LONG ISLAND LIGHTING COMPANY
                         EXECUTIVE RETENTION AGREEMENT

      This  Employment  Agreement  is entered  into as of the first day of July,
1997, by and between Theodore A. Babcock  ("Executive") and Long Island Lighting
Company  ("Employer"),  a New  York  corporation  with  its  principal  place of
business at 175 East Old Country Road, Hicksville, New York 11801.

                                  WITNESSETH:

WHEREAS,  Executive is currently  employed by the Employer as Vice President and
Treasurer,  and the Employer  and  Executive  desire to continue the  employment
relationship; and

WHEREAS,  Employer's  current  Executive  compensation  program  provides  total
compensation which is less than that offered by other comparable businesses; and

WHEREAS, Employer is in a period of transition and Employer believes that giving
reasonable  assurances of employment  security and  additional  compensation  to
secure the continued services of Executive throughout a period of uncertainty is
in the best interest of Employer and its present and future shareholders;

NOW,  THEREFORE,  in  consideration  of the  premises  hereof  and of the mutual
promises and agreements  contained herein,  the parties hereto,  intending to be
legally bound, agree as follows:

     1. EMPLOYMENT.  Employer currently employs Executive,  and Executive hereby
agrees to continue his employment  with Employer on and after the Effective Date
(as defined in Section 3 below) under the terms and conditions  hereinafter  set
forth.

      2.  DUTIES.  Executive's  powers and  duties  shall  continue  to be those
normally associated with his current position or as may be delegated or assigned
to  Executive.  It is  understood  and  agreed  that  changes  in the  reporting
relationships,  title,  or job  duties  of  Executive  during  the  term of this
Agreement will not result in a termination of this Agreement and will not effect
a termination of employment under any section of this Agreement. Executive shall
also serve without additional compensation in such other offices of the Employer
or its  subsidiaries,  affiliates,  successors  or  assigns  to  which he may be
elected or appointed by the Chief Executive  Officer of Employer or by the Board
of Directors of Employer or its subsidiaries,  affiliates, successors or assigns
respectively.

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     3. EFFECTIVE  DATE.  This  Agreement  shall be effective as of the date set
forth above (the "Effective Date").

     4. TERM OF AGREEMENT. Subject to the terms and conditions set forth herein,
Executive  shall be employed  hereunder for a term of one year  beginning on the
Effective Date.

      5. BASE COMPENSATION. For all duties rendered by Executive, Employer shall
continue to pay Executive his current base salary ("Base Salary")  annually,  to
be reviewed on an annual basis in accordance  with  Employer's  existing  salary
review  practices  based on the  performance of Executive.  Base salary shall be
paid to Executive in equal monthly payments in accordance with Employer's normal
payroll policies.

     6.  ADDITIONAL  COMPENSATION.  During the period of this Agreement and as a
result of  employment  under  this  Agreement,  Executive  shall  receive  or be
eligible for the following additional compensation:

     (a)  RETENTION BONUS: Executive shall receive a retention bonus ("Retention
          Bonus") in the amount of twenty  percent  (20%) of job value or salary
          whichever  is greater to be paid in full on July 1, 1998 or as soon as
          administratively practicable thereafter ("Payment Date"), if Executive
          is and has been continuously employed with Employer from the Effective
          Date to the Payment Date.

     (b)  INCENTIVE COMPENSATION:  Executive shall be eligible to participate in
          the annual and long term incentive programs of Employer as such may be
          in  effect  during  the term of this  Agreement  for  officers  of the
          Employer  and will be eligible to receive  incentive  compensation  in
          accordance  therewith,  as determined by the Compensation and Benefits
          Committee of the Board of Directors of Employer.

     (c)  OTHER BENEFITS:  Executive will also be eligible to participate in any
          employee  benefit plans or programs  (including paid vacation and auto
          lease)  available to managerial or executive  employees of Employer as
          such may be in effect  from time to time as  provided  in  Section  17
          below.

     7.  EXPENSES.  Executive  shall be  reimbursed  for ordinary and  necessary
business expenses incurred by Executive on behalf of

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Employer and its  subsidiaries  or affiliates  upon  presentation of vouchers in
accordance  with the usual and  customary  procedure  of Employer in relation to
such expense items,  except that Employer may elect, at its option,  to pay such
expense items directly rather than reimburse Executive therefor.

      8. EXTENT OF SERVICE.  Executive  shall  devote  substantially  all of his
working  time,  attention and energies to the business of the Employer and shall
not, during the term of this Agreement,  take, directly or indirectly, an active
role in any other business  activity without prior consent of the Employer;  but
this  Section  shall not  prevent  Executive  from  serving as director of other
entities  not  affiliated  with  Employer,  from  making  real  estate  or other
investments of a passive nature,  or from  participating  in the activities of a
nonprofit  charitable  organization  where such participation does not require a
substantial amount of time and does not adversely affect Executive's  ability to
perform his duties under this Agreement.

     9.  TERMINATION FOR CAUSE.  This Agreement shall  immediately be terminated
and  neither  party  shall  have any  obligation  hereunder  if the  Executive's
employment is terminated for cause as determined by the Chief Executive Officer.

      10.  INVOLUNTARY  TERMINATION  WITHOUT CAUSE BY THE EMPLOYER.  The Company
reserves the right to terminate the  employment of Executive at any time for any
reason. If Executive's  employment is involuntarily  terminated without cause as
such term is defined in Section 9 above,  any unpaid amount described in Section
6(a) of this Agreement  will be  accelerated  and paid to him in a lump sum cash
payment  within five (5) business  days of the  termination.  In  addition,  the
Executive  will be eligible to be receive an Award  under the  Officers'  Annual
Stock  Incentive Plan and the Officers'  Long-Term  Incentive Plan (or successor
plan,  if any)  of the  Employer  based  on the  target  award  for the  year or
performance period in which the involuntary termination occurs, prorated for the
Executive's  active  employment  during  such  year or  performance  period  and
adjusted  for  Executive's  performance.  Except  as  stated  in  the  foregoing
sentence,  the provisions of the Officers'  Annual Stock  Incentive Plan and the
Officers' Long-Term Incentive Plan shall be applicable to Executive. Involuntary
termination  includes  divesture of the operating company or division  employing
Executive,  unless  Executive is offered other  employment by the Employer after
such divestiture.

     11. VOLUNTARY TERMINATION BY EXECUTIVE. The Executive reserves the right to
voluntarily  terminate  his  employment  at any time for any  reason  (including
retirement), provided, he shall

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give the  Company  not less than 60 days  written  notice  thereof,  unless  the
Employer  consents to a shorter  notice  period.  Sixty days after the  Employer
receives such notice, this Agreement shall cease, all obligations of the Company
hereunder  shall be  canceled  automatically,  and the  Executive  shall  not be
entitled to any form of compensation under this Agreement,  except for payout of
benefits accrued under the employee benefit plans of the Employer.

     12. DISABILITY. The event of physical or mental disability of a nature that
entitles  Executive  to sick  pay or  benefits  under  the  Company's  Long-Term
Disability  Plan is not a termination  of  employment  under any section of this
Agreement.  This Agreement  shall remain in effect  notwithstanding  Executive's
disability

      13.  DEATH.  In the event of  Executive's  death  during  the term of this
Agreement,  his spouse or beneficiary shall be entitled to the Retention Bonus's
referred to in  paragraph 6 (a) above.  If the  Executive  is  unmarried  at his
death,  beneficiary  shall mean his designated  beneficiary  under the executive
life insurance  plan of Employer in which  Executive  participates.  Any benefit
payable  under this Section 13 shall be in addition to any other  benefit due to
Executive his spouse or beneficiary from Employer, including but not limited to,
payments under any Officer Incentive Plan.

      14.  CONFIDENTIALITY AND CONDUCT.  The Executive warrants that he will not
disclose  to any  other  person  (other  than a  person  to whom  disclosure  is
necessary in  connection  with the  performance  of his duties as an Employee of
Employer) any material confidential  information or trade secrets concerning the
Employer or any of its subsidiaries, successors or assigns at any time during or
after the term of this Agreement including, but not limited to, strategic plans,
customer lists,  contract terms,  financial costs,  pricing terms, sales data or
business  opportunities,  whether for existing,  new or  developing  businesses.
Executive  will at all times  refrain  from  taking  any  action  or making  any
statements, written or oral, which are intended to and do disparage the goodwill
or reputation of the Employer or its directors, officers, or executives or which
could adversely affect the morale of employees of the Employer.

      15.   NON-SOLICITATION.   During  the  term  of  employment  provided  for
hereunder,  and for a period of one year after  termination  of employment  with
Employer,  Executive will not (i) directly or indirectly  solicit business which
could  reasonably  be expected to conflict  with the interest of Employer or any
subsidiary, successor or assign of Employer from any entity,

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organization  or person which has been doing  business with the  Employer,  from
which the Employer was  soliciting  business at the time of the  termination  of
employment, or from which Executive knew or had reason to know that Employer was
going to solicit  business at the time of  termination  of  employment,  or (ii)
employ or solicit for  employment  or advise or recommend  to any other  persons
that they employ or solicit for  employment,  any employee of the Employer,  its
subsidiaries, successors or assigns.

      16.  ENFORCEMENT.  Notwithstanding  anything  to  the  contrary  contained
herein,  Executive  and the  Employer  acknowledge  and  agree  that  any of the
covenants  contained  in  Sections  14 and 15 of  this  Agreement  will  survive
termination  of the Agreement and may be  specifically  enforced by the Employer
through injunctive relief but such right to injunctive relief shall not preclude
the Employer from other remedies which may be available to it.

      17.  EMPLOYEE  BENEFIT  PLANS.  In addition to the  benefits  specifically
provided for herein, Executive and his family will be entitled to participate in
all health and welfare benefit plans maintained by the Employer for executive or
managerial employees according to the terms of such plans.  Executive shall also
be entitled to  participate in any  profit-sharing,  retirement or similar plans
established  by the  Employer in which  executive  or  managerial  employees  of
Employer  participate,  including  any such plan intended to comply with Section
401(k) of the Internal Revenue Code of 1986, as amended,  and any plan providing
supplemental executive retirement benefits.

     18.  WITHHOLDING.  The Employer  shall  withhold the amount of any Federal,
state or local  income  taxes  attributable  to any amounts  payable  under this
Agreement.

     19. EXCESS PARACHUTE PAYMENTS.  If, for any reason,  payments made pursuant
to this Agreement are determined to be "excess parachute payments" subject to an
excise tax under Section 4999 of the Internal  Revenue Code of 1986, as amended,
the provisions of Paragraph 2.(F) of the LONG ISLAND LIGHTING COMPANY  EXECUTIVE
EMPLOYMENT AGREEMENT shall apply to such payment.

      20. NO  ASSIGNMENT.  No right,  benefit  or  interest  hereunder  shall be
subject to assignment,  encumbrance, charge, pledge, hypothecation or set-off by
Executive in respect of any claim,  debt, or obligation or similar process.  The
Executive  acknowledges  that the  services to be rendered by him are unique and
personal,  and Executive may not assign any of his rights or delegate any of his
duties under this Agreement.


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     21.  AMENDMENT.  This Agreement may not be amended,  modified,  or canceled
except by written agreement of the parties.

     22.  SEVERABILITY.  In the event  that any  provision  or  portion  of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining  provisions of this Agreement shall remain in full force and effect to
the fullest extent permitted by law.

     23. ARBITRATION. Any dispute or controversy arising out of or in connection
with this Agreement  which cannot be settled by the parties hereto within thirty
(30) days after the same shall arise shall be settled exclusively by arbitration
in New York , New York in accordance with the rules of the American  Arbitration
Association rules for consensual arbitration.

      24. BINDING  EFFECT/SUCCESSORS.  This Agreement  shall be binding upon and
inure to the benefit of Executive, the Employer, its subsidiaries or affiliates,
and any  successor  organization  or  organizations  which shall  succeed to the
business,  personnel,  property or assets of the  Employer,  whether by means of
direct or indirect  purchase,  merger,  consolidation  or otherwise and/or which
shall succeed  Employer as the employer of some or all of the current  employees
of Employer. Any such successor shall expressly assume and agree to perform this
Agreement  in the  same  manner  and to the same  extent  as  Employer  would be
required to perform hereunder if no such succession had taken place.

      25. UNSECURED PROMISE. No amounts payable pursuant to this Agreement shall
be secured by any specific assets of the Employer.  All rights of the Executive,
his spouse or other  beneficiary  shall at all times be entirely unfunded and no
provision  shall at any time be made with respect to  segregating  any assets of
Employer for payment of any amounts due hereunder.  Neither  Executive,  nor his
spouse or other  beneficiary  shall have any  interest in or rights  against any
specific assets of Employer,  and Executive and his spouse or other  beneficiary
shall have only the rights of a general unsecured creditor of Employer.

     26. SET-OFF.  Payments to or with respect to Executive under this Agreement
shall be reduced by the amount of any debt or  obligation  of Executive  owed to
Employer.

     27.  NOTICES.  Any notice  required  or  permitted  to be given  under this
Agreement  shall be sufficient if in writing and sent by registered or certified
mail to his residence in the case of the Executive,  or to its principal  office
in the case of the  Employer  and the date of  receipt  shall be deemed the date
which

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such notice has been provided.

     28.  WAIVER OF BREACH.  The waiver by either party of any provision of this
Agreement  shall not operate as a waiver of any  subsequent  breach by any other
party.

      29. ENTIRE AGREEMENT. This instrument contains the entire agreement of the
parties and supersedes the existing  agreement  providing for employment at will
and may not be changed  orally but only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification, extension or
discharge is sought.  Except as provided in Paragraph 19 herein,  this Agreement
shall have no effect on any other provision of the LONG ISLAND LIGHTING  COMPANY
EXECUTIVE EMPLOYMENT AGREEMENT.

     30.  APPLICABLE  LAW. This Agreement  shall be governed by and construed in
accordance  with the laws of the State of New York applicable to agreements made
and entirely performed within the state.

     31.  HEADINGS.  The sections,  subjects and headings of this  Agreement are
inserted  for  convenience  only and shall not affect in any way the  meaning or
interpretation of this Agreement.

     32. COUNTERPARTS.  This Agreement may be executed in counterparts,  each of
which shall be deemed an original.


      IN WITNESS  WHEREOF,  the parties have executed this  Agreement on the day
and year first written above.



                                    /S/ THEODORE A. BABCOCK
                                    -----------------------
                                   Executive


                                    LONG ISLAND LIGHTING COMPANY



                                    By: /S/ WILLIAM J. CATACOSINOS
                                    ------------------------------
                                          William J. Catacosinos
                                          Chairman, Board of Directors



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