have been recorded in respect of
any  Permits  and no  proceeding  is  pending  or, to the  knowledge  of Seller,
threatened with respect to the limitation or revocation of any Permit.

     (g) Audited  Balance Sheet.  The Audited  Balance Sheet will, as of and for
the periods  ended on the  applicable  date,  fairly  present,  in all  material
respects,  the  financial  position and results of operations of Genco as of the
dates and for the periods presented therein in accordance with GAAP,  applied on
a consistent  basis  during the periods  concerned,  except as  otherwise  noted
therein.

     (h) Records.  The books of account and records of Genco fairly reflect,  in
all  material  respects,  all  of  the  properties,   assets,   liabilities  and
transactions of Genco.

     (i) Assets.  On the Closing Date, Genco will have good and marketable title
(except to the extent  that such  assets  are  leased) to all of the  Generating
Facilities free and clear of any debts,  Taxes,  claims,  options,  liabilities,
obligations or Liens. On or before the Closing Date, Seller shall cause Genco to
deliver to Buyer copies of all deeds,  endorsements,  assignments and other good
and sufficient  instruments to evidence Genco's right, title and interest in and
to any and all of the Generating Facilities, as Buyer may reasonably request.

     (j)  Sufficiency of Assets.  On the Closing Date,  Genco will own, lease or
otherwise have a right to the use of all assets and  properties  relating to the
Business.  Except  as set  forth on the  Schedule,  Parent  and/ or  Genco  have
obtained  all consents  required in order to maintain  such leases and rights to
use in the context of a transfer of ownership of the Interests.

     (k) Properties.  The Schedule sets forth a list of all of the real property
that is owned by a third  party  which is leased to Genco and all real  property
that is owned by Genco. Genco enjoys peaceful and undisturbed  possession of all
such properties that are owned by Genco,  and such properties are free and clear
of all debts, Taxes, claims, options, liabilities, obligations and Liens.

     (l) Environmental Protection. Environmental Protection. Except as set forth
in the  Schedule or in Parent SEC  Reports (as defined in the Merger  Agreement)
filed prior to the date hereof:

     (i)  Compliance.  Genco is in material  compliance  with all  Environmental
          Laws (as  defined  in  Section  4.1( j)( vii)( B))  applicable  to the
          Generating  Facilities;  and neither Seller nor Genco has received any
          communication  (written  or oral),  from any  person  or  Governmental
          Authority  that  alleges  that  Genco is not in such  compliance  with
          applicable Environmental Laws.

     (ii) Environmental Permits. Genco has obtained or has applied


<PAGE>



          for all material environmental health and safety permits and all other
          governmental licenses, permits, and authorizations (collectively,  the
          "Environmental   Permits")  necessary  for  the  construction  of  the
          facilities  constituting  part  of the  Generating  Facilities  or the
          ownership or operation of such facility or the Generating  Facilities,
          and all such  Environmental  Permits are in good  standing  or,  where
          applicable, a renewal application has been timely filed and is pending
          agency  approval,  and Genco is in material  compliance with all terms
          and conditions of the Environmental Permits.

     (iii)Environmental  claims.  There is no material  Environmental  Claim (as
          defined in Section 4.1( j)( vii)( A)) pending (A) against  Genco,  (B)
          to the best  knowledge  of Seller  and  Genco,  against  any person or
          entity whose  liability for any  Environmental  Claim Genco has or may
          have retained or assumed either  contractually or by operation of law,
          or (C) against any real or personal property or operations which Genco
          owns or formerly  owned or, to the best knowledge of Seller and Genco,
          any real or personal  property  or  operations  which Genco  leases or
          manages or formerly leased or managed, in whole or in part.

     (iv) Releases.  Genco has no knowledge of any material Releases (as defined
          in Section 4.1( j)( vii)( D)) of any Hazardous Material (as defined in
          Section 4.1( j)( vii)( C)),  that would be  reasonably  likely to form
          the  basis of any  material  Environmental  Claim  against  Genco,  or
          against  any  person  or  entity  whose  liability  for  any  material
          Environmental  Claim Genco has or may have retained or assumed  either
          contractually or by operation of law.

     (v)  Predecessors.  Seller and Genco have no knowledge, with respect to any
          predecessor of Genco's, of any material Environmental Claim pending or
          threatened,  or of any Release of  Hazardous  Materials  that would be
          reasonably  likely  to form the  basis of any  material  Environmental
          Claim.

     (vi) Disclosure.  Seller and Genco  have  disclosed  to Buyer all  material
          facts  which  they  reasonably  believe  form the basis of a  material
          Environmental  Claim  arising  from (A) the  cost of  Genco  pollution
          control  equipment  currently  required or known to be required in the
          future with respect to the  Generating  Facilities;  (B) current Genco
          remediation costs or Genco remediation and site monitoring costs known
          to  be  required  in  the  future  with  respect  to  the   Generating
          Facilities; or (C) any other environmental matter affecting Genco with
          respect to the Generating Facilities.


<PAGE>



     (vii) As used in this Agreement:

               (A)  "Environmental  Claim"  means  any and  all  administrative,
          regulatory  or  judicial  actions,  suits,  demands,  demand  letters,
          directives,  claims, liens, investigations,  proceedings or notices of
          noncompliance  or violation  (written or oral) by any person or entity
          (including any Governmental  Authority)  alleging potential  liability
          (including,  without  limitation,   potential  responsibility  for  or
          liability  for  enforcement,   investigatory   costs,  cleanup  costs,
          governmental  response costs,  removal costs,  remedial costs, natural
          resources damages,  property damages,  personal injuries or penalties)
          arising  out of,  based  on or  resulting  from (a) the  presence,  or
          Release or threatened  Release into the environment,  of any Hazardous
          Materials at any location,  whether or not owned, operated,  leased or
          managed  by  Genco  and  constituting  a  portion  of  the  Generating
          Facilities  (for purposes of this Section  4.1); or (b)  circumstances
          forming  the basis of any  violation,  or  alleged  violation,  of any
          Environmental  Law with respect to the Generating  Facilities;  or (c)
          any and all claims by any third party seeking  damages,  contribution,
          indemnification,  cost  recovery,  compensation  or injunctive  relief
          resulting from the presence or Release of any Hazardous Materials with
          respect to the Generating Facilities.

               (B)  "Environmental  Laws" means all federal,  state, local laws,
          ordinances,  rules and  regulations  relating  to health  and  safety,
          pollution,  the environment  (including,  without limitation,  ambient
          air, surface water, groundwater, land surface or subsurface strata) or
          protection of human health as it relates to the environment including,
          without  limitation,  laws and  regulations  relating  to  Releases or
          threatened Releases of Hazardous  Materials,  or otherwise relating to
          the manufacture,  processing,  distribution,  use, treatment, storage,
          disposal, transport or handling of Hazardous Materials.

               (C)  "Hazardous  Materials"  means (A) any petroleum or petroleum
          products, radioactive materials, asbestos in any form that is or could
          become friable, urea formaldehyde foam insulation, and transformers or
          other   equipment   that   contain    dielectric    fluid   containing
          polychlorinated  biphenyls;  and  (B)  any  chemicals,   materials  or
          substances  which are now defined as or included in the  definition of
          "hazardous  substances",  "hazardous wastes",  "hazardous  materials",
          "extremely hazardous wastes",  "restricted  hazardous wastes",  "toxic
          substances", "toxic pollutants", or words of similar import, under any
          Environmental Law; and (C) any other chemical,  material, substance or
          waste, exposure to which is now prohibited, limited or regulated under
          any  Environmental  Law in a jurisdiction  in which Genco operates the
          Generating Facilities (for purposes of this Section 4.1).

               (D)  "Release"  means  any  release,  spill,  emission,  leaking,
          injection,  deposit,  disposal,  discharge,   dispersal,  leaching  or
          migration into the  atmosphere,  surface or subsurface  soil,  surface
          water,  saltwater  shoreline or floor bottom,  groundwater or property
          from or


<PAGE>



               affecting any of the Generating Facilities.

     (m) Regulation as a Utility. Except as set forth in the Schedule,  Genco is
not subject to any regulation as a public utility or public service  company (or
similar  designation)  by any state in the United  States other than New York or
any foreign country.

     (n) Undisclosed  Liabilities.  Except as and to the extent set forth in the
Audited  Balance  Sheet,  as of  the  date  thereof,  Genco  did  not  have  any
liabilities  required by GAAP to be  reflected  on a balance  sheet.  Since such
date,  Genco  has not  incurred  any  liabilities  (whether  absolute,  accrued,
contingent or otherwise)  required by GAAP to be reflected on a balance sheet or
set forth in the notes thereto,  except such liabilities  which were incurred in
the ordinary course of business.

     (o)  Absence  of  Certain  Changes.  Since the  Closing,  Genco has not (i)
suffered  any  change  in  its  business,  operations,  financial  condition  or
prospects, except such changes which, in the aggregate, have not had and are not
reasonably  likely to have a Material  Adverse  Effect,  (ii) incurred any long-
term  indebtedness  for borrowed  money or  guaranteed,  assumed or endorsed the
obligations of any third party, (iii) sold, transferred or otherwise disposed of
any material  asset,  property or right or (iv) created or suffered to exist any
Lien on any Generating Facilities,  other than easements created pursuant to the
Merger Agreement or the other Basic Agreements.

     (p) Conduct of Business of Genco.  Since the Closing,  Genco has  conducted
its operations and affairs only in accordance with the ordinary and usual course
of business.

     (q)  Contracts  and  Commitments.  The  Schedule  sets  forth  a  list  and
description of the following agreements, oral or written, to which is a party or
by which Genco is bound:  (i) all Contracts  involving an obligation on the part
of Genco of more than  $500,000  individually  or more than $10  million  in the
aggregate,  (ii) all purchase orders in excess of $500,000  individually or more
than $10 million in the aggregate, (iii) all agreements under which Genco may be
obligated  to perform  services or expects to receive fees in excess of $500,000
individually  or more  than $10  million  in thee  aggregate,  (iv) all real and
personal  property  leases  involving  annual  payments  in excess  of  $500,000
individually  or more than $10  million  in the  aggregate,  (v) all  employment
contracts  with  employees  or former  employees  of  Genco,  and (vi) all other
material  agreements  (the contracts and  commitments  identified in clauses (i)
through (vi) of this Section 4.1( q) being hereafter collectively referred to as
the  "Commitments").  Neither  Genco nor any of its  employee  is in  default or
breach of any of the Commitments, and, to the best knowledge of Seller, no other
party to any of the Commitments is in default or breach thereof.

     (r)  Litigation.  There is no claim,  suit,  litigation,  investigation  or
proceeding pending, or to the best knowledge of Seller threatened, against Genco
in any  court,  by any  governmental  entity or before any  arbitrator  or other
tribunal.  Neither Genco nor any of its employees is subject to any  outstanding
action, order, writ, judgment, injunction or decree of any court or governmental
entity.

     Section 2 Provision of Additional  Schedules  upon  Exercise.  The Schedule
provided  on the date  hereof  pursuant  to Section  4.1 is valid as of the date
hereof. On or before the date on which the Audited Balance Sheet is delivered to
Buyer,  Seller will  provide  Buyer and each  Investment  Banker with an updated
Schedule  valid as of the Exercise Date. If the Buyer  determines  that any such
update contains evidence of any change or event which has had a


<PAGE>




Material Adverse Effect since the date hereof, Buyer must notify Seller within
thirty days of the delivery of such update if it intends to revoke its exercise
of the Right. Upon delivery of such notice, this Agreement shall immediately
terminate and no party shall have any further obligation or right hereunder.
After the expiration of such thirty day period, Buyer (unless it shall have
prior to such expiration delivered such notice) shall be legally bound by its
exercise of the Right.

     Section 3  Representations  and  Warranties  of Buyer.  Except as otherwise
disclosed to Seller in writing,  Buyer  represents and warrants to the Seller on
the date hereof and on the Closing Date as follows:

          (a) Power and Authority.  Buyer has all requisite  power and authority
     to execute  and  deliver  this  Agreement  and to perform  its  obligations
     hereunder.   Buyer  has  duly   authorized  the  execution,   delivery  and
     performance  of this  Agreement.  This  Agreement  is the legal,  valid and
     binding obligation of Buyer and (assuming that this Agreement has been duly
     authorized,  executed and delivered by Seller) is enforceable against Buyer
     in accordance with its terms.

          (b)  Applicability  of HSR Act. Buyer is an agency of the State of New
     York and is not a "corporation  engaged in commerce"  within the meaning of
     the HSR Act as of either the date hereof,  the Exercise Date or the Closing
     Date.

                                   ARTICLE 5

                                   COVENANTS

     Section 1  Covenants  of  Seller.  After the date  hereof  and prior to the
Closing Date or earlier termination of this Agreement,  Seller agrees on its own
behalf  or  agrees  that it will  cause  Genco to act,  as the  case may be,  as
follows,  except as expressly  contemplated or permitted in this Agreement or to
the extent the other parties hereto shall otherwise consent in writing:

          (a) No transfer of Seller's  interest in Genco without Prior Approval.
     Seller is not  permitted  to  transfer  or to permit  its  subsidiaries  to
     transfer any or all of its or their right, title and interest in and to all
     of the Interests,  except where the intended transferee: (i) is a direct or
     indirect  wholly owned  subsidiary of Seller;  (ii) executes and delivers a
     copy of this  Agreement  to Buyer;  and (iii)  assumes  in  writing  all of
     Seller's  obligations with respect hereto.

          (b) Ordinary Course of Business.  Genco shall carry on its business in
     the usual,  regular and ordinary course in substantially the same manner as
     heretofore  conducted  and  use  all  commercially  reasonable  efforts  to
     preserve intact its present business organization and goodwill and preserve
     the goodwill and relationships with customers,  suppliers and others having
     business  dealings  with it. Genco may,  with the prior  approval of Buyer,
     engage in transactions  out of the ordinary course of business  relating to
     the Generating Facilities, such approval not to be unreasonably withheld.

          (c) No Change in Business.  Genco shall not engage in any new lines of
     business  or make any  material  change in the line of business in which it
     engages as of the date hereof  other than as  contemplated  or permitted by
     the Power Supply Agreement.

          (d) Maintenance of Assets. In the conduct of its business, Genco shall
     endeavor to maintain all of its right, title and interest in


<PAGE>






          and  to  the  Generating  Facilities,  which  shall  include,  without
     limitation:

               (i) Capital Assets. All equipment,  computers, photocopy machines
               and other tangible  personal  property owned by Genco and used by
               Genco  in  the  ordinary  course  of  the  Business,  subject  to
               replacement or retirement in the ordinary course of business;

               (ii)  Records  and  Documentation.  All  books,  records,  files,
               working papers, correspondence, memoranda and other documentation
               relating to any  services  rendered by Genco in the  Business and
               otherwise  related to the assets,  properties and rights referred
               to in clause (i) of this Section.

     (e) No  Acquisitions.  Genco  shall not  acquire,  or  publicly  propose to
acquire, or agree to acquire, by merger or consolidation with, or by purchase or
otherwise,  a substantial  equity  interest in or a  substantial  portion of the
assets of, any business or any  corporation,  partnership,  association or other
business  organization or division thereof, nor shall any party acquire or agree
to acquire,  a material  amount of assets other than in the  ordinary  course of
business.

     (f) No  Dispositions.  Genco shall not sell,  lease,  license or  otherwise
dispose of the Generating  Facilities,  other than  dispositions in the ordinary
course of its business and other than  dispositions  of less than $10 million in
the aggregate.

     (g)  Transmission,  Generation.  Except as required  pursuant to tariffs on
file with the Federal Energy Regulatory Commission as of the date hereof, in the
ordinary course of business  consistent with past practice or as contemplated or
permitted  by  the  Power  Supply  Agreement,   Genco  shall  not  (i)  commence
construction of any additional  electric generating  capacity,  or (ii) obligate
itself to purchase or otherwise acquire,  or to sell or otherwise dispose of, or
to share, any additional electric generating capacity.

     (h) Cooperation,  Notification. Commencing on the third anniversary hereof,
Genco shall: (i) during  reasonable  business hours and upon reasonable  notice,
allow Buyer and its authorized representatives to make such investigation of the
business, property, books and records of Genco, and to conduct such examinations
and to  confer  with the  officers  and  employees  of  Genco,  as  Buyer  deems
reasonably   necessary  for  purposes  of  verifying  the  accuracy  of  Genco's
representations  and warranties  hereunder and compliance with the terms hereof;
(ii) confer on a regular and frequent basis with one or more  representatives of
Buyer to discuss,  subject to applicable law, material  operational  matters and
the general status of its ongoing operations; (iii) promptly notify Buyer of any
significant changes in its business, properties, assets, condition (financial or
other),  results of operations or prospects;  (iv) advise Buyer of any change or
event which has had or,  insofar as  reasonably  can be foreseen,  is reasonably
likely to result in a Material  Adverse Effect;  and (v) promptly  provide Buyer
with  copies  of all  filings  made by Genco  with any state or  federal  court,
administrative agency,  commission or other Governmental Authority in connection
with this  Agreement  and the  transactions  contemplated  hereby.  Genco  shall
provide similar access to each Investment Banker and the investment  bankers, if
any, appointed pursuant to Section 3.2.

(i) Reasonable Access for Consulting Engineers. From the date
hereof until the completion of the Engineer's Report pursuant to Section
2.1 and, if required, the receipt of Confirmation pursuant to Section


<PAGE>



2.5, LIPA's consulting engineer shall have a right of unrestricted access to the
Generating Facilities at such times and for such purposes as it reasonably deems
necessary and desirable for the purpose of preparing the Engineer's Report;
provided, however, that:

          (i)  such access shall not be granted  outside normal  business hours,
               except with reasonable notice;

          (ii) such  consulting  engineer  shall comply with any on- site safety
               policies and procedures;

          (iii)such  access  shall  only be for the  purpose  of  preparing  the
               Engineer's  Report and any information  obtained  therefrom shall
               only be used for such purpose; and

          (iv) if Seller so requests,  such access shall only be granted subject
               to such  consulting  engineer  executing and  complying  with the
               terms of a  confidentiality  agreement  in a mutually  acceptable
               form, subject to any applicable Laws.

     (j) Third-  Party  Consents.  Genco and Seller  shall use all  commercially
reasonable  efforts to obtain all  required  consents  for the  exercise  of the
Right.  Genco shall promptly notify Buyer of any failure or prospective  failure
to obtain any such consents and, if requested by Buyer,  shall provide copies of
all required consents obtained to Buyer.

     (k) No Breach,  Etc.  Genco and Seller shall not willfully  take any action
that  would or is  reasonably  likely  to  result  in a  material  breach of any
provision of this Agreement or in any of its  representations and warranties set
forth in this Agreement, being untrue on and as of the Closing Date.

     (l) Tax- Exempt  Status.  Genco shall not take any action that would likely
jeopardize the qualification of Genco's  outstanding revenue bonds which qualify
on the date hereof under Section 142( a) of the Code as "exempt  facility bonds"
or as tax- exempt industrial  development bonds under Section 103( b)( 4) of the
Internal Revenue Code of 1954, as amended, prior to the Tax Reform Act of 1986.

     (m) Permits.  Genco shall use reasonable  efforts to maintain in effect all
existing permits for the Business.

     (n) Transfer of Additional  Assets.  Prior to the Closing Date, Parent will
cause to be  transferred  to Genco,  to the extent  controlled by Parent and not
already owned by Genco, any Additional Assets.

     Section 2  Covenants  of Buyer.  After the  Exercise  Date and prior to the
Closing Date or earlier termination of this Agreement,  Buyer agrees as follows,
except as expressly contemplated or permitted in this Agreement or to the extent
the other parties hereto shall otherwise consent in writing:

     (a) Third-  Party  Consents.  Buyer shall use all  commercially  reasonable
efforts to obtain all  required  third-  party  consents.  Buyer shall  promptly
notify Seller and Genco of any failure or prospective failure to obtain any such
consents and, if requested by Seller or Genco,  shall provide copies of all such
consents obtained to Seller and Genco.

     (b) No Breach, Etc. Buyer shall not willfully take any action that would or
is  reasonably  likely to result in a material  breach of any  provision of this
Agreement or in any of its representations and


<PAGE>




warranties set forth in this Agreement being untrue on and as of the
Closing Date.

     (c) Buyer  Actions.  Buyer  shall  take only those  actions,  from the date
hereof  until the  Closing  Date,  that are  required  or  contemplated  by this
Agreement  to  be  so  taken  by  Buyer,  including,   without  limitation,  the
declaration, filing or registration with, or notice to or authorization, consent
or approval of, any Governmental Authority.

Section 3 Additional Agreements.

     (a)  Notification of Certain Matters.  Commencing on the third  anniversary
hereof,  each party hereto shall give prompt notice to the other parties  hereto
of (i) the  occurrence  or failure to occur of any event,  which  occurrence  or
failure would be reasonably  likely to cause any  representation  or warranty of
such party contained  herein to be untrue or inaccurate in any material  respect
at any time,  (ii) any material  failure of such party to comply with or satisfy
any  covenant,  condition or  agreement  to be complied  with or satisfied by it
hereunder,  and (iii) any  newly  discovered  fact or  circumstance  that  might
reasonably  be  expected  to  have a  material  effect  on the  accuracy  of any
representation or warranty of such party contained herein.

     (b) No  Layoffs or Salary  Cuts.  For a period of two years  following  the
Closing  Date,  Buyer  shall not cause or permit to occur any  layoffs or salary
cuts to any non- union Genco personnel.

     (c) Management  Contract.  If Buyer elects in the Exercise Notice to retain
Seller or an  Affiliate  of Seller to operate  the  Generating  Facilities,  the
parties  will  negotiate  in good faith the terms and  conditions  of a mutually
acceptable agreement therefor.

     (d)  Easements.  Prior to the  Closing  Date,  Genco  may  grant  Seller an
irrevocable and perpetual easement for the installation,  maintenance and access
of and to any assets of Seller or its affiliates or  subsidiaries  located on or
under such  property,  provided  if  Seller's  use of such  easement  materially
interferes  with either the physical  operation of any generating  facilities or
with Buyer's  environmental  compliance,  Seller shall  compensate Buyer for the
adverse impact on Buyer of such interference.

                                   ARTICLE 6
                               GENERAL PROVISIONS

     Section 1  Notices.  All  notices  and other  communications  given or made
pursuant to this Agreement  shall be in writing and shall be deemed to have been
duly given or made if (i) sent by registered or certified  mail,  return receipt
requested,  or (ii) hand delivered,  or (iii) sent by prepaid overnight carrier,
with a record of receipt,  to the parties at the following addresses (or at such
other addresses as shall be specified by the parties by like notice):

                           (a) if to Buyer:

                               Richard Kessel
                               Chairman of the Board
                               Long Island Power Authority
                               333 Earle Ovington Blvd, Suite 403
                               Uniondale, NY 11553


<PAGE>






                                with copies to:

                                Patrick Foye
                                Deputy Chairman of the Board
                                Long Island Power Authority
                                333 Earle Ovington Blvd, Suite 403
                                Uniondale, NY 11553

                                and to:

                                Winthrop, Stimpson, Putnam & Roberts
                                One Battery Park Plaza
                                New York, N. Y. 10004
                                Attn: Stephen R. Rusmisel

                                (b) if to Seller:

                                Long Island Lighting Company
                                175 East Old Country Road
                                Hicksville, N. Y. 11801
                                Attn: Chief Executive Officer

                                with copies to:

                                Kramer, Levin, Naftalis & Frankel
                                919 Third Avenue
                                New York, New York 10022
                                Attn: Thomas E. Constance

Each notice or communication shall be deemed to have been given on the date
received.

     Section 2  Headings.  The  headings  contained  in this  Agreement  are for
reference  purposes  only  and  shall  not  affect  in any  way the  meaning  or
interpretation of this Agreement.

     Section 3  Miscellaneous.  This  Agreement,  together with the Exhibits and
Schedules annexed hereto:  (i) constitute the entire agreement and supersede all
other prior  agreements  and  understandings,  both written and oral,  among the
parties,  or any of them, with respect to the subject matter hereof and thereof;
(ii) shall be binding  upon and inure to the benefit of the  parties  hereto and
thereto and their  respective  successors and permitted  assigns and,  except as
expressly  provided  under the terms of any Exhibit,  are not intended to confer
upon any other Person,  any rights or remedies  hereunder or  thereunder;  (iii)
shall be governed, including, without limitation, as to validity, interpretation
and  effect,  by the  Laws of the  State  of New  York,  without  regard  to the
principles  of  conflicts  of  laws;  and (iv)  may be  executed  in two or more
counterparts which together shall constitute a single agreement.

Section 4 Assignment.

     (a) Neither this Agreement nor any of the rights,  interests or obligations
hereunder  shall be  assigned  by any of the  parties  hereto  without the prior
written  consent of the other parties,  except,  in the case of Buyer,  to LILCO
and, in the case of Seller, to any direct or indirect wholly owned subsidiary or
other legal entity of Seller to which it also assigns all of the  Interests.  No
party shall be relieved of any  liability  arising  hereunder  in respect of any
assignment pursuant to this Section, unless such assignor has received a written
release expressly excepting such assignor from any liability that may arise


<PAGE>






hereunder.

     (b) Effective upon the Closing, Seller shall assign its rights, obligations
and interests hereunder to the Parent.

     Section 5 Schedules.  Any  information  set forth on any Schedules  annexed
hereto shall, to the extent  applicable,  be deemed to be included on each other
appropriate Schedule annexed to this Agreement.

     Section 6  Waiver;  Amendment.  No waiver by any party  hereto of any term,
condition or Obligation of this  Agreement  shall be valid unless in writing and
signed by the waiving party. No failure or delay by any party hereto at any time
to require any other party  hereto to perform  strictly in  accordance  with the
terms hereof shall preclude any party from  requiring  performance by such other
party  hereto at any later  time.  No waiver of any one or several of the terms,
conditions or obligations  of this  Agreement,  and no partial  waiver  thereof,
shall  be  construed  as a  waiver  of any of the  other  terms,  conditions  or
obligations of this  Agreement.  This  Agreement may not be amended,  changed or
modified  in any  fashion  except by  written  instrument  signed by each of the
parties hereto.

     Section 7 Issue  Taxes.  Buyer alone shall bear,  to the extent  allowed by
law, all  documentary  transfer,  and similar taxes levied under the laws of the
United  States of  America  or any State or local  taxing  authority  thereof or
therein in connection with the sale of the Interests.

     Section 8 Fees and  Expenses.  All fees,  costs and  expenses  incurred  in
connection  with the execution and delivery of this  Agreement  shall be paid by
the party incurring such fees, costs or expenses;  provided, however, that Buyer
shall  pay all of the  fees  and  expenses  of the  Investment  Bankers  and the
investment bankers, if any, selected pursuant to Section 3.2; provided, further,
that such fees and expenses  shall have been agreed to by Buyer in advance (such
agreement not to be unreasonably withheld or delayed).

     Section 6.9 Alternative Dispute Resolution

     (a) Any dispute  arising out of or relating to this  Agreement,  other than
disputes  regarding  the  Purchase  Price to be settled  pursuant to Section 3.2
herein,  shall be resolved in accordance  with the procedures  specified in this
Section,  which  shall  constitute  the sole and  exclusive  procedures  for the
resolution of such disputes.

     (b) The  parties  agree to use their best  efforts to settle  promptly  any
disputes  or  claims  arising  out of or  relating  to  this  Agreement  through
negotiation conducted in good faith between executives having authority to reach
such a  settlement.  If either party hereto shall so request,  the parties shall
mutually agree on the selection of a mediator who shall mediate the negotiations
which shall be non- binding.

All negotiations and mediation discussions pursuant to this paragraph are
confidential and shall be treated as compromise and settlement negotiations for
purposes of Federal Rule of Evidence 408 and applicable state rules of evidence.

     (c) Any dispute arising out of or relating to this Agreement or the breach,
termination,  or validity  thereof,  which  dispute  has not been  resolved by a
negotiation or mediation as provided in paragraph (b) hereof within 60 days from
the date that either  negotiations or mediation shall have been first requested,
shall be settled by binding  arbitration  before three independent and impartial
arbitrators  in  accordance   with  the  then  current  rules  of  the  American
Arbitration  Association,  except to the extent such rules are inconsistent with
any provision of this Agreement, in which


<PAGE>






case the provisions of this Agreement shall be followed, and except that the
arbitrations under this Agreement shall not be administered by the American
Arbitration Association. The Arbitrators shall be (i) independent of the parties
and disinterested in the outcome of the dispute, (ii) attorneys, accountants,
investment bankers, commercial bankers or engineers familiar with contracts
governing the operation of electric utility assets, and (iii) qualified in the
subject area of the issue in dispute. For purposes of the preceding sentence,
residents of Long Island shall not be considered interested merely by virtue of
their residence. The Arbitrators shall be chosen by the parties, with each party
choosing one arbitrator and those arbitrators choosing the third arbitrator.
Judgment on the award rendered by the Arbitrators may be entered in any court in
the State of New York having jurisdiction thereof. If either party refuses to
participate in good faith in the negotiations or mediation proceedings described
in paragraph (b) hereof, the other may initiate arbitration at any time after
such refusal without waiting for the expiration of the 60 day period. Except as
provided in Paragraph D hereof relating to provisional remedies, the Arbitrators
shall decide all aspects of any dispute brought to them including attorney
disqualification and the timeliness of the making of any claim.

     (d) Either party may, without prejudice to any negotiation,  mediation,  or
arbitration procedures, proceed in any court to seek provisional judicial relief
if, in such party's sole discretion,  such action is necessary to avoid imminent
irreparable harm, to provide uninterrupted  electrical and other services, or to
preserve  the  status quo  pending  the  conclusion  of the  dispute  procedures
specified in this Section.

     (e) The  Arbitrators  shall have no authority to award punitive  damages or
any other damages aside from the  prevailing  party's  actual and  consequential
damages,  plus  interest  thereon at the Best  Interest  Rate (as defined in the
Management  Services  Agreement),  accrued  from  the  date  such  damages  were
incurred.  The  Arbitrators  shall not have the  authority  to make any  ruling,
finding,  or award  that does not  conform to the terms and  conditions  of this
Agreement.

     (f) The Arbitrators may award  reasonable  attorneys' fees and costs of the
arbitration.

     (g) Any claim under this Agreement shall be time- barred, regardless of any
statute  of  limitations  periods  provided  by state  or  federal  law,  unless
negotiation or mediation with respect  thereto is commenced with respect to such
claim within twelve months after the basis for such claim has been discovered.

     (h) The  Arbitrators  shall  have the  discretion  to order a pre-  hearing
exchange of  information  by the parties,  including,  without  limitation,  the
production  of  requested  documents,  the exchange of summaries of testimony of
proposed  witnesses,  and the examination by deposition of parties.  Each of the
parties  agrees to produce all such  requested  documents  and to deliver to the
other a certificate,  executed by a senior executive of such party, stating that
all such documents have been so produced.

     (i) The site of any Arbitration brought pursuant to this Agreement shall be
Mineola or Hauppauge, New York.

     (j) The  Arbitrator's  award  shall be in  writing  and shall set forth the
factual and legal bases for the award.


<PAGE>






IN WITNESS WHEREOF, each party hereto has duly executed this Agreement as of the
date first above written.

LONG ISLAND LIGHTING COMPANY, as Seller

By:______________________________
Name: Dr. William J. Catacosinos
Title: Chief Executive Officer

LONG ISLAND POWER AUTHORITY, as Buyer

By:______________________________
Name: Richard M. Kessel
Title: Chairman

By:______________________________
Name: Patrick Foye
Title: Deputy Chairman

Acknowledged and agreed to, as of the Closing, by:

GENCO

By:______________________________
Name:
Title: