Execution Copy









                         NEW YORK STATE ENERGY RESEARCH

                            AND DEVELOPMENT AUTHORITY


                                       and


                 CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.





                             PARTICIPATION AGREEMENT





                            Dated as of July 1, 1999



                                   relating to
                     Facilities Revenue Bonds, Series 1999A
             (Consolidated Edison Company of New York, Inc. Project)



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                                TABLE OF CONTENTS

                             PARTICIPATION AGREEMENT
                                                                            Page

PARTIES.....................................................................  1
RECITALS....................................................................  1


                                    ARTICLE I

      DEFINITIONS; EFFECTIVE DATE AND DURATION OF PARTICIPATION AGREEMENT

Section 1.01.  Definitions....................................................3
Section 1.02.  Effective Date of Participation Agreement;
               Duration of Participation Agreement............................3


                                   ARTICLE II

                                 REPRESENTATIONS

Section 2.01.  Representations and Warranties by the Authority................4
Section 2.02.  Representations and Warranties by the Company..................4


                                   ARTICLE III

                         THE PROJECT; ISSUANCE OF BONDS

Section 3.01.  The Project....................................................6
Section 3.02.  Sale of Bonds and Deposit of Proceeds..........................6
Section 3.03.  Disbursements from Project Fund................................6
Section 3.04.  Adequacy of Project Fund.......................................6
Section 3.05.  Ownership and Possession of the Project........................6
Section 3.06.  Operation, Maintenance and Repair..............................6
Section 3.07.  Investment of Monies in Funds Under the Indenture..............7


                                   ARTICLE IV

                                NOTE AND PAYMENTS

Section 4.01.  Execution and Delivery of Note to Trustee......................8
Section 4.02.  Payments Payable; Note Payments; Additional
               Payments.......................................................8
Section 4.03   Notice to Pay; Medium of Payment; Acceleration................10
Section 4.04   Prepayment of Note Payments...................................10
Section 4.05   Company's Payments as Trust Funds.............................11
Section 4.06   Absolute Obligation to Make Payments..........................11
Section 4.07   Assignment of Authority's Rights..............................12
Section 4.08   Actions with Respect to or by or on behalf of the
               Authority under the Indenture.................................13
Section 4.09   Agreements of Company relating to Support
               Facilities....................................................13
Section 4.10   Compensation of Trustee and Paying Agents.....................13
Section 4.11   Project not Security for Bonds................................13
Section 4.12   Payment of Taxes and Assessments; No Liens or
               Charges.......................................................13
Section 4.13   Company to Pay Attorneys' Fees and Disbursements..............14
Section 4.14   No Abatement of Administration Fees and Other
               Charges.......................................................14

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                                    ARTICLE V

                                SPECIAL COVENANTS

Section 5.01   No Warranty as to Suitability of Project......................15
Section 5.02   Authority's Right to Inspect Project..........................15
Section 5.03   Company Consent to Amendment of Indenture.....................15
Section 5.04   Tax Covenant..................................................15
Section 5.05   Company Agrees to Perform Obligations Imposed by
               Indenture.....................................................15
Section 5.06.  Authority Agrees to Take Certain Actions at
               Direction of Company..........................................15
Section 5.07   Certificates as to Defaults...................................15
Section 5.08   Limited Obligation of Authority; Indemnification of Authority,
               Registrar and Paying Agent, Auction Agent  and Trustee........16
Section 5.09   Provision of Information......................................17
Section 5.10.  Ratings.......................................................17
Section 5.11   Notices.......................................................17
Section 5.12   Maintenance of Office or Agency...............................17
Section 5.13   Maintenance of Properties.....................................18
Section 5.14   Insurance.....................................................18
Section 5.15   Proper Books of Record and Account............................18
Section 5.16   Compliance with Laws..........................................18
Section 5.17   Consolidation, Merger or Sale of Assets.......................18
Section 5.18   Financial Statements of Company...............................19


                                   ARTICLE VI

               REDEMPTION OF BONDS; PREPAYMENT OF NOTE PAYMENTS

Section 6.01   Redemption of Bonds...........................................20


                                   ARTICLE VII

                         EVENTS OF DEFAULT AND REMEDIES

Section 7.01   Events of Default Defined.....................................21
Section 7.02   Remedies on Default...........................................22
Section 7.03   No Remedy Exclusive...........................................23
Section 7.04   No Additional Waiver Implied by One Waiver....................24

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                                  ARTICLE VIII

                                  MISCELLANEOUS

Section 8.01   Disposition of Amounts after Payment of Bonds.................25
Section 8.02   Notices.......................................................25
Section 8.03   Successors and Assigns........................................25
Section 8.04   Amendment of Participation Agreement..........................25
Section 8.05   Participation Agreement Supersedes Any Prior
               Agreements....................................................25
Section 8.06   Further Assurances and Corrective Instruments.................25
Section 8.07   Counterparts..................................................26
Section 8.08   Severability..................................................26
Section 8.09   Delegation of Duties by Authority.............................26
Section 8.10   Survival of Representations, Warranties and
               Covenants.....................................................26
SECTION 8.11   NEW YORK LAW TO GOVERN........................................26



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TESTIMONIUM         .......................................................  27

SIGNATURES AND SEALS.......................................................  27

ACKNOWLEDGMENTS............................................................  27

EXHIBIT A         Description of Project Exempt Facilities................  A-1

EXHIBIT B         Description of Other Project Facilities.................  B-1

EXHIBIT C         Form of Note............................................  C-1

<PAGE>




            This PARTICIPATION AGREEMENT,  dated as of July 1, 1999, 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
CONSOLIDATED  EDISON COMPANY OF NEW YORK, INC., 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"),

                             W I T N E S S E T H :

            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  construction of facilities for the
furnishing of electric  energy and the furnishing of gas to the extent  required
by the public interest in development,  health, recreation, safety, conservation
of natural resources and aesthetics; and

            WHEREAS,  pursuant to the Act, the  Authority is also  authorized to
extend  credit  and  make  loans  from  bond  proceeds  to any  person  for  the
construction,    acquisition,   installation,    reconstruction,    improvement,
maintenance,  equipping, furnishing or leasing of any special energy project (as
defined  in  the  Act)  including,  but  not  limited  to,  facilities  for  the
distribution of steam or for the  reimbursement to any person for costs incurred
in connection  with a special energy  project  completed or not completed at the
time of such  credit or loan,  which  credits  or loans  may,  but need not,  be
secured by mortgages,  contracts,  leases or other instruments,  upon such terms
and conditions as the Authority  shall  determine  reasonable in connection with
such credits or loans; and

            WHEREAS,  the Authority is also  authorized  under the Act to borrow
money and issue its negotiable bonds and notes to provide  sufficient monies for
achieving its  corporate  purposes,  including the refunding of its  outstanding
obligations; 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  provides  electric  energy and gas  service in The
City of New York and the  County of  Westchester,  New York and  provides  steam
service in the Borough of Manhattan; and



<PAGE>




            WHEREAS,  the Company has requested  that the Authority  issue bonds
for the purpose of refunding the Authority's 7 1/4% Electric  Facilities Revenue
Bonds, Series 1989 C (Consolidated Edison Company of New York, Inc. Project), in
the aggregate  principal amount of $150,000,000  and 7 1/2% Electric  Facilities
Revenue Bonds,  Series 1990 A  (Consolidated  Edison  Company of New York,  Inc.
Project), in the aggregate principal amount of $150,000,000  (collectively,  the
"Prior  Bonds")  issued to  finance a  portion  of the cost of the  acquisition,
construction  and  installation  of certain  facilities  for the  furnishing  of
electric energy within the Company's service area; and

            WHEREAS,  the Authority  proposes to issue a series of such bonds in
the aggregate principal amount of $292,700,000  Facilities Revenue Bonds, Series
1999A (Consolidated Edison Company of New York, Inc. Project) (the "Bonds"),  in
order to refund the Prior Bonds,  such bonds to be issued under and secured by a
Trust  Indenture  dated as of July 1, 1999,  between the Authority and HSBC Bank
USA, as Trustee (the "Indenture"); and

            WHEREAS,  the Authority,  by Resolution  No. 934,  adopted April 19,
1999, has determined to issue the Bonds, in an aggregate principal amount not to
exceed  $292,700,000,  for the purpose of refunding  the Prior  Bonds,  all such
Bonds to be issued under and secured by the Indenture;

            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:


<PAGE>


                                    ARTICLE I

                   DEFINITIONS; EFFECTIVE DATE AND DURATION
                           OF PARTICIPATION AGREEMENT

            Section 1.01.     Definitions.    The    terms    used    in   this
Participation  Agreement  which are  defined  in the  Indenture  shall have the
meanings, respectively, herein which such terms are given in 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,  and shall  continue in full force and effect
until the  principal of and premium,  if any, and interest on the Note and Bonds
have been fully paid (or provision for their payment has been made in accordance
with the  provisions of the  Indenture),  and all sums to which the Authority or
the Trustee are entitled hereunder have been fully paid.


<PAGE>


                                   ARTICLE II

                                 REPRESENTATIONS

            Section 2.01.     Representations    and   Warranties   by   the
Authority. The Authority represents and warrants 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;

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

            (c) The  Authority is not in violation of or in default under any of
      the  provisions of the laws or the  Constitution  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 and the  refunding of the Prior  Bonds,  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, the Indenture, the Tax Regulatory Agreement
      and the Bond  Purchase  Trust  Agreement and the execution and delivery of
      the other  documents  incidental  to this  transaction  and all  necessary
      authorizations  therefor  or in  connection  with the  performance  by the
      Authority of its  obligations  hereunder or thereunder  have been obtained
      and are in full force and effect; and

            (f) The execution  and delivery by the Authority of the Bonds,  this
      Participation  Agreement, the Tax Regulatory Agreement, the Indenture, the
      Bond Purchase Trust Agreement and the other  documents  incidental to this
      transaction  and the  consummation of the  transactions  herein or therein
      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 any  judgment,  decree,
      order, statute, rule or regulation applicable to the Authority.

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



<PAGE>


            (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 transact  business as a public  utility in the State of New
      York  and is not in  violation  of any  provision  of its  Certificate  of
      Incorporation or its By-Laws, has power to enter into, execute and deliver
      this Participation  Agreement,  the Tax Regulatory  Agreement and the Note
      and by proper  corporate  action has duly  authorized  the  execution  and
      delivery of this Participation Agreement, the Tax Regulatory Agreement and
      the Note;

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

            (c) This Participation  Agreement,  the Tax Regulatory Agreement and
      the Note 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;

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

            (e) No additional  authorizations  for or approvals of the execution
      and  delivery  by the  Company of this  Participation  Agreement,  the Tax
      Regulatory  Agreement  and the Note need be  obtained by the Company or if
      any such authorization or approval is necessary it has been obtained.


<PAGE>


                                   ARTICLE III

                         THE PROJECT; ISSUANCE OF BONDS

            Section 3.01.     The  Project.  Construction  of  the  Project  is
complete.   The  Project  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.  In order to
provide funds for the refunding of the Prior Bonds,  the Authority,  on the date
specified in the Bond Purchase  Agreement or as soon  thereafter as practicable,
and  concurrently  with the  issuance and delivery to the Trustee of the Note as
provided in Section 4.01  hereof,  will issue,  sell and deliver the Bonds,  all
pursuant to and as provided in the Bond  Purchase  Agreement  and subject to the
conditions  set forth in Section  2.06 of the  Indenture,  and will  deposit the
proceeds  of such sale  including  the  accrued  interest,  if any,  paid by the
initial purchasers of the Bonds in the Project Fund.

            Section 3.03.  Disbursements from Project Fund. 1. The Authority has
in the Indenture  authorized  and directed the Trustee to make payments from the
Project  Fund in  accordance  with  Section  8.01 of the  Indenture,  to pay the
redemption  price of the Prior Bonds and costs related thereto upon receipt from
time to time of  letters  signed  by an  Authorized  Company  Representative  in
accordance with Section 8.01 of the Indenture. Concurrently with the delivery by
the Company of each such letter to the Trustee,  the Company will deliver to the
Authority a copy thereof and any attachments thereto. The Company will indemnify
and save harmless the  Authority and the Trustee from any liability  incurred in
connection  with any  letter so  delivered  and any  payments  made in  reliance
thereon.

            2. All monies  remaining in the Project Fund after the redemption of
the Prior Bonds and payment of all costs related  thereto shall,  at the written
direction of an Authorized Company Representative, be paid to the Company.

            Section  3.04.  Adequacy of Project Fund.  The Company  acknowledges
that the monies in the Project  Fund are not  sufficient  to pay the  redemption
price of the Prior Bonds and costs  related  thereto in full.  The Company shall
pay that portion of the  redemption  price of the Prior Bonds and costs  related
thereto in excess of the monies available  therefor in the Project Fund with its
own funds.

            Section 3.05.  Ownership and Possession of the Project.  Issuance of
the Bonds will not vest in the owners thereof, the Trustee, the Authority or any
other person, ownership, or the right to possession, of the Project. The Company
is entitled to sole and exclusive ownership and possession of the Project.



<PAGE>


            Section 3.06. 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 electric  distribution  facilities of the Company and that it is not
feasible 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  desirable)  as part of such  facilities  for the joint  useful
lives of the  Project  and such  facilities  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  physical,  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 3.07. Investment of Monies in Funds Under the Indenture. Any
monies held as a part of any fund  created  under the  Indenture  shall,  at the
direction of an Authorized Company Representative,  be invested or reinvested by
the Trustee as provided in Article IX of the Indenture.


<PAGE>


                                   ARTICLE IV

                                NOTE AND PAYMENTS

            Section   4.01.   Execution   and   Delivery  of  Note  to  Trustee.
Concurrently  with  the  authentication  by  the  Trustee  and  delivery  by the
Authority of the Bonds and in order to evidence the obligation of the Company to
the Authority to repay the Bonds, the Authority hereby directs the Company,  and
the Company hereby agrees,  to execute and deliver to the Trustee its Note, duly
and validly executed and delivered,  relating to the Bonds. The Note shall be in
substantially  the form  attached  hereto as Exhibit A with only such changes to
such form as may be approved by the Authority.  Thereafter, the Company shall be
obligated to make the Note Payments,  constituting payments of principal of, and
premium,  if any, and interest on the Note, and the Additional Payments required
by this  Participation  Agreement.  Such obligations shall terminate on the date
when the Note has been paid in full. The Note may be prepaid in accordance  with
Section  4.04  hereof.  Upon  payment or  provision  for  payment in full of all
amounts  payable or to become  payable under the Note,  the Trustee shall cancel
the Note and deliver the same to the Company.  Provision  for payment in full of
all amounts  payable or to become payable under the Note shall be deemed to have
occurred  upon  receipt  by the  Trustee of written  notice  from the  Authority
acknowledging  that the Company has satisfied its  obligations  to the Authority
under the Note.  The  Authority  agrees to deliver  such  written  notice to the
Trustee promptly when such provision for payment in full has been made.

            Section 4.02. Payments Payable; Note Payments;  Additional Payments.
(a) The Company  covenants  and agrees to pay the  Payments as and when the same
are due and  payable in  accordance  with the Note and this  Section  4.02.  The
Company  shall  provide the Trustee  with a written  allocation  of amounts paid
under this  Section  4.02 among the various  purposes  set forth in this Section
4.02.

            (b) The Note  Payments  shall be in an aggregate  amount  sufficient
for,  together with other  amounts held by the Trustee and  available  under the
Indenture for application to, the payment in full of the Bonds consisting of (i)
the total interest  becoming due and payable on the Bonds to the date of payment
thereof, and (ii) the total principal amount plus premium, if any, of the Bonds.

            (c) The  Company  shall make Note  Payments  as set forth in Section
4.02(b) at or prior to the time the  corresponding  payment is due on the Bonds.
Each  installment of Note Payments paid by the Company shall be increased as may
be necessary to make up any previous  deficiency of any of the required payments
and to make up any deficiency in the Bond Fund.

            (d) In addition,  the Company  shall pay to the Registrar and Paying
Agent for deposit in the Bond  Purchase  Fund and credit to the Company  Account
therein an amount  sufficient  to provide for the payment of the Purchase  Price
(as defined in the Bond  Purchase  Trust  Agreement)  of any Bond  tendered  for
purchase  pursuant  to the Bond  Purchase  Trust  Agreement  to the extent  that
sufficient  moneys are not available for the payment of such Purchase Price from
the other sources described therein.



<PAGE>


            (e) The  Company  covenants  that it shall  deposit,  or cause to be
deposited  with the Trustee,  sufficient  funds to assure that no default  shall
occur in the payment of the principal of or premium, if any, or the interest on,
or the Purchase  Price of, the Bonds as and when due,  and that no  unreasonable
delay  shall  occur in the  payment  of the  costs  and  expenses  payable  from
Additional Payments.

            (f) The Company  further  covenants  and agrees to pay, when due and
payable,  as  Additional  Payments,  certain  additional  amounts  and costs and
expenses. Each installment of Additional Payments, if any, shall be equal to the
sum of the amounts set forth in clauses (i) to (iv), inclusive, below, and shall
be paid directly to the persons entitled to such payments. "Additional Payments"
is hereby defined to be the aggregate of the installments of the following:

            (i) the  reasonable  fees and expenses  payable to the Trustee,  any
      Indexing  Agent,  the Registrar and Paying Agent,  any issuer of a Support
      Facility  (and in the case of Auction Rate Bonds,  the Auction Agent under
      the Auction  Agency  Agreement,  any  Broker-Dealers  under the respective
      Broker-Dealer Agreements,  and any Remarketing Agent under the Remarketing
      Agreement), and of any counsel or agents of any of the foregoing;

            (ii) all costs incurred in connection  with the transfer,  exchange,
      purchase or redemption of Bonds not otherwise paid by the holders thereof,
      including  all charges of the  Authority  (and in the case of Auction Rate
      Bonds, the Auction Agent, any  Broker-Dealer  and any Remarketing  Agent),
      the  Registrar and Paying Agent and the Trustee with respect  thereto,  to
      the extent monies are not otherwise available therefor;

            (iii) the  reasonable  fees and other costs incurred for services of
      such  attorneys  and  accountants  as are  employed to make  examinations,
      provide services,  render opinions and prepare reports required under this
      Participation Agreement, the Tax Regulatory Agreement, the Bond
      Purchase Trust Agreement, and the Indenture; and

            (iv)  initial  administration  fees in the amount of $731,750 on the
      date of authentication and delivery of the Bonds to the initial purchasers
      thereof,  an annual fee equal to $130 per million dollar  principal amount
      of the Bonds on July 1, 2000 and on July 1 of each year thereafter,  based
      upon the amount of Bonds Outstanding as of such July 1 and for purposes of
      the  calculation  of such fee,  rounding up to the nearest  whole  million
      dollars,  and all reasonable  expenses,  disbursements,  advances,  taxes,
      assessments or  impositions,  not otherwise paid under this  Participation
      Agreement or the  Indenture,  incurred by or imposed upon the Authority in
      connection  with its  administration  and  enforcement  of, and compliance
      with, this Participation Agreement, the Auction Agency Agreement, the Bond
      Purchase Trust  Agreement,  the  Remarketing  Agreement and the Indenture,
      which amounts the Company is obligated to pay, including,  but not limited
      to, reasonable attorneys' fees. In addition,  the Company shall deliver to
      the  Authority a check  payable to the State of New York with respect to a
      bond issuance  charge  applicable to the Bonds pursuant to Section 2976 of
      the  Public  Authorities  Law  of the  State  of New  York  in the  amount
      specified  by such section on the date of  authentication  and delivery of
      the Bonds.



<PAGE>


            (g) In the event that the Company  shall fail to make any Payment as
required by  Sections  4.02(a) - (e)  hereof,  the  Payment so in default  shall
continue as an  obligation of the Company until the amount in default shall have
been fully paid, and the Company  agrees to pay the same with interest  thereon,
which interest shall also constitute an obligation of the Company at the maximum
rate of interest  payable on the Bonds pursuant to the Indenture,  to the extent
permitted  by law,  from the date of  default  until  paid;  provided,  that the
Company agrees in the event the Company shall fail to make any Payment during an
Auction Rate Period,  the Payment so in default shall  continue as an obligation
of the Company until the amount in default  shall have been fully paid,  and the
Company agrees to pay the same with interest thereon,  which interest shall also
constitute  an  obligation  of the  Company at the Overdue  Rate,  to the extent
permitted by law, from the date of default  until paid.  Nothing in this Section
4.02 shall  require the Company to pay costs and  expenses  mentioned  in clause
(f)(iii)  above so long as the validity or the  reasonableness  thereof shall be
contested  in good  faith  unless  the  Trustee  shall  receive  an  opinion  of
independent  counsel that such contest  jeopardizes the respective  interests of
the  Authority  and the  Trustee in this  Participation  Agreement,  the Auction
Agency  Agreement,  the Bond  Purchase  Trust  Agreement,  the  Indenture or the
Remarketing  Agreement,  in which  event the  Company  shall pay such  costs and
expenses  (without  prejudice to any rights of the Company to recover such costs
and  expenses  if not  valid  or  reasonable)  to the end  that  the  respective
interests  of the  Authority  and the  Trustee,  in the  opinion of  independent
counsel, are not jeopardized.

            Section 4.03 Notice to Pay; Medium of Payment; Acceleration. Failure
to receive any prior  notice of the due date of any Payment will not relieve the
Company of its  obligation  to pay such Payment when it is due and payable.  The
Company  covenants  and agrees that it will pay or cause to be paid when due and
payable hereunder the Payments, and every installment thereof, without notice or
demand  therefor  and  without  abatement,  reduction  or set-off of any kind or
nature whatsoever, in lawful money of the United States of America.

            If pursuant to the provisions of Section 12.03 of the Indenture, the
Bonds  are   accelerated  or  shall   otherwise  be  declared  due  and  payable
immediately,  then the Company  shall  forthwith  pay or cause to be paid to the
Trustee an amount sufficient with all other funds available therefor, to pay the
Bonds in full and, secondly an amount which shall be sufficient,  with all other
funds available  therefor,  to pay all other obligations of the Authority or the
Company  incurred  or to be incurred  under the  Indenture,  this  Participation
Agreement,  the Auction Agency  Agreement,  the Bond Purchase Trust Agreement or
the Remarketing Agreement.

            Section 4.04  Prepayment of Note Payments.  The Note may be prepaid,
in whole or in part, at the option of the Company in connection with an optional
redemption  of the Bonds  pursuant  to Article V of the  Indenture  and shall be
prepaid, in whole or in part, in connection with any mandatory redemption of the
Bonds pursuant to Article V of the Indenture  other than a mandatory  redemption
pursuant to Section 5.07 of the  Indenture.  Prepayment  of the Note pursuant to
the preceding sentence shall be with or without premium,  as required to provide
sufficient funds to redeem the Bonds being redeemed pursuant to Article V of the
Indenture. The Note also may be prepaid in whole or in part at any time, without
premium,  at the option of the Company subsequent to the redemption of the Bonds
with moneys  furnished by the State of New York  pursuant to Section 5.07 of the
Indenture.



<PAGE>


            The Company  shall give notice to the Trustee and the  Authority  of
any intention to prepay the Note in whole or in part and of the principal amount
to be prepaid not more than sixty (60) nor less than thirty-five (35) days prior
to the date on which such  prepayment  is to be made on the Note.  Such optional
prepayment  may be made not later than one (1) Business Day prior to the date of
prepayment of the Bonds.

             The  Company may also elect to provide  for the  defeasance  of the
Bonds in accordance  with Article XV of the Indenture and upon the defeasance of
the Bonds, the Note will be deemed paid, in whole or in applicable part.

            Section 4.05  Company's  Payments as Trust Funds.  All Note Payments
and  Additional  Payments  required  to  be  made  by  the  Company  under  this
Participation  Agreement  and the  Note to the  Authority,  the  Trustee  or the
Registrar  and Paying Agent which under the Indenture are required to be applied
in payment of or as  security  for the Bonds,  shall be and  constitute  and are
hereby declared to be trust funds,  whether held by the Authority,  the Trustee,
the Registrar and Paying Agent,  or any bank or trust  company,  designated  for
such purpose and shall  continue to be impressed  with a trust until such monies
are applied in the manner provided in the Indenture.

            Section 4.06 Absolute Obligation to Make Payments. The obligation of
the Company to pay the Note Payments and the Additional Payments, as required by
this  Participation  Agreement and the Note, and to satisfy any other  financial
liabilities  incurred  hereunder and  thereunder  shall be an absolute,  direct,
general obligation, and shall be unconditional and shall not be abated, rebated,
set off, reduced,  abrogated,  waived,  diminished or otherwise  modified in any
manner or to any extent whatsoever (other than for prior payment), regardless of
any  rights of  set-off,  recoupment  or  counterclaim  that the  Company  might
otherwise  have  against  the  Authority  or the  Trustee or any other  party or
parties and regardless of any contingency, act of God, event or cause whatsoever
and  notwithstanding any circumstance or occurrence that may arise or take place
including, but without limiting the generality of the foregoing, the following:

      (a)   any damage to or destruction of any part or all of the Project;

      (b)   the  taking or  damaging  of any part or all of the  Project  by any
            public  authority  or agency in the exercise of the power of eminent
            domain or otherwise;

      (c)   any assignment, novation, merger, consolidation, transfer of assets,
            subleasing or other similar  transaction of or affecting the Company
            whether  with or without  the  approval  of the  Trustee,  except as
            otherwise expressly provided in this Participation Agreement;

      (d)   with  respect  solely to the  obligation  of the  Company to pay the
            Additional  Payments,  the termination of this Agreement and payment
            or  provision  for  payment in full of the amount due under the Note
            pursuant to the provisions hereof;



<PAGE>


      (e)   any  failure of any party to perform or  observe  any  agreement  or
            covenant,  whether  express or implied,  or any duty,  liability  or
            obligation  arising out of or in connection with this  Participation
            Agreement, the Note, the Auction Agency Agreement, any Broker-Dealer
            Agreement,  the  Remarketing  Agreement,  the  Bond  Purchase  Trust
            Agreement or the Indenture;

      (f)   any change or delay in the time of  availability  of the  Project or
            any part thereof for use of the Project or any part thereof;

      (g)   any  acts or  circumstances  that  may  constitute  an  eviction  or
            constructive eviction from any part of the Project;

      (h)   failure  of  consideration,  failure  of  title  to any  part of the
            Project or commercial frustration; and

      (i)   any change in the tax or other  laws of the United  States or of any
            state or other governmental authority;

provided,  however, that the foregoing shall not be deemed to be a waiver of any
right of recourse the Company may have against the Authority,  the holder of any
Bond or others,  including  but not limited to, the 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  set-off  hereunder  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 4.06.

            Section 4.07 Assignment of Authority's  Rights.  As security for the
payment of the Bonds, the Authority will assign to the Trustee the Participation
Agreement and the Note and all of the Authority's rights,  remedies and interest
under this Participation  Agreement and the Note, including the right to receive
payments under the Participation  Agreement and the Note (except the Authority's
rights with  respect to (a)  administrative  compensation,  attorney's  fees and
indemnification,  (b) the  receipt  of  notices,  opinions,  reports,  copies of
instruments  and other items of a similar nature required to be delivered to the
Authority under the Participation Agreement, (c) granting approvals and consents
and making determinations when required under the Participation  Agreement,  (d)
making   requests  for  information  and  inspections  in  accordance  with  the
Participation  Agreement, (e) Article III and Sections 4.02(f), 4.14 and 5.08 of
the Participation Agreement and, insofar as the obligations of the Company under
Section 4.12 relate to taxes and assessments  imposed upon the Authority and not
the Trustee,  Section 4.12 thereof and (f) the right to amend the  Participation
Agreement) and hereby directs the Company to make said payments  directly to the
Trustee or in the case of the Purchase  Price to the Registrar and Paying Agent.
The Company  herewith  assents to such  assignment  and will make payments under
this  Participation  Agreement  and the Note (except  payments  made pursuant to
Sections  4.02(f) and 5.08 hereof which shall be made directly to the Authority)
directly to the Trustee (or in the case of the Purchase  Price, to the Registrar
and Paying Agent)  without  defense or set-off by reason of any dispute  between
any of the  Company,  the  Trustee  or  Registrar  and Paying  Agent.  Except as
provided in the Indenture, 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.



<PAGE>


            Section  4.08  Actions  with  Respect  to or by or on  behalf of the
Authority  under the  Indenture.  The  Authority  hereby grants the right to the
Company to request the  Authority to take certain  actions  under the  Indenture
and/or to perform or undertake certain actions as specified under the Indenture.
The Company  agrees to request the  Authority  to take  action or  undertake  or
perform  any  action  solely  in  compliance  with or after  complying  with the
requirements and provisions of the Indenture.

            Section 4.09 Agreements of Company  relating to Support  Facilities.
The Company agrees not to request that the interest rate mode  applicable to the
Bonds be adjusted to an Adjustable  Rate other than an Auction Rate unless there
shall be in effect,  prior to the  applicable  Change in the Interest Rate Mode,
one or more Support  Facilities which (i) meet the requirements of Article VI of
the  Indenture  and (ii) permit the Bonds to be rated at least "A" by S&P or "A"
by Moody's or its equivalent by any nationally recognized rating agency.

            The  Company  further  agrees  that it  will  maintain  a  Liquidity
Facility issued by a financial  institution  rated not less than "A" by at least
one nationally  recognized  rating agency in effect with respect to the Bonds at
all times, except with respect to Bonds bearing an Auction Rate or a Fixed Rate.

            Section 4.10      Compensation  of Trustee and Paying  Agents.  The
Company agrees:

            (1) to pay to the Trustee from time to time reasonable  compensation
      for all services rendered by it in any capacity under the Indenture (which
      compensation shall not be limited by any provision of law in regard to the
      compensation of a trustee of an express trust);

            (2) except as otherwise  expressly provided herein, to reimburse the
      Trustee upon its request for all reasonable  expenses,  disbursements  and
      advances  incurred  by the  Trustee  under the  Indenture  (including  the
      reasonable  compensation and the expenses and  disbursements of its agents
      and counsel),  except any such expense,  disbursement or advance as may be
      attributable to its negligence or bad faith; and

            (3) to pay to the  Registrar  and  Paying  Agent,  if other than the
      Trustee,  reasonable  compensation  for  all  services  rendered  by it as
      Registrar  and Paying Agent under the  Indenture  and reimburse it for its
      reasonable expenses incurred under the Indenture,  except any such expense
      as may be attributable to its negligence or bad faith.

            Section  4.11  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 Note
and the absolute,  irrevocable  and  unconditional  obligation of the Company to
make the Note Payments.



<PAGE>


            Section 4.12 Payment of Taxes and Assessments;  No Liens or Charges.
The Company will (a) pay, when the same shall become due and payable,  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 Section 4.10) made
or to be made pursuant to this Participation  Agreement or the Notes 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  (except as  aforesaid)  made or to be
made under this Participation Agreement;  provided that the Company shall not be
required to pay any such tax, assessment or charge 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
shall indemnify and hold the Authority and the Trustee harmless from any losses,
costs,   charges,   expenses   (including   reasonable   attorneys'   fees   and
disbursements),  judgments  and  liabilities  arising  in  respect  of such tax,
assessment or charge and the nonpayment thereof.

            Section 4.13 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 or both shall  employ  attorneys or
incur other expenses for the collection of payments due under this Participation
Agreement or the Note 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 4.14 No Abatement of Administration  Fees and Other Charges.
It is understood and agreed that so long as any Bonds are outstanding  under the
Indenture,  the  Administration  Fees and other charges payable to the Authority
pursuant  to this  Participation  Agreement  or the Note  shall  continue  to be
payable  at the times and in the  amount  herein  specified,  whether or not the
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.


<PAGE>


                                    ARTICLE V

                                SPECIAL COVENANTS


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

            Section 5.02      Authority's   Right  to  Inspect   Project.   The
Authority  shall have the right at all reasonable  times to examine and inspect
the Project.

            Section  5.03  Company  Consent  to  Amendment  of  Indenture  . The
Authority and the Trustee shall not enter into 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 any
action or permit any action within its reasonable  control to be taken,  or fail
to take any action within its reasonable  control,  with respect to the Project,
or the  proceeds of any series of the Bonds,  including  any amounts  treated as
proceeds  of the Bonds for any  purpose of Section  103 of the Code,  which will
result in the loss of the  exclusion  of  interest  on any  series of 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 as it relates to the
Bonds,  the  Authority  and the Company  have  entered  into the Tax  Regulatory
Agreement  and the  Company  hereby  covenants  and  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.  Authority Agrees to Take Certain Actions at Direction
of Company.  The  Authority  agrees to  exercise  any option to redeem the Bonds
pursuant to Section 5.01 of the Indenture at the  direction of the Company.  The
Authority  agrees to exercise its rights under Article XV of the Indenture  upon
the request of the Company.



<PAGE>


            Section 5.07  Certificates  as to Defaults.  The Company  shall file
with the Trustee,  on or before  August 1 of each year,  commencing on August 1,
2000, a certificate signed by an Authorized Company Representative stating that,
to the best of his or her  knowledge,  information  and belief,  the Company has
kept, observed,  performed and fulfilled each and every one of its covenants and
obligations  contained  in this  Participation  Agreement,  the  Tax  Regulatory
Agreement  and in the Note and, to the best of his  knowledge,  information  and
belief,  there  does  not  exist at the date of such  certificate  any  Event of
Default  hereunder  or other  event  which,  with  notice  or the  lapse of time
specified in Section 7.01 hereof,  or both, would become an Event of Default or,
if any such Event of Default or other event shall so exist,  specifying the same
and the nature and status thereof.

            Section 5.08 Limited  Obligation  of Authority;  Indemnification  of
Authority,  Registrar  and Paying Agent,  Auction  Agent and Trustee.  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 Note Payments and any
other funds held by the  Trustee  under the  Indenture  and  available  for such
payment.  The Bonds shall not be a debt of the State of New York,  and the State
of New York shall not be liable thereon.

            No member,  officer,  agent or  employee of the  Authority  shall be
personally liable for the payment of the Bonds or any money or damages hereunder
or related  hereto.  Notwithstanding  the fact that it is the  intention  of the
parties  hereto that the Authority and all officers and employees  thereof shall
not incur  pecuniary  liability  by  reason  of the terms of this  Participation
Agreement,  or the  undertakings  required  of the  Authority  hereunder  or any
officer  or  employee  thereof,  by reason of the  issuance  of the  Bonds,  the
execution  and  delivery  of any  document,  including,  but not limited to, the
Indenture, the Tax Regulatory Agreement, this Participation Agreement, the Note,
the Auction Agency Agreement, the Remarketing Agreement, the Bond Purchase Trust
Agreement,  any Broker-Dealer  Agreement or any final official statement,  or by
reason of the performance or  non-performance  of any act required of it by this
Participation  Agreement  or any such other  agreement,  or the  performance  or
non-performance of any act requested of it by the Company, including all claims,
liabilities or losses  arising in connection  with the violation of any statutes
or  regulations  pertaining  to the  foregoing;  nevertheless,  if the Authority
(including  any person at any time  serving as an  officer  or  employee  of the
Authority)  should incur any such  pecuniary  liability,  then in such event the
Company shall indemnify and hold harmless the Authority (including any person at
any time serving as an officer or employee of the Authority)  against all claims
by or on  behalf of any  person,  firm or  corporation  or other  legal  entity,
arising out of the same, and all costs and expenses  incurred in connection with
any such claim or in connection with any action or proceeding brought thereon.



<PAGE>


            The Company releases the Authority (including any person at any time
serving as an officer or employee of the  Authority),  the  Registrar and Paying
Agent,  the  Auction  Agent and the  Trustee  (including  any person at any time
serving as an officer or employee of the Trustee, the Registrar and Paying Agent
or the Auction Agent) from,  agrees that the Authority  (including any person at
any time serving as an officer or employee of the Authority),  the Registrar and
Paying  Agent,  the Auction Agent and the Trustee  (including  any person at any
time serving as an officer or employee of the Trustee,  the Registrar and Paying
Agent or the Auction Agent) shall not be liable for, and agrees to indemnify and
hold the  Authority  (including  any person at any time serving as an officer or
employee of the Authority) and the Trustee, the Auction Agent, the Registrar and
Paying Agent (including any person at any time serving as an officer or employee
of the Trustee,  Auction Agent or the Registrar and Paying Agent)  harmless,  to
the fullest extent permitted by law from any losses,  costs,  charges,  expenses
(including  reasonable  attorneys' and agents' fees and expenses),  by reason of
(i) 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 the Project,  or (ii) judgments and liabilities in
connection  with any action,  suit or  proceeding  instituted  or  threatened in
connection with the transactions  contemplated by this Participation  Agreement,
the Indenture  and the Note,  provided,  however,  that the Company shall not be
liable as the  result of the  negligence  of the  Authority,  the  Trustee,  the
Registrar and Paying Agent,  any  Remarketing  Agent or the Auction Agent or bad
faith or wilful  misconduct  of the  Authority,  the Trustee,  the Registrar and
Paying Agent,  any Remarketing  Agent or the Auction Agent (including any person
at any time  serving as an officer or employee of the  Authority or the Trustee,
the Registrar and Paying Agent, any Remarketing  Agent or the Auction Agent). If
any such claim is asserted,  the Authority,  any individual  indemnified herein,
the Trustee,  the  Registrar  and Paying  Agent,  any  Remarketing  Agent or the
Auction  Agent,  as the case may be, shall give prompt notice to the Company and
permit the Company to participate in the defense thereof at its own expense. The
Company will reimburse the  indemnified  parties for any legal or other expenses
reasonably  incurred by the indemnified  parties in  investigating  or defending
against  any such  claim,  provided  that the  Company  shall not be required to
reimburse any of the indemnified  parties for fees and expenses of counsel other
than  one  counsel  selected  by the  Trustee  in its  sole  discretion  for all
indemnified parties in which proceedings are brought or threatened to be brought
unless and to the extent  there are actual or  potential  conflicts  of interest
between or among indemnified  parties or defenses  available to some indemnified
parties that are not available to other  indemnified  parties in which case, the
Company will reimburse the  indemnified  parties for any legal or other expenses
reasonably  incurred by the indemnified  parties in  investigating  or defending
against  any  such  claim by each  counsel  of each of the  indemnified  parties
affected.  The obligation of the parties hereto under this Section shall survive
the termination of this Participation Agreement and the Indenture.

            Section 5.09 Provision of Information. The Company shall provide the
Trustee with the forms of any notices required to be sent to holders of Bonds in
connection  with any  redemption of Bonds, a change in the Auction  Period,  the
Interest  Period or Change in the Interest  Rate Mode  pursuant to Articles III,
III-A,  IV and V of the  Indenture or the  establishment  of a Fixed Rate on the
Bonds pursuant to Section 4.02 of the Indenture.

            Section 5.10.  Ratings.  During any Auction Rate Period, the Company
shall take all  reasonable  action  necessary to enable at least two  nationally
recognized,  statistical rating organizations (as that term is used in the rules
and regulations of the Commission under the Exchange Act) to provide ratings for
the Auction Rate Bonds.

            Section 5.11 Notices. During any Auction Rate Period, the Company on
behalf of the  Authority  shall  provide the Trustee and, so long as no Event of
Default has occurred  and is  continuing  and the  ownership of any Auction Rate
Bonds is maintained in book-entry form by the Securities Depository, the Auction
Agent,  with notice of any change in (a) the Statutory  Corporate Tax Rate under
the Indenture, (b) the Applicable Percentage,  or (c) the maximum rate permitted
by law on the Bonds. There is currently no such maximum rate.



<PAGE>


            Section 5.12  Maintenance  of Office or Agency.  So long as the Note
remains outstanding and unpaid, the Company will 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 Note may be served, and will, from
time to time,  give written notice to the Trustee of the location of such office
or agency;  and, in case the Company shall fail so to do,  notices may be served
and demands may be made at the principal office of the Trustee.

            Section 5.13 Maintenance of Properties.  So long as the Note 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 5.14 Insurance.  So long as the Note 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 Corporations.

            Section 5.15 Proper Books of Record and Account. So long as the Note
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  5.16  Compliance  with  Laws.  So long as the Note  remains
outstanding and unpaid,  the Company agrees to 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  Participation
Agreement,  except laws,  rules,  regulations or orders being  contested in good
faith or laws,  rules,  regulations  or orders which the Company has applied for
variances from, or exceptions to.



<PAGE>


            Section 5.17 Consolidation, Merger or Sale of Assets. So long as the
Note remains  outstanding and unpaid,  the Company will not consolidate  with or
permit itself to be merged into any other corporation or corporations,  or sell,
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 5.17.

            Nothing  contained herein or in the Note shall prevent (and the Note
shall be construed as permitting and  authorizing,  without  acceleration of the
maturity of the Note) 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 if other than the Company, 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 Note
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 the Note
and the  Participation  Agreement on the part of the Company to be performed and
observed;  and, thereupon,  such corporation shall succeed to and be substituted
for the Company hereunder, with the same effect as if such successor corporation
had been named herein as obligor.

            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 the Note 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 and verified with like force and
effect by the corresponding board or officer of any such successor Company.

            If  consolidation,  merger  or sale  or  other  transfer  is made as
permitted by this Section, the provisions 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 5.18 Financial  Statements of Company. The Company agrees to
have an annual audit made by independent  accountants and to furnish the Trustee
with a balance sheet and statements of income,  retained  earnings and cash flow
showing  the   financial   condition   of  the  Company  and  its   consolidated
subsidiaries,  if any,  at the close of each  fiscal  year,  and the  results of
operations of the Company and its  consolidated  subsidiaries,  if any, for each
fiscal year,  as audited by said  accountants,  on or before the last day of the
third month following the close of the fiscal year or as soon thereafter as they
are reasonably available.  The Company further agrees to furnish to the Trustee,
the  Authority  and to any owner of Bonds if  requested in writing by such owner
all financial statements which it sends to its shareholders.


<PAGE>


                                   ARTICLE VI

                               REDEMPTION OF BONDS

            Section 6.01  Redemption of Bonds.  If the Company is not in default
in making Note  Payments,  the Authority and the Trustee,  at the request of the
Company,  at any time the  aggregate  monies in the Bond Fund are  sufficient to
effect a  redemption  of Bonds  and if the same are then  redeemable  under  the
provisions of the Indenture and the Bonds,  shall  forthwith take all steps that
may be necessary under the applicable  redemption provisions of Article V of the
Indenture to effect  redemption of all or part of the then Outstanding  Bonds as
may be specified by the Company on such redemption date.






<PAGE>


                                   ARTICLE VII

                         EVENTS OF DEFAULT AND REMEDIES

            Section 7.01 Events of Default  Defined.  The following  shall be an
"Event of Default"  under this  Participation  Agreement  and the term "Event of
Default" shall mean,  whenever it is used in this Participation  Agreement,  any
one or more of the following events:

            (a) Failure by the Company to pay or cause to be paid,  when due and
      payable,  any  installment of Note Payments and, in the case of failure to
      pay any  installment of interest on the Note,  continuance of such failure
      for one (1) Business Day.

            (b) Failure by the  Company to observe  and  perform  any  covenant,
      condition or agreement in this Participation  Agreement or the Note on its
      part to be observed or performed,  other than as referred to in subsection
      (a) of this  Section  7.01 (and other than  failure to pay the amounts due
      under Sections 4.02(f),  4.13 and 5.08 of this  Participation  Agreement),
      for a period of ninety (90) days after  written  notice,  specifying  such
      failure and requesting that it be remedied,  has been given to the Company
      unless the Trustee  (with any required  consent of  Bondholders  under the
      provisions  of the  Indenture)  shall agree in writing to an  extension of
      such time prior to its expiration, provided that if any such failure shall
      be such  that it  cannot  be cured or  corrected  within  such  ninety-day
      period,  it shall not constitute an Event of Default hereunder if curative
      or  corrective  action is  instituted  within such  period and  diligently
      pursued until the failure of performance is cured or corrected.

            (c) The  dissolution  or liquidation of the Company or the filing by
      the  Company of a  voluntary  petition  in  bankruptcy,  or failure by the
      Company  promptly to discharge or cause to be  discharged  any  execution,
      garnishment  or attachment of such  consequence as will impair its ability
      to carry on its  operations  generally or the commission by the Company of
      any act of bankruptcy,  or adjudication  of the Company as a bankrupt,  or
      assignment by the Company for the benefit of its  creditors,  or the entry
      by the Company into an agreement of composition with its creditors, or the
      approval by a court of competent  jurisdiction of a petition applicable to
      the Company in any proceeding for its reorganization  instituted under the
      provisions  of the  federal  bankruptcy  laws.  The term  "dissolution  or
      liquidation  of the  Company",  as used in this  subsection,  shall not be
      construed  to include the  cessation  of the  corporate  existence  of the
      Company  resulting  either from a merger or  consolidation  of the Company
      into or with another  corporation  or a dissolution  or liquidation of the
      Company  following a transfer of all or substantially all of its assets as
      an entirety,  under the conditions  permitting such action with respect to
      the Company contained in Section 5.17 hereof.

            (d) The  occurrence  of an event of  default  as  defined in Section
      12.01 of the Indenture.



<PAGE>


            Subsection  (b) of this  Section  7.01 is subject  to the  following
limitations:  Except for the obligations of the Company  contained in Article IV
hereof,  if by reason of force majeure the Company is unable in whole or in part
to carry out the agreements on its part herein contained,  the Company shall not
be deemed in default during the continuance of such  inability.  The term "force
majeure"  as used herein  shall  include the  following:  acts of God;  strikes,
lockouts or other industrial disturbances; acts of public enemies; orders of any
kind of the  government  of the United States or of the State of New York or any
of  their  departments,  agencies,  or  officials,  or  any  civil  or  military
authority;  insurrections;  riots; epidemics; landslides; lightning; earthquake;
fire; typhoons; storms; floods; washouts; droughts; arrests; civil disturbances;
explosions;  breakage or accident to  machinery,  transmission  pipes or canals;
partial  or  entire  failure  of  utilities;  or any  other  cause or event  not
reasonably within the control of the Company.  The Company agrees,  however,  to
remedy with all reasonable  dispatch the cause or causes  preventing the Company
from  carrying out its  agreements;  provided,  that the  settlement of strikes,
lockouts  and  other  industrial  disturbances  shall  be  entirely  within  the
discretion  of the  Company,  and the  Company  shall  not be  required  to make
settlement of strikes, lockouts and other industrial disturbances by acceding to
the demands of the opposing party or parties when such course is in the judgment
of the Company unfavorable to the Company.

            Section  7.02  Remedies  on  Default.  In the event any of the Bonds
shall at the time be  Outstanding  and  unpaid  and  provision  for the  payment
thereof  shall not have  been  made in  accordance  with the  provisions  of the
Indenture,  whenever  any Event of Default  referred  to in Section  7.01 hereof
shall have happened and be subsisting,  the Authority or the Trustee,  following
acceleration  of the Bonds in accordance with provisions of Section 12.03 of the
Indenture where so provided,  may take any one or more of the following remedial
steps:

            (a) The Trustee as provided in the Indenture may, at its option,  or
      shall,  to the extent  required by the  Indenture,  declare  all  payments
      payable  under  clauses (a) - (e) of Section  4.02 hereof and the Note for
      the  remainder  of  the  term  of  this  Participation   Agreement  to  be
      immediately due and payable,  whereupon the same shall become  immediately
      due and payable.

            (b) The Authority or the Trustee may take whatever  action at law or
      in equity that may appear  necessary  or  desirable to collect the amounts
      then due and  thereafter  to become  due,  or to enforce  performance  and
      observance of any  obligation,  agreement or covenant of the Company under
      this Participation  Agreement or the Note whether for specific performance
      of any covenant or agreement  contained herein or therein or in aid of the
      execution of any power herein granted.

            Any amounts  collected  pursuant to action  taken under this Section
7.02  shall be paid  into  the Bond  Fund and  applied  in  accordance  with the
provisions of the Indenture.



<PAGE>


            If any such declaration of acceleration of the Bonds shall have been
annulled  pursuant to the terms of the  Indenture and if, at any time after such
declaration,  but before all the Bonds shall have  matured by their  terms,  all
arrears of  interest  upon the Note,  and  interest on overdue  installments  of
interest (to the extent  enforceable  under applicable law) at the rate or rates
per annum  specified for the Note and the  principal of and premium,  if any, on
the Note which shall have become due and payable otherwise than by acceleration,
and all other sums payable hereunder,  except the principal of, and interest on,
the Note which pursuant to such  declaration  shall have become due and payable,
shall have been paid by or on behalf of the Company or provision satisfactory to
the Trustee shall have been made for such payment, then such acceleration of the
Note 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  annulment
shall extend to or affect any subsequent  Default or impair or exhaust any right
or remedy consequent thereon.

            Section 7.03 No Remedy Exclusive. No remedy herein conferred upon or
reserved to the  Authority  or to the Trustee is intended to be exclusive of any
other  available  remedy or  remedies,  but each and every such remedy  shall be
cumulative  and shall be in  addition  to every  other  remedy  given under this
Participation  Agreement or now or hereafter  existing at law or in equity or by
statute.  No delay or omission to exercise any right or power  accruing upon any
Default  shall  impair  any such  right or power or shall be  construed  to be a
waiver thereof,  but any such right and power may be exercised from time to time
and as often as may be deemed  expedient.  In order to entitle the  Authority or
the Trustee to exercise any remedy reserved to it in this Article,  it shall not
be  necessary  to give any  notice,  other  than  such  notice  as may be herein
expressly  required.  Such  rights  and  remedies  as are  given  the  Authority
hereunder  shall also  extend to the  Trustee and the Trustee and the Holders of
the Bonds issued under the Indenture  shall be deemed third party  beneficiaries
of all covenants and agreements herein contained.

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

            The Company  covenants that, in case an Event of Default shall occur
with respect to any Note Payments  payable under  Sections  4.02(a) - (e) hereof
and the Note,  then,  upon demand of the Trustee (as  assignee of the  Authority
under the  Indenture)  the Company will pay to the Trustee the whole amount that
then shall have become due and payable  under said  Sections,  with interest (to
the extent  permitted by law) on said amount at the rate of interest  then borne
by the Bonds  pursuant to the  Indenture,  but not  exceeding  the maximum  rate
permitted by law, until paid, and in addition  thereto,  such further amounts as
shall be  sufficient  to cover the costs and expenses of  collection,  including
reasonable compensation to the Trustee, its agents,  attorneys, and counsel, and
any other  expenses or  liabilities  incurred  by the  Trustee  other than those
incurred through bad faith or negligence.

            In case the Company  shall fail  forthwith  to pay such amounts upon
such demand,  the Authority or the Trustee (as assignee of the  Authority  under
the  Indenture)  shall be entitled  and  empowered  to  institute  any action or
proceeding at law or in equity for the collection of the sums so due and unpaid,
and may prosecute any such action or proceeding to judgment or final decree, and
may enforce any such  judgment or final decree  against the Company and collect,
in the manner  provided by law out of the  property of the  Company,  the monies
adjudged or decreed to be payable.



<PAGE>


            In case there shall be pending proceedings for the bankruptcy or for
the reorganization of the Company under the Federal bankruptcy laws or any other
applicable  law, or in case a receiver or trustee shall have been  appointed for
the  property  of the  Company  or in the  case of any  other  similar  judicial
proceedings  relative  to the  Company or to the  creditors  or  property of the
Company,  the Trustee shall be entitled and empowered,  by  intervention in such
proceedings  or  otherwise,  to file and provide a claim or claims for the whole
amount owing and unpaid pursuant to this Participation Agreement and, in case of
any  judicial  proceedings,  to file such  proofs  of claim and other  papers or
documents  as may be  necessary  or advisable in order to have the claims of the
Holders and the Trustee  allowed in such  judicial  proceedings  relative to the
Company, its creditors,  or its property,  and to collect and receive any monies
or other property  payable or deliverable on any such claims,  and to distribute
the same after the  deduction  of its charges and  expenses;  and any  receiver,
assignee or trustee in bankruptcy or reorganization is hereby authorized to make
such  payments to the  Trustee,  and to pay to the Trustee any amount due it for
compensation  and  expenses,  including  reasonable  counsel  fees and  expenses
incurred by it up to the date of such distribution.

            Nothing herein contained shall be construed to prevent the Authority
from enforcing  directly any of its rights under  Sections  4.02,  4.13 and 5.08
hereof;  provided  that,  in case the  Company  shall have failed to pay amounts
required to be paid under  Sections  4.02(f),  4.13 and 5.08 hereof  which event
shall have  continued  for a period of thirty  (30) 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 Sections 4.02(f), 4.13 and 5.08 hereof.

            Section  7.04 No  Additional  Waiver  Implied by One Waiver.  In the
event any  agreement  contained  herein or in the Note should be breached by any
party and thereafter  waived by the other party, such waiver shall be limited to
the  particular  breach  so  waived  and  shall not be deemed to waive any other
breach hereunder.


<PAGE>


                                  ARTICLE VIII

                                  MISCELLANEOUS


            Section 8.01  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 Authority,
the Trustee,  the Auction Agent,  any Remarketing  Agent,  and the Registrar and
Paying Agent and any other paying agent in  accordance  with the  Indenture  and
this  Participation  Agreement,  shall  belong  to and be  promptly  paid to the
Company by the Trustee in accordance with the provisions of the Indenture.

            Section 8.02 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  by hand or first
class mail,  postage  prepaid,  addressed as follows:  if to the  Authority,  at
Corporate Plaza West, 286 Washington Avenue Extension,  Albany,  New York 12203,
Attention:  President;  if to the Company, at 4 Irving Place, New York, New York
10003, Attention:  Secretary;  and if to the Trustee or the Registrar and Paying
Agent,  at 140 Broadway,  New York, New York  10005-1180,  Attention:  Corporate
Trust Administration.  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.

            Section 8.03 Successors and Assigns.  This  Participation  Agreement
shall  inure to the  benefit of and shall be  binding  upon the  Authority,  the
Company, the Trustee and their respective successors and assigns.

            Section   8.04   Amendment   of   Participation   Agreement.    This
Participation  Agreement  may not be amended  except by an instrument in writing
signed by the parties and upon  compliance with the provisions of Sections 14.06
and 14.07 of the Indenture.

            Section   8.05   Participation   Agreement   Supersedes   Any  Prior
Agreements.  This  Participation  Agreement  and  the  Bond  Purchase  Agreement
supersede any other prior agreements or understandings, written or oral, between
the parties with respect to the transactions contemplated hereby and thereby.

            Section 8.06 Further  Assurances  and  Corrective  Instruments.  The
Authority  and the  Company  agree that they will,  from time to time,  execute,
acknowledge and deliver,  or cause to be executed,  acknowledged  and delivered,
such  supplements  hereto and such  further  instruments  as may  reasonably  be
required for correcting  any inadequate or incorrect  description of the Project
or for carrying out the expressed  intention of this Participation  Agreement in
accordance with the provisions of the Indenture.


<PAGE>


            Section  8.07  Counterparts.  This  Participation  Agreement  may be
executed  in any  number of  counterparts,  each of which when so  executed  and
delivered shall be an original;  but such counterparts shall together constitute
but one and the same Participation Agreement.

            Section 8.08  Severability.  If any clause,  provision or section of
this  Participation  Agreement is held illegal,  invalid or unenforceable by any
court or administrative  body, this  Participation  Agreement 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  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 8.09  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 8.10 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.

            SECTION 8.11      NEW YORK LAW TO  GOVERN.  THE LAW OF THE STATE OF
NEW YORK SHALL GOVERN THE CONSTRUCTION OF THIS PARTICIPATION AGREEMENT.


<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



(SEAL)
By
                                                President


Attest:




      Secretary to the Board and
      Vice President for Governmental
      Relations


                                    CONSOLIDATED EDISON COMPANY OF
                                      NEW YORK, INC.



(SEAL)
By
                                                Treasurer


Attest:




      Assistant Secretary


<PAGE>



                                       A-1

                                    EXHIBIT A



                          (To Participation Agreement,
                            dated as of July 1, 1999,
        between New York State Energy Research and Development Authority
               and Consolidated Edison Company of New York, Inc.)


                             DESCRIPTION OF PROJECT
                                EXEMPT FACILITIES



         [A copy of Exhibit A to each of the  Participation  Agreements  entered
    into in connection with the Prior Bonds will be inserted at this
                                     place]




<PAGE>



                                       B-1

                                    EXHIBIT B



                           (To Participation Agreement
                            dated as of July 1, 1999,
        between New York State Energy Research and Development Authority
               and Consolidated Edison Company of New York, Inc.)


                     DESCRIPTION OF OTHER PROJECT FACILITIES


         [A copy of Exhibit B to each of the  Participation  Agreements  entered
    into in connection with the Prior Bonds will be inserted at this
                                     place]


<PAGE>



                                       C-2

                                    EXHIBIT C



         (To Participation Agreement dated as of July 1, 1999 between
         New York State Energy Research and Development Authority and
                Consolidated Edison Company of New York, Inc.,
                        relating to Series 1999A Bonds)

                 CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.

                          $292,700,000 PROMISSORY NOTE

                                       FOR

                    FACILITIES REVENUE BONDS, SERIES 1999 A
            (CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. PROJECT)


                               New York, New York
                                  July 29, 1999


            FOR VALUE RECEIVED, Consolidated Edison Company of New York, Inc., a
New York corporation (the "Company"),  promises to pay to the order of HSBC Bank
USA, as trustee (the "Trustee") under the hereinafter referred to Indenture,  in
lawful money of the United States,  the principal sum of $292,700,000,  together
with interest  thereon at such rate or rates and with such redemption  premiums,
if any,  and at such  times as in the  aggregate  will  equal  the  total of all
principal,  interest and redemption premium, if any, becoming due and payable on
the Facilities Revenue Bonds, Series 1999A  (Consolidated  Edison Company of New
York, Inc. Project) (the "Bonds"),  issued by New York State Energy Research and
Development  Authority (the  "Authority") in the aggregate  principal  amount of
$292,700,000 pursuant to a Trust Indenture (the "Indenture") dated as of July 1,
1999,  between  the  Authority  and the  Trustee.  This Note is being  delivered
pursuant to and in accordance with the Participation  Agreement dated as of July
1, 1999, between the Company and the Authority (the "Participation  Agreement"),
the terms and provisions of which are incorporated  herein by reference and made
a part  hereof.  All terms  used and not  otherwise  defined  herein are used as
defined in the Indenture.

            In the event the Company should fail to make any payment required by
this Note,  the Company's  obligation to make such payment shall  continue as an
obligation  of the  Company  until the amount in  default  shall have been fully
paid, and the Company  agrees to pay the same with interest  thereon at the rate
of interest  borne by the Bonds,  to the extent,  but not  exceeding the maximum
rate, permitted by law, until paid.

            This Note,  unless paid earlier as  permitted  by the  Participation
Agreement, shall mature on May 1, 2034.


<PAGE>


            This Note is subject to optional  and  mandatory  prepayment  and to
acceleration as provided in the Participation Agreement.

            All payments  hereunder shall be payable at the principal  office of
the Trustee in New York, New York.

            The obligation of the Company to make payments under this Note shall
be an absolute, direct, general obligation, and shall be unconditional and shall
not be abated,  rebated,  set off,  reduced,  abrogated,  waived,  diminished or
otherwise  modified  in any manner or to any extent  whatsoever  (other than for
prior payment).

            The Company hereby waives  presentment for payment,  demand,  demand
and protest and notice of protest,  demand and dishonor and  nonpayment  of this
Note.

            THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE  WITH THE
LAW OF THE STATE OF NEW YORK.


                                          CONSOLIDATED EDISON COMPANY OF
                                            NEW YORK, INC.



By:
                                                         Treasurer
(SEAL)


ATTEST:



       Assistant Secretary