LIPA ACQUISITION CORP.

                            FINANCING AGREEMENT NOTE

      FOR VALUE RECEIVED,  the undersigned  LIPA  Acquisition  Corp., a New York
business corporation (the "Subsidiary"),  hereby promises to pay to the order of
the Long Island Power Authority,  a corporate  municipal  instrumentality of the
State of New York (the "Authority"),  on or before each due date for the payment
of the  principal  of and  redemption  price,  if any, or interest  on, or other
payments  required  under,  Authority  Obligations  (as defined in the Financing
Agreement  hereinafter referred to), until the same shall have been paid in full
or provision for the payment  thereof in full shall have been made in accordance
with the  Resolution  (as defined in the Financing  Agreement) or the provisions
thereof,  payments in an amount which,  when added to any moneys then on deposit
under the Resolution and available therefor, including any dividends theretofore
paid to the Authority and held thereunder,  shall be equal to the amount payable
on such due date with respect to the  Authority  Obligations  as provided in the
Resolution,  including  amounts  due for the  payment  of the  principal  of and
sinking fund  installments  and premium,  if any, and interest on the Bonds.  In
addition, the Subsidiary shall pay or cause to be paid to the Authority,  as and
when the same  shall  become  due,  all other  amounts  due and  payable  by the
Authority  under the  Resolution  and all other  documents  entered  into by the
Authority in connection with the Authority  Obligations,  together with interest
thereon at the then applicable rate.

      In order to assure a source of payment of and security  for this Note,  in
accordance with, and as more particularly set forth in, the Financing Agreement,
the Subsidiary has given, granted, conveyed and transferred to the Authority all
of its right, title and interest in and to the Revenues and certain other assets
and interests.  The  Subsidiary  hereby agrees that the Authority may apply such
Revenues  and any  amounts  received by the  Authority  in respect of such other
assets and interests to the payment hereof in accordance with the Resolution.

      This Note is issued pursuant to Section 2.2 of the Financing  Agreement by
and  between  the  Authority  and the  Subsidiary,  dated as of May 1, 1998,  as
amended and supplemented (the "Financing Agreement").

      The  principal  amount  from  time to time due and  owing  hereunder,  the
scheduled  amortization  thereof  and related  interest  rates (or the method of
determining the same) shall evidenced by the periodic delivery to the Subsidiary
of a  certificate  of an Authorized  Officer of the Authority  setting forth the
same.  Payments shall be made at such time or times,  such office or offices and
in such manner as shall be specified by the Authority.

      During the occurrence  and  continuance of any event of default as defined
in the Financing  Agreement,  the Authority (or any permitted assignee under the
Financing  Agreement) may exercise any of the remedies provided in the Financing
Agreement.

      THIS  NOTE  SHALL  NOT  BE A  DEBT  OF  THE  STATE  OF  NEW  YORK  OR  ANY
MUNICIPALITY,  AND NEITHER THE STATE OF NEW YORK NOR ANY  MUNICIPALITY  SHALL BE
LIABLE  THEREON.  NEITHER THE CREDIT,  THE 

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REVENUES  NOT THE  TAXING  POWERS OF THE  STATE OF NEW YORK OR ANY  MUNICIPALITY
SHALL BE, OR SHALL BE DEEMED TO BE, PLEDGED TO THE PAYMENT OF THIS NOTE.

      No recourse  shall be had for the  payment of this Note,  or for any claim
based on this  Note or on the  Financing  Agreement,  against  any  director  or
officer of the Subsidiary.

      This Note shall be governed by, and construed in accordance with, the laws
of the State of New York.

      IN  WITNESS  WHEREOF,  the  Subsidiary  has  caused  this  Note to be duly
executed and their corporate seals to be affixed hereto.

DATED as of:  May 28, 1998

                                        LIPA ACQUISITION CORP.

                                        By: /s/Richard M. Kessel
                                            ------------------------------- 
                                            Chairman

(SEAL)

Attest:

/s/ Laurie Leat
----------------------------------
     Secretary


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