KEYSPAN
                                     ENERGY




             2000 ANNUAL INCENTIVE COMPENSATION AND GAINSHARING PLAN

















     KeySpan Energy Delivery
     Compensation Department
     Human Resources Division




<PAGE>



                                  Introduction



   KeySpan Energy Delivery ("Company" or "KeySpan")  recognizes that the success
   and  achievement  of corporate  goals is directly  related to the ability and
   performance of its employees.  In this regard, the Company has established an
   Annual  Incentive  Compensation  and Gainsharing Plan ("Plan") which provides
   incentives  for  achieving  specific   performance   objectives  and  related
   financial and operating goals.

   In the  deregulated  utility  environment,  the  need  and  use of  incentive
   compensation  is  a  logical  progression  to  providing   competitive  total
   compensation in the external marketplace.  The use of a combined base pay and
   incentive   compensation   philosophy   has   become   the  norm  in   salary
   administration programs.

   In managing the compensation  programs at KeySpan, it is recognized that both
   base pay and  incentives  are  integral  components  in an  effective  salary
   program. One of our compensation  objectives is to identify methods which can
   be  used  to  enhance  our  existing  programs  to  create  better  "pay  for
   performance"  plans. In this regard,  the Plan provides a method to establish
   specific performance goals. The Plan also provides a direct link between team
   and group performance results and corporate initiatives.  The key operational
   goals are based upon the corporate  initiatives and  specifically  focus upon
   growth, competitive pricing, customer satisfaction and employee excellence.

























<PAGE>



                                Executive Summary
ELIGIBILITY
-----------

o   Includes all KeySpan Energy Delivery Officers.

o The Plan also includes:

          o All KeySpan Energy Delivery regular  full-time and regular part-time
          management employees.

          o All KeySpan Energy Delivery  regular full time bargaining  employees
          and temporary full time and temporary part time  bargaining  employees
          who are members of Local 101 TWU and Local 3 IBEW.

          o All KeySpan  Energy  Delivery full time and part time  employees who
          are members of Local 1049 and Local 1381, IBEW.

          o All KeySpan  Energy  Delivery full time and part time  employees who
          are members of Local 1-2.

o Personnel who participate in the KeySpan Energy Delivery Sales Commission Plan
are not  eligible  to  participate  in the  Annual  Incentive  Compensation  and
Gainsharing Plan.

o  Personnel  on loan to  other  KeySpan  subsidiaries  may  participate  at the
discretion of the Chairman of KeySpan.


PERFORMANCE GOALS
-----------------

o Strategic considerations have been incorporated into the Plan design.

o  Performance   goals  are  established  to  reflect  KeySpan  Energy  Delivery
performance at the Holding Company and Utility level.

o Awards for  participants  in the plan may be based solely upon Holding Company
goals,  Utility/Business  Unit/Division/Department  goals, individual goals, and
(depending on position) on Subsidiary goals or some combination of these goals.

o Each goal will have a threshold, target and maximum performance level.

o The amount of the award will be determined by the performance level achieved.

o The award to each participant  shall be determined by the goal results for the
Holding  Company,  Utility/Business   Unit/Division/Department,   or  individual
performance, and (depending on position) on Subsidiary performance.

         REVIEW AND APPROVAL
         -------------------

o All determinations  relative to the Plan, regarding Officers' participating in
the plan,  including  approval of awards,  shall be subject to the discretion of
the  KeySpan  Board of  Directors.  The Board  shall make  determinations  after
receiving the  recommendations  of the KeySpan Energy Delivery  Compensation and
Nominating . Such  determinations  shall be final,  conclusive and binding.  All
other awards will be based on approval of the Chairman of KeySpan.

o Awards when  granted,  will be paid to each  participant  on an annual  basis,
after the end of the plan year.

DEFINITIONS
-----------

The terms  included in this Plan are defined  below  unless the context  clearly
requires a different meaning.


"Annual Base Salary" base salary in effect as of the end of the plan year

"Base Salary  Earnings"  base salary  earned during the plan year.

"Award Date" the date incentive  awards are approved.  The date shall be defined
as the date the Board of Directors reviews and approves incentive awards.

"Board" the Company's Board of Directors.

"Cash" award money paid in a lump-sum.

"Committees"  the  Compensation  and Nominating  Committee of the KeySpan Energy
Board of Directors.

"Incentive  Award" the award  provided to eligible  participants  expressed as a
percentage of their annual base pay earnings.

"Maximum Award" the upper limit as a percent of annual base pay earnings payable
if the maximum level predetermined for the goals are achieved.

"Plan" the Annual Incentive Compensation & Gainsharing Plan.

"Plan  Year" the  calendar  year  period  beginning  January  1, 2000 and ending
December 31, 2000.

"Target Award" a predetermined  payout  percentage for achieving the established
Goals.

"Threshold" minimum level of achievement for a payout to occur.

<PAGE>



KeySpan Energy Annual Incentive Compensation and Gainsharing Plan
-----------------------------------------------------------------

1.    Purpose

KeySpan Energy's Annual Incentive  Compensation and Gainsharing Plan is designed
to:

          a)  Provide  incentives  to  achieve  goals  which  are  important  to
     shareholders and customers of the Company.

          b)  Emphasize  pay for  performance  with  variable  awards  linked to
     corporate performance and profitability.

          c) Promote the demonstration of our corporate values which are:

     Respect for Diversity - All persons must be treated with dignity.

     Integrity and Trust - We must be honest and fair;  our deeds must match our
     words.

     Open Communication - We must speak clearly and listen attentively.

     Teamwork  - We must  achieve  common  goals,  and share  both  success  and
     failure.

     Leadership at All Levels - Everyone must take responsibility for results.

     Unparalleled  Customer  Service - We must be  creative  and focused so that
     customers always get what they want and need.

     Community   Commitment  -  We  must  be  good  neighbors  and  respect  our
     environment.

d) Maintain an overall  compensation and benefit plan, which is competitive with
the marketplace to attract the best talent.

e) Provide a  compensation  environment  which fosters the retention of talented
personnel and encourages them to contribute towards the success of the Company.

2.    Administration
      --------------

   All  determinations  in  connection  with the Plan  with  regard  to  officer
   compensation  shall be made by the Board of  Directors  after  receiving  the
   recommendations  of its respective  Compensation  and  Nominating  Committee,
   herein called the "Committee". Such determinations shall be final, conclusive
   and binding.
   The Plan will be administered by the Chief Executive Officer and
   the Senior Vice President over Human Resources,  under the general  direction
   of the Committee.  The Compensation Department and Strategic Planning will be
   responsible for the Plan design recommendations and administration.
   The Committee will approve performance goals for the plan year as well as the
   potential threshold, target and maximum award percentages that will provide a
   reasonable and competitive level of awards if the primary threshold goals are
   achieved.

   The Committee  shall have full and final authority to designate the incentive
   award for each  participant,  and to determine  the  performance  objectives,
   amount and form of all  incentive  awards.  The  Committee  may delegate such
   responsibilities, other than final approval of awards, to the Chief Executive
   Officer who may then delegate such responsibility to any other officer of the
   Company.

   The  Committee,  as soon as  practicable  following the end of the plan year,
   will review for approval the recommended  incentive  awards to be provided to
   the Plan  participants  for the previous year.  The Board of Directors  shall
   make the final  determination  regarding  approval of all  awards.  Incentive
   awards for all  participants,  except  the Chief  Executive  Officer  will be
   recommended  by the Chief  Executive  Officer  subject to the approval of the
   Committee  and the  Board of  Directors.  The  incentive  award for the Chief
   Executive  Officer  will be  recommended  by the  Chairman  of the  Committee
   subject to the approval of the Board of Directors.

   The  Committee  shall,  in  their  sole  discretion,  recommend  whether  any
   participant  shall be eligible to earn an  incentive  award.  In the event of
   extraordinary  windfall  profits or losses beyond the control of the Company,
   or in  circumstances  where  prudent  management  decisions  will diminish or
   preclude  the  payment  of  incentive  awards,  the  Committee  will have the
   discretion to recommend to the Board to provide or eliminate incentive awards
   as deemed necessary. The Committee can also award such amounts that they deem
   appropriate to recognize superior results which have been achieved.  Finally,
   the  Committee  may recommend to the Board of Directors to amend or terminate
   the Plan at with or without notice to the participants.

3.    Eligibility
      -----------

a)   The Plan includes all KeySpan Energy Delivery regular full-time and regular
     part-time  management  employees,  all KeySpan Energy Delivery regular full
     time  bargaining  employees and temporary full time and temporary part time
     bargaining employees who are members of Local 101 TWU and Local 3 IBEW, and
     all  KeySpan  Energy  Delivery  full time and part time  employees  who are
     members  of Local  1049,  Local  1381,  IBEW and Local 1-2.  Personnel  who
     participate in the KeySpan Energy Sales Commission Plan are not eligible to
     simultaneously   participate  in  the  Annual  Incentive  Compensation  and
     Gainsharing  Plan.  Personnel  on loan to other  KeySpan  subsidiaries  may
     participate at the discretion of the Chairman of KeySpan.

b)   To receive an award, an employee must have had worked during the plan year,
     and be  actively  employed  with the  Company as of the date the awards are
     paid. Management employees hired after the beginning of the Plan year (i.e.
     January 1), are eligible for a prorata  award based upon base salary earned
     during the  number of months of  employment  during the plan year,  if they
     remain employed until the awards are paid. Bargaining employees hired after
     the  beginning of the plan year are eligible for an award,  as long as they
     remain employed until the awards are paid, as follows:

     Employed  before January 31:           Eligible for a full potential award.

     Employed  between February 1
     and June 31:                           Eligible for 50% of potential award.

     Employed on or after July 1:           Not eligible for an award

c)   Receipt  of an award in one year  shall  have no  bearing  on receipt of an
     award in future years.

d)   An eligible  employee must have a performance  level that the Company deems
     acceptable to participate in the Plan. For management employees, this means
     an employee must maintain a performance appraisal rating of "High Standard"
     or better.  Employees  who  receive a  performance  rating in the "Room for
     Improvement"  category  may be  eligible  to  receive  1/2 of their  award.
     Employees who receive a performance  rating in the "Not Adequate"  category
     are not eligible to receive an award.


      4.  Weighting of Goals
          ------------------

      o  The award to each  participant  shall be determined by a combination of
         the  Holding  Company/  Utility/Business  Unit/Division/Department,  or
         individual  performance,  and  (depending  on position)  on  Subsidiary
         performance.

      o  Weighting   of  awards   shall  be   determined   by  an   individual's
         band/position within the organization.  In general, weighting of awards
         will reflect a mix of Holding Company/ Utility / Business Unit / and/or
         Subsidiary goals as appropriate.

      5.  Annual Incentive Plan Targets
          -----------------------------

      Incentive  awards for eligible  employees  will be  calculated  based upon
      their status as of the end of the plan year,  (i.e.  December 31).  Awards
      for eligible management employees, employees who are members of Local 101,
      Local 3 and Local 1-2 are  calculated as a percentage of their annual base
      salary  earnings,  which includes paid time worked,  paid absence and paid
      vacation, cumulatively earned through December 31, according to the target
      awards indicated below. Awards for officers are calculated as a percentage
      of annual base salary as of the end of the plan year, in  accordance  with
      the target percentages indicated below. Employees who are members of Local
      1381 and Local 1049 are eligible for a flat dollar  amount,  reflective of
      the target awards indicated below. Based upon goal performance, awards can
      range from 0% to the maximum, with no payout if the Threshold level is not
      achieved for the specified goals:





<TABLE>
<CAPTION>

         Band                          2000 Threshold     2000 Target         2000 Maximum
         ----                         ----------------    ----------         ------------
<S>                                        <C>            <C>                    <C>
         Chairman/CEO                       35%               70%                  140%
         President /COO                     30%               60%                  120%
         Executive Vice President           25%               50%                  100%
         Senior Vice President              20%               40%                   80%
         Vice President                     15%               30%                   60%

         Band 4 L                           11.25%            22.5%                 45%
         Band 4                             10%               20%                   40%
         Band 3                             7.5%              15%                   30%
         Band 2                             5.0%              10%                   20%
         Band 1                             2.5%               5%                   10%


         Local 101 and Local 3*             1.25%             2.5%                   5%
         Local 1-2*                         0.75%             1.5%                   3%
         Local 1381 and Local 1049*         $600            $1,000               $2,000

         * Part time employees are eligible for 1/2 of the awards stated above.
</TABLE>


      6. Payment of Awards
         -----------------

         Awards will be paid in cash as soon as practicable following the end of
         the plan year after review and approval by the  Committee  and Board of
         Directors.  The amounts  required by law to be withheld  for income and
         Social Security taxes, as well as a 401(k)  deduction for  participants
         of the  401(k)  plan,  will be  deducted  from the award  payments.  An
         employee  must be actively  employed as of the date the awards are paid
         to receive an award.


      7. Change of Employment Status During the Plan Year

         a)   Promotions/Demotions

         Awards to each plan participant will be based on the employee's  target
         in effect as of December 1st of the plan year,  and status in effect at
         the end of the plan year.  Employees who are demoted due to performance
         during the plan year,  shall be eligible  for an award at the target of
         their new position.

         b)   Termination

         An employee  whose  services  are  terminated  during the plan year for
         reasons of misconduct, failure to perform, or other performance related
         reasons  shall  not be  considered  for an award.  Unless  the Board of
         Directors shall otherwise  determine,  such an individual  shall not be
         entitled to any portion of an incentive  award.  If the  termination is
         due to other reasons such as  reorganization,  transfer to  subsidiary,
         etc., and the  termination  is not due to a fault of the employee,  the
         employee may be considered for a pro-rata award.

         c)   Resignation

         An  employee  who  resigns to accept  employment  elsewhere  (including
         self-employment)  during  the plan year or prior to the date the awards
         are paid will not be considered for an award.

          d)   Death,  Disability,  Retirement,  Leave of Absence (for Sickness,
               FMLA or Personal Reasons)

         An employee  whose status as an active  employee is changed  during the
         plan year for any of the reasons cited may be considered for a pro-rata
         award at the end of the plan year  depending  upon the actual length of
         paid service during the plan year. In the event of death,  any prorated
         payment shall be made to the beneficiary.

     8.  Change In Control
         -----------------

     In the  event of a change in  control,  all  participants  shall be paid an
     award based upon the  effective  date of the change in  control.  The award
     would either be prorated or annualized  based upon the timing of the change
     of control. Prorated awards will be made as determined by the Committee.

     A Change in Control is defined as:
     a)  The acquisition by any Person of beneficial ownership of 20% or more of
         either (x) the then  outstanding  shares of common stock of the Company
         (the  "Outstanding  Company Common  Stock") or (y) the combined  voting
         power of the then outstanding voting securities of the Company entitled
         to vote  generally  in the  election  of  directors  (the  "Outstanding
         Company Voting Securities");  provided,  however,  that for purposes of
         this subsection (a), the following  acquisitions shall not constitute a
         Change of Control;  (A) Any acquisition  directly from the Company, (B)
         Any  acquisition  by the Company,  (C) Any  acquisition by any employee
         benefit plan (or related trust)  sponsored or maintained by the Company
         or any Person  controlled by the Company or (D) Any  acquisition by any
         person pursuant to a transaction  which complies with clauses (A), (B),
         and (C) of paragraph c) below; or

     b)  Individuals  who, as of the Effective  Date,  constitute the Board (the
         "Incumbent  Board")  cease  for any  reason  to  constitute  at least a
         majority of the Board; provided,  however, that any individual becoming
         a  Director  subsequent  to the date of this Plan  whose  election,  or
         nomination for election by the Company's shareholders,  was approved by
         a vote of at least a majority  of the  Directors  then  comprising  the
         Incumbent  Board shall be considered as though such  individual  were a
         member of the Incumbent  Board,  but excluding,  for this purpose,  any
         such individual  whose initial  assumption of office occurs as a result
         of an  actual  or  threatened  election  contest  with  respect  to the
         election  or  removal  of  Directors  or  other  actual  or  threatened
         solicitation  of proxies or consents by or on behalf of a Person  other
         than the Board; or

     c)  Consummation of a  reorganization,  merger or  consolidation or sale or
         other  disposition  of all or  substantially  all of the  assets of the
         Company  or  the  acquisition  of  assets  of  another  corporation  (a
         "Business Combination"),  in each case, unless, following such Business
         Combination,  (A)  All or  substantially  all of  the  individuals  and
         entities  who  were  the  beneficial  owners,   respectively,   of  the
         Outstanding   Company  Common  Stock  and  Outstanding  Company  Voting
         Securities immediately prior to such Business Combination  beneficially
         own, directly or indirectly,  more than 65% of, respectively,  the then
         outstanding shares of common stock and the combined voting power of the
         then outstanding  voting  securities  entitled to vote generally in the
         election of Directors, as the case may be, of the corporation resulting
         from  such  Business  Combination  (including,  without  limitation,  a
         corporation  which as a result of such  transaction owns the Company or
         all or  substantially  all of the Company's  assets either  directly or
         through one or more subsidiaries) in substantially the same proportions
         as their ownership,  immediately prior to such Business  Combination of
         the Outstanding Company Common Stock and Outstanding

     d)Company Voting  Securities,  as the case may be, (B) No Person (excluding
          any  corporation  resulting  from  such  Business  Combination  or any
          employee  benefit  plan (or  related  trust)  of the  Company  or such
          corporation  resulting  from such Business  Combination)  beneficially
          owns, directly or indirectly,  20% or more of, respectively,  the then
          outstanding  shares of common stock of the corporation  resulting from
          such  Business  Combination  or the combined  voting power of the then
          outstanding voting securities of such corporation except to the extent
          that such ownership existed prior to the Business Combination; and

     e)  At least a majority  of the  members of the board of  directors  of the
         corporation  resulting from such Business  Combination  were members of
         the  Incumbent  Board  at the  time  of the  execution  of the  initial
         agreement,  or of the action of the Board,  providing for such Business
         Combination; or

     f)   Approval by the shareholders of the Company of a complete  liquidation
          or dissolution of the Company.


     9.  General Provisions
         ------------------

         a)   The  Plan  shall  not  constitute  a  contract  for the  continued
              employment of any participant by the Company. The Company reserves
              the  right to  modify  management  and  officer  compensation  and
              benefits  at any  time  and from  time to  time,  as it  considers
              appropriate and to terminate employment for any reason at any time
              notwithstanding this Plan.

         b)   Cash  payments made under this Plan  generally  will be treated as
              compensation  for the purposes of the  Company's  Retirement  Plan
              benefit if the employee is enrolled in the  Employee's  Retirement
              Plan of KeySpan Energy,

         Awards  will be  considered  pensionable  earnings  provided  that such
         payments do not result in disqualification of the Retirement Plan under
         401(a) of the  Internal  Revenue  Code or  adversely  affect the exempt
         status of the Retirement  Plan trust under Section 501(a) of said code.
         Cash  payments  of  any  non-deferred  portion  of an  incentive  award
         received after retirement or death shall be treated for Retirement Plan
         benefit  purposes as  compensation  for  services  rendered in the last
         Retirement  Plan  year in which  the  recipient  was  employed,  if the
         employee  was a  participant  in an  existing  incentive  plan prior to
         10/1/95.  Cash payments of the portions that were actually  deferred or
         would have normally been deferred or any nondeferred portions which are
         received after retirement or death will not be considered  compensation
         for Retirement Plan benefit purposes.

          c)   No  benefit  under  the plan  shall in any  manner  or  extent be
               assigned,  alienated, or transferred by any participant under the
               Plan,  or be subject to  attachment,  garnishment  or other legal
               process.

         d)   Except as addressed herein,  incentive  compensation payments will
              not affect the level of benefits under any other employee  benefit
              plan or program of the Company.

         e)   Cash  payments  will be eligible  for any  Employee  Savings  Plan
              401(k)  deferral or after tax  contribution  election  made by the
              employee  subject to the  limitations  established  in the current
              401(k) plan.

         f)   The  Board of  Directors  of the  Company  may  change,  modify or
              terminate  the Plan in whole or in part,  either in  general or in
              particular cases, at any time with or without notice.