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                             POWER SUPPLY AGREEMENT

                                     between

                          LONG ISLAND LIGHTING COMPANY

                                       and

                           LONG ISLAND POWER AUTHORITY

                            Dated as of June 26, 1997



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                                TABLE OF CONTENTS

ARTICLE 1 - DEFINITIONS ....................................................   1

PART I - POWER SUPPLY ......................................................   9

ARTICLE 2 - POWER SUPPLY ...................................................   9
      2.1.   Delivery of Power .............................................   9
             2.1.1.  Capacity ..............................................   9
             2.1.2.  Energy ................................................   9
             2.1.3.  Ancillary Services ....................................   9
      2.2.   Delivery Points ...............................................   9
      2.3.   Dispatch of Generating Facilities .............................   9
      2.4.   Maintenance Scheduling ........................................  10
      2.5.   Dependable Maximum Net Capability (DMNC) Testing ..............  10
      2.6.   DMNC Target ...................................................  11
      2.7.   T&D System Access .............................................  11

PART II - POWER SUPPLY PLANNING AND OPERATIONS .............................  11

ARTICLE 3 - FUTURE RESOURCE PLANNING .......................................  11
      3.1.   Power Supply Planning .........................................  11
             3.1.1.  Integrated Electric Resource Planning (IERP) ..........  11

PART III - OTHER ITEMS .....................................................  12

ARTICLE 4 - GENERATING FACILITY SITES ......................................  12
      4.1.   Interference Compensation .....................................  12
      4.2.   Generating Facilities .........................................  12
      4.3.   Transmission Requirements .....................................  12

ARTICLE 5 - REGULATION .....................................................  12
      5.1.   Regulation ....................................................  12

ARTICLE 6 - STORM RESTORATION ..............................................  13
      6.1.   Storm Declaration .............................................  13
      6.2.   Responsibility During Storm Condition .........................  13

ARTICLE 7 - ENVIRONMENTAL CONSIDERATIONS ...................................  13
      7.1.   Environmental Compliance ......................................  13


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ARTICLE 8 - PURCHASE PRICE AND PAYMENT .....................................  13
      8.1.   Price Components ..............................................  13
             8.1.1.  Monthly Capacity Charge ...............................  14
             8.1.2.  Monthly Variable Charge ...............................  14
             8.1.3.  Monthly Ancillary Service Charge ......................  14
             8.1.4.  Monthly Capacity Payment Adjustment Charge ............  15
             8.1.5.  Monthly Variable Payment Adjustment Charge ............  15
             8.1.6.  NOx and SOx Emission Credits ..........................  15
      8.2.   Power Plant Electric Use ......................................  15
      8.3.   Generating Facility Major Failure .............................  15
      8.4.   Incentives/Disincentives ......................................  16
      8.5.   Payment .......................................................  16
      8.6.   Late Payment ..................................................  16

ARTICLE  9 - BUDGETS .......................................................  17
      9.1.   Budget Preparation ............................................  17
             9.1.1.  Initial Capacity and Variable Charge Determination ....  17
             9.1.2   Five Year Capital Improvement Budgets .................  17
      9.2.   Budget Review .................................................  17
      9.3.   Failure To Adopt Contract Year Budget .........................  18
      9.4.   Capital Improvement Budget Performance ........................  18

ARTICLE 10 - INCENTIVES/DISINCENTIVES ......................................  18
      10.1.  Incentives/Disincentives ......................................  18

ARTICLE 11 - CAPACITY RAMP DOWN ............................................  18
      11.1.  Capacity Ramp Down Option. ....................................  18

ARTICLE 12 - TERM and TERMINATION ..........................................  21
      12.1.  Term ..........................................................  21
      12.2.  Termination For Cause by GENCO ................................  21
             12.2.1  Events of LIPA Default Defined ........................  21
      12.3.  Termination For Cause by LIPA .................................  22
             12.3.1  Events of GENCO Default Defined .......................  22
      12.4.  Procedure For Termination For Cause. ..........................  23

ARTICLE 13 - DESIGNATION OF REPRESENTATIVES ................................  24
      13.1.  LIPA Representative ...........................................  24
      13.2.  GENCO Representative ..........................................  24

ARTICLE 14 - METERING ......................................................  24
      14.1.  Electric Metering .............................................  24
             14.1.1. Electric Metering Equipment ...........................  24


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             14.1.2  Testing of Metering Equipment .........................  24
             14.1.3  Meter Reading .........................................  25
             14.1.4  Metering Inaccuracies .................................  25
      14.2.  Gas Metering ..................................................  25
             14.2.1. Gas Metering Equipment ................................  25
             14.2.2. Testing of Self Checking Gas Metering Equipment .......  25
             14.2.3. Testing of Non Self Checking Gas Metering Equipment ...  26
             14.2.4. Gas Meter Reading .....................................  26
             14.2.5. Gas Metering Inaccuracies .............................  26
      14.3.  Oil Fuel Measurement ..........................................  27

ARTICLE 15 - REPORTS .......................................................  27
      15.1.  Reports .......................................................  27
      15.2.  Other Information .............................................  27
      15.3.  Litigation; Permit Lapses .....................................  27

ARTICLE 16 - GENERAL SERVICE REQUIREMENTS ..................................  25
      16.1.  General Service Requirements ..................................  28
             16.1.1. Standard of Performance ...............................  28
             16.1.2. Limitation of Liability ...............................  28
             16.1.3. Accounting Controls ...................................  28

ARTICLE 17 - INSURANCE .....................................................  28

ARTICLE 18 - CREDIT ENHANCEMENT ............................................  29
      18.1.  Credit Enhancement in Certain Circumstances ...................  29
             18.1.1. Limitations ...........................................  29
             18.1.2. Material Decline in the Guarantor's Credit Standing ...  29
             18.1.3. Credit Enhancement ....................................  29


ARTICLE 19 - ALLOCATION OF RISK OF
             CERTAIN COSTS AND LIABILITIES .................................  30

ARTICLE 20 - PROPRIETARY INFORMATION .......................................  31
      20.1.  Request Not To Disclose .......................................  31
      20.2.  LIPA's Non-Disclosure .........................................  31
      20.3.  Permitted Disclosures .........................................  32

ARTICLE 21 - MISCELLANEOUS PROVISIONS ......................................  32
      21.1.  Agreement .....................................................  32
      21.2.  Relationship of the Parties ...................................  32
      21.3.  Assignment ....................................................  32
      21.4.  Cooperation in Financing ......................................  33


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      21.5.  Force Majeure .................................................  33
             21.5.1. Events Constituting Force Majeure .....................  33
             21.5.2. Event of Force Majeure ................................  33
             21.5.3. Scope .................................................  34
      21.6.  Amendments ....................................................  34
      21.7.  No Waiver .....................................................  34
      21.8.  Notices .......................................................  34
      21.9.  Representations and Warranties ................................  35
             21.9.1. GENCO Representations and Warranties ..................  35
             21.9.2. LIPA Representations and Warranties ...................  36
      21.10. Counterparts ..................................................  36
      21.11. Governing Law .................................................  36
      21.12. Captions; Appendices ..........................................  36
      21.13. Non-Recourse ..................................................  37
      21.14. Severability ..................................................  37
      21.15. Rules of Interpretation .......................................  37
      21.16. Property Taxes ................................................  37
      21.17. Binding   Effect ..............................................  38

APPENDIX A - FORMULA RATE .................................................. A-1

APPENDIX B - MONTHLY VARIABLE ADJUSTMENT CHARGE ............................ B-1

APPENDIX C - GENERATING UNITS .............................................. C-1

APPENDIX D - DELIVERY POINTS ............................................... D-1

APPENDIX E - MINIMUM LOADINGS, RAMP RATES, START-UP & 
             SCHEDULED SHUTDOWN TIME

APPENDIX F - PERFORMANCE INCENTIVES/DISINCENTIVES .......................... F-1
      I.     DMNC Incentive/Disintentives .................................. F-2
      II.    Availability Incentive/Disincentive ........................... F-2
      III.   Property Tax Incentive ........................................ F-4
      IV.    Heat Rate Incentive/Disincentive .............................. F-5


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                             POWER SUPPLY AGREEMENT

     This POWER SUPPLY AGREEMENT ("Agreement") is entered into as of June 26,
1997 ("Contract Date") by and between Long Island Lighting Company, a New York
corporation ("GENCO"), and LONG ISLAND POWER AUTHORITY, a corporate municipal
instrumentality and political sub-division of the State of New York ("LIPA").
Each of the foregoing are sometimes referred to herein as a "Party" and
collectively as the "Parties."
        
                                    RECITALS

     WHEREAS, GENCO, is currently the owner of the Generating Facilities (as
defined herein), LIPA desires to purchase capacity and energy from the
Generating Facilities in order to provide Electricity (as defined herein) to its
customers on Long Island.

     WHEREAS, if LIPA exercises its right to purchase the Generating Facilities
under the Generation Purchase Right Agreement dated the date hereof, the
purchase of capacity and energy hereunder shall terminate.

     WHEREAS, GENCO and LIPA have set forth in this Agreement the terms and
conditions for the sale and delivery of electric capacity and energy by GENCO to
LIPA.

     NOW, THEREFORE, in consideration of the mutual promises set forth herein,
the Parties agree as follows:

                             ARTICLE 1 - DEFINITIONS

     Unless otherwise required by the context in which any defined term appears,
the following capitalized terms have the meanings specified in this Article 1.

1.1.     "Ancillary Service" means the ancillary services required by NYPP/ISO
         from time to time to enable the NYPP/ISO to operate the transmission
         system in New York State in a secure and reliable manner.

1.2.     "Applicable Law" means any law, rule, regulation, condition or
         requirement, guideline, ruling, ordinance or order of or any Legal
         Entitlement issued by, any Governmental Authority and applicable from
         time to time to the performance of the obligations of the parties
         hereunder.

1.3.     "Business Day" means any day other than a Saturday, Sunday or Legal
         Holiday (as defined herein).


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1.4.     "Base Interest Rate" means the lesser of (1) the maximum rate of
         interest permitted by Applicable Law and (2) (a) for interest accruing
         during the first six months after the date on which a payment was
         payable hereunder, 6 months LIBOR, and (b) for interest accruing more
         than six months after the date on which a payment was payable
         hereunder, the prime interest rate plus one percentage point, in each
         case as six month LIBOR or the prime interest rate as reported in The
         Wall Street Journal for each day.

1.5.     "Capacity Charge" has the meaning ascribed to that term in Section
         8.1.1.

1.6.     "Change of Control" means (i) the acquisition of beneficial ownership
         (within the meaning of Rule 13d-3 promulgated by the Securities and
         Exchange Commission under the Securities Exchange Act of 1934, as
         amended (the "1934 Act")) of 35% or more of the outstanding shares of
         securities the holders of which are generally entitled to vote for the
         election of directors of GENCO or the Guarantor, as the case may be
         (including securities convertible into, or exchangeable for, such
         securities or rights to acquire such securities or securities
         convertible into, or exchangeable for such securities, "Voting Stock"),
         on a fully diluted basis, by any Person or group of Persons (within the
         meaning of Section 13 or 14 of the 1934 Act); (ii) any sale, transfer
         or other disposition of beneficial ownership of 35% or more of the
         outstanding shares of the Voting Stock, on a fully diluted basis, of
         GENCO or the Guarantor, as the case may be; (iii) any merger,
         consolidation, combination or similar transaction of GENCO or the
         Guarantor, as the case may be, with or into any other Person, whether
         or not GENCO or the Guarantor, as the case may be, is the surviving
         entity in any such transaction; (iv) any sale, lease, assignment,
         transfer or other disposition of the beneficial ownership in 35% or
         more of the property, business or assets of GENCO or the Guarantor, as
         the case may be; (v) a Person other than the current shareholders of
         GENCO or the Guarantor, as the case may be, obtains, directly or
         indirectly, the power to direct or cause the direction of the
         management or policies of GENCO or the Guarantor, as the case may be,
         whether through the ownership of capital stock, by contract or
         otherwise; (vi) during any period of 12 consecutive calendar months,
         when individuals who were directors of GENCO or the Guarantor, as the
         case may be, on the first day of such period cease to constitute a
         majority of the board of directors of GENCO or the Guarantor, as the
         case may be; or (vii) any liquidation, dissolution or winding up of
         GENCO or the Guarantor, as the case may be.

1.7.     "Closing Date" has the meaning ascribed to that term in the Merger
         Agreement (as herein defined).

1.8.     "Contract Date" means the date of this Agreement as set forth on page 1
         hereof.

1.9.     "Contract Year" except as LIPA shall otherwise propose subject to the
         approval of GENCO which approval shall not be unreasonably withheld,
         means the calendar year commencing on January 1 in any year and ending
         on December 31 of that year;


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         provided, however, that the first Contract Year shall commence on the
         Closing Date and shall end on December 31 of that year, and the last
         Contract Year shall commence on January 1 prior to the date this
         Agreement expires or is terminated, whichever is appropriate, and shall
         end on the last day of the Term of this Agreement or the effective date
         of any termination, whichever is appropriate. Any computation made on
         the basis of a Contract Year shall be adjusted on a pro rata basis to
         take into account any Contract Year of less than 365/366 days.

1.10.    "Contract Year Budget Plan" shall mean a budget plan for the Contract
         Year. Thereafter, Contract Year Budget Plan means a budget plan for
         each Contract Year.

1.11.    "Deliver," "Delivered," "Delivering" and "Delivery" shall mean the
         provision of Electricity at the Delivery Points (as defined herein) of
         a type known as three-phase alternating current.

1.12.    "Delivery Point" shall mean that point at which Electrical Metering
         Equipment (as defined herein) is located, as described in Appendix D
         for each of the Generating Facilities.

1.13.    "Dependable Maximum Net Capacity" shall mean the maximum amount of
         Electricity the Generating Facility can Deliver, as periodically
         determined through "NYPP Method and Procedure 2 -Uniform Method for
         Rating Generating Capability," as modified from time to time, for the
         applicable capability period.

1.14.    "Dispatch" shall mean LIPA's adjustment and control of the Generating
         Facilities' net electrical energy output for the purpose of regulating
         the amount of Electricity Delivered.

1.15.    "Electricity" shall mean the electrical energy (real and reactive) and
         capacity produced by the Generating Facilities and Delivered to the
         Delivery Point.

1.16.    "Electricity Customers" means the retail and wholesale electricity
         customers of LIPA located in the Service Area.

1.17.    "Energy Manager" means Long Island Lighting Company, and its permitted
         successors and assigns.

1.18.    "Energy Management Agreement" means the Energy Management Agreement
         entered into between Energy Manager and LIPA on or about the date of
         the signing of this agreement.

1.19.    "Event of Default" has the meaning ascribed to that term in Sections
         12.2 and 12.3.


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1.20.    "Existing Power Supply Agreements" means the power supply agreements
         which exist between GENCO and other parties for the purchase of
         capacity and/or energy which are in effect as of the Contract Date and
         which were, either in existence as of March 19, 1997 or which were
         entered into in accordance with the provisions of Section 6.1 of the
         Acquisition Agreement on or prior to the Closing Daze.

1.21.    "Fees-and-Costs" means reasonable fees and expenses of employees,
         attorneys, architects, engineers, accountants, expert witnesses,
         contractors, consultants and other persons, and costs of transcripts,
         printing of briefs and records on appeal, copying and other reimbursed
         expenses, and expenses of any Legal Proceeding.

1.22.    "FERC" means the Federal Energy Regulatory Commission.

1.23.    "Financing Parties" means any and all Persons that are lenders,
         lessors, holders of notes, bonds, or mortgages or investors providing
         or potentially providing bridge, construction, interim or long-term
         debt or equity financing, or any refinancing of the same or any capital
         lease of the Generating Facilities, and any agent or trustee for any
         such Persons, and their respective successors and assigns.

1.24.    "Five Year Capital Improvement Budget" has the meaning as ascribed to
         that term in Section 9.1.2.

1.25.    "Fuel" means the fuel for operating the Generating Facilities.

1.26.    "Generating Facilities" means the electric generating facilities owned
         by GENCO as of March 19, 1997, including, but not limited to: (a) all
         systems, structures, equipment and appurtenances associated with each
         Generating Facility's operation and forming a part thereof; (b)
         permanent administrative offices and building structures housing
         Generating Facility equipment; size improvements such as roads,
         drainage, fencing and landscaping; and (c) structures, pipelines and
         equipment for: (i) the delivery of Fuel; (ii) the transport of water,
         waste water and other waste disposal; and (iii) other materials,
         supplies and commodities required for the Services. A list of GENCO's
         generating units is contained in Appendix C. This definition is to be
         further developed in accordance with Schedule B of the Merger Agreement
         (as herein defined).

1.27.    "Generating Facility Sites" means each parcel of land upon which each
         existing Generating Facility is situated, as well as the land
         contiguous thereto, owned by GENCO as of March 19, 1997.

1.28.    "Governmental Authority" means any national, state or local government,
         any political subdivision or any governmental, quasi-governmental,
         judicial, public or statutory instrumentality, administrative agency,
         authority, body or other entity having jurisdiction


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         over the Generating Facilities or the electrical energy produced by
         those facilities or this Agreement other than LIPA.

1.29.    "Governmental Rule" means any permit or any law, statute, act,
         regulation, code, ordinance, rule, judgment, order, decree, directive,
         requirement, guideline or any similar decision or determination, or any
         Governmental Authority's official interpretation or administration of
         any of the foregoing, excluding any acts of LIPA, that governs or
         affects the Generating Facilities.

1.30.    "Guarantor" means the Parent (as defined in the Merger Agreement (as
         defined herein)).

1.31.    "Hazardous Waste" means any waste which by reason of its composition or
         characteristics is defined or regulated as a hazardous waste, toxic
         substance, hazardous chemical substance or mixture, or asbestos under
         Applicable Law, as amended from time to time, including, but not
         limited to, "Hazardous Substances" as defined in CERCLA and the
         regulations promulgated thereunder.

1.32.    "Legal Entitlement" means any permit, license, approval, authorization,
         consent and entitlement of whatever kind and however described which is
         required under Applicable Law to be obtained or maintained by any
         person with respect to the performance of any obligation under this
         Agreement.

1.33.    "Legal Holiday" is defined as New Year's Day, Martin Luther King Jr.'s
         Birthday, Lincoln's Birthday, Presidents' Day, Good Friday, Memorial
         Day, Independence Day, Labor Day, Columbus Day, Veteran's Day,
         Thanksgiving Day, Day After Thanksgiving, Christmas Eve, Christmas Day
         and New Year's Eve, or other such days as the Parties may mutually
         agree, from time to time.

1.34.    "Legal Proceeding" means every action, suit, litigation, arbitration,
         administrative proceeding, and other legal or equitable proceeding
         having a bearing upon this Agreement.

1.35.    "LIPA Fault" means any breach, failure of compliance, or nonperformance
         by LIPA with its obligations hereunder or any negligence or willful
         misconduct by LIPA under this Agreement (whether or not attributable to
         any officer, trustee, member, agent, employee, representative,
         contractor, subcontractor of any tier, or independent contractor of
         LIPA) that materially and adversely affects GENCO's performance or
         GENCO'S rights or obligations under this Agreement.

1.36.    "Loss-and-Expense" means any and all losses, liabilities, obligations,
         damages, delays, disincentives, judgments, deposits, costs (including
         replacement power costs and incremental fuel costs) expenses, claims,
         demands, charges, taxes, or expenses, including all Fees-and-Costs.


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1.37.    "Merger Agreement" means the Agreement and Plan of Exchange and Merger
         by and among BL Holding Corp., Long Island Lighting Company, LIPA and
         LIPA Acquisition Corp. dated as of the date hereof.

1.38.    "Monthly Ancillary Service Charge" has the meaning ascribed to that
         term in Section 8.1.3.

1.39.    "Monthly Capacity Charge" has the meaning ascribed to that term in
         Section 8.1.1.

1.40.    "Monthly Capacity Payment Adjustment Charge" has the meaning ascribed
         to that term in Section 8.1.4.

1.41.    "Monthly Variable Payment Adjustment Charge" has the meaning ascribed
         to that term in Section 8.1.5

1.42.    "Monthly Variable Charge" has the meaning ascribed to that term in
         Section 8.1.2

1.43.    "MW" shall mean megawatt.

1.44.    "MWN" shall mean net megawatt.

1.45.    "MWh" shall mean megawatt hour.

1.46.    "MWhG" shall mean gross megawatt hour.

1.47.    "Mvar" shall mean reactive megavolt amperes.

1.48.    "New York Power Pool" or "NYPP" means the member system currently
         comprised of Consolidated Edison Company of New York, Inc., Central
         Hudson Gas and Electric Corporation, Long Island Lighting Company,
         Orange and Rockland Utilities, Inc., Rochester Gas and Electric
         Corporation, New York State Electric and Gas Corporation, Niagara
         Mohawk Power Corporation, and the New York Power Authority, as such
         organization or membership may change from time to time.

1.49.    "NYPP/ISO" means the Independent System Operator ("ISO") into which the
         NYPP is proposed to be restructured, to the extent approved by FERC. In
         the event this restructuring occurs, the principal reliability,
         security and dispatch function of the NYPP will be performed by the
         ISO.

1.50.    "Off System Sale" means the sale of capacity and/or energy to wholesale
         or retail customers located outside of the Service Area.

1.51.    "Parent" shall have the meaning ascribed to such term in the Merger
         Agreement.


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1.52.    "Person" means, unless otherwise specified, any individual,
         corporation, firm companies, trusts, business trusts, legal entities,
         general partnership, limited partnership, joint venture, association,
         joint-stock company, trust, limited liability company unincorporated
         organization, government or any agency or political subdivision therein
         or other entity, including a Governmental Authority.

1.53.    "Prudent Utility Practice" at a particular time means any of the
         practices, methods and acts (including but not limited to the
         practices, methods and acts engaged in or approved by a significant
         portion of the electrical utility industry prior thereto), which, in
         the exercise of reasonable judgment in light of the facts and the
         characteristics of the T&D System and System Power Supply known at the
         time the decision was made, would have been expected to accomplish the
         desired result at the lowest reasonable cost consistent with
         reliability, safety and expedition and good customer relations. Prudent
         Utility Practice is not intended to be limited to the optimum practice,
         method or act, to the exclusion of all others, but rather to be a
         spectrum or possible practices, methods or act.

1.54.    "Ramp Down" has the meaning ascribed in Article 11.

1.55.    "Rating Services" means Moody's Investors, Inc., Standard and Poor's
         Rating Service, Fitch Investors Services, and Duff & Phelps or any of
         their successors.

1.56.    "Receipt Points" shall mean those points at which gas is received at
         the Generating Facilities.

1.57.    "Service Area" means the counties of Suffolk and Nassau and that
         portion of the county of Queens constituting GENCO's electric franchise
         area as of the effective date of the Long Island Power Authority Act.
         "Service Area" does not include the Villages of Freeport, Rockville
         Center, and Greenport.

1.58.    "Summer Operating Period" shall mean the six month period commencing
         May 1 through and ending October 31.

1.59.    "System Emergency" shall mean any abnormal system condition that
         requires automatic or immediate manual action to prevent or limit loss
         of transmission facilities generation resources that could adversely
         affect the reliability of an electric system.

1.60.    "System Power Supply" means the electrical capacity and energy from all
         power supply sources owned by or under contract to LIPA, including, but
         not limited to, the Existing Power Supply Agreements, this Agreement,
         LIPA's rights and interests with respect to Nine Mile Point 2, LIPA's
         interest in any future generating facilities, spot mark capacity and
         energy purchases made by the Energy Manager on behalf of LIPA, and a
         load control programs or measure adopted by LIPA.


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1.61.    "System Pre-Emergency" shall mean a condition which reasonably could be
         expected, if permitted to continue, to contribute to a System Emergency
         or to a degraded operating condition and includes the Alert, Warning,
         Major Emergency, and Restoration conditions described in NYPP Operating
         Procedure 1 - "Operation of the Bulk Power System," as it may be
         revised or replaced.

1.62.    "T&D System" means the electric transmission and distribution system
         located in the Service Area which provides the means for transmitting
         and distributing Generating Facility Electricity and off-system
         capacity and/or for energy purchases and Off-System Sales.

1.63.    "Term" has the meaning ascribed to that term in Article 12.1.

1.64.    "Unit Heat Rate" means the Btu of fuel per kilowatt hour of gross
         generation.

1.65.    "Winter Operating Period" shall mean the six month period commencing
         November 1 and ending April 30.

1.66.    "Year Seven" is the twelve (12) month period commencing on the sixth
         anniversary of the Closing Date.

                              PART I - POWER SUPPLY
                            ARTICLE 2 - POWER SUPPLY

2.1. Delivery of Power. During the Term of this Agreement, except as otherwise
provided herein, GENCO agrees to sell and Deliver to LIPA and LIPA agrees to
purchase and accept Delivery from GENCO, as follows:

         2.1.1. Capacity. GENCO will sell and Deliver to LIPA all the capacity
(MW) from the Generating Facilities in accordance with this Agreement.

         2.1.2. Energy. GENCO will sell and Deliver to LIPA all the energy (MWh)
it produces from the Generating Facilities, in accordance with this Agreement,
that LIPA requests to meet the Electricity requirements of its Electricity
Customers and for making Off System Sales.

         2.1.3. Ancillary Services. GENCO will provide the various Ancillary
Services as required by LIPA. LIPA will pay GENCO in accordance with this
Agreement, for any cost associated with any Ancillary Services not otherwise
compensated by LIPA.

2.2. Delivery Points. Delivery of capacity and energy will be at the Delivery
Points, identified in Appendix D, between LIPA's T&D System and GENCO's
Generating Facilities.


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2.3. Dispatch of Generating Facilities.

         (a) LIPA shall have the responsibility for the Dispatch of the
Generating Facilities for both real (MW) and reactive (Mvar) power requirements
for providing Electricity to LIPA. LIPA shall also have the responsibility for
the Dispatch of Ancillary Services at the Generating Facilities for its
Electricity Customers. It is anticipated that Dispatch of the Generating
Facilities will be accomplished by LIPA through the use of existing automatic
generator control equipment at the Generating Facilities. If the automatic
generator control equipment is not currently installed at a Generating Facility
or becomes inoperable, GENCO shall manually implement LIPA's Dispatch
requirements. Internal combustion units are not equipped with automatic
generation control equipment and, therefore, LIPA's Dispatch requirements shall
be implemented manually by GENCO.

         (b) GENCO may, in its sole discretion consistent with Prudent Utility
Practice, override the automatic generation, reactive power and load frequency
control equipment to preserve the safety and integrity of its Generating
Facilities and to react to System Emergencies and System Pre-Emergencies.

         (c) When Dispatching the Generating Facilities, LIPA will comply with
the limitations of Dispatch as set forth in Appendix E, including but not
limited to, minimum loadings, ramp rates, scheduled shut down time, internal
combustion loadings and start-up times on the Generating Facilities. GENCO will
inform LIPA when Prudent Utility Practice requires changes to those limitations,
either on a short term or long term basis. Such changes may be required due to
conditions such as equipment problems (e.g. crack in turbine, build up in
precipitators), opacity and voltage regulation. GENCO will provide LIPA with
revised limitations of Dispatch reflecting such changes as required, but not
less than once per year.

         (d) LIPA will provide GENCO with a preliminary schedule of the expected
operation of the Generating Facilities (steam units only) on a week ahead and a
day ahead basis. For next day and next seven (7) days of operation, the
preliminary schedule must be provided to GENCO by 11 AM on the previous day.
Schedules for Friday and Saturday must be provided on Thursday by 11 AM.
Schedules for Sunday and Monday must be provided on Friday by 11 AM. In the
event of a Legal Holiday the schedules must be provided on the last Business Day
prior to the Legal Holiday. The above scheduling requirements may be modified in
accordance with the NYPP/ISO requirements. LIPA will not be bound by such
preliminary schedule and will be permitted to Dispatch the Generating Facilities
on a real time basis consistent with the limitations set forth in Section
2.3(c).

         (e) GENCO will normally operate the Generating Facilities at a power
factor between 0.90 and 1.0 (lead or lag Mvar) at the Delivery Points, subject
to the limitations defined in Section 2.3(b). Notwithstanding the foregoing,
during a System Emergency or System Pre-Emergency, GENCO may operate the
Generating Facilities below a 0.90 power factor but not


                                     - 9 -
<PAGE>


below a 0.85 power factor (lead or lag Mvar) at the Delivery Point(s), subject
to the limitations defined in Section 2.3(b). 

2.4. Maintenance Scheduling. The Generating Facilities' five year maintenance
outage schedule will be provided by GENCO ninety (90) days prior to the
commencement of each Contract Year. GENCO will not schedule major maintenance
outages in the months of June, July and August, except in the case of System
Emergency or by mutual agreement, or in response to unusual circumstances in
accordance with Prudent Utility Practice. The Parties recognize that certain
non-scheduled routine maintenance will be conducted throughout the year, as
required, for the purpose of inspection, cleaning and/or repair of power plant
equipment. GENCO will attempt to schedule and implement such outages in the off
peak periods. GENCO will inform LIPA when such maintenance is required.

2.5. Dependable Maximum Net Capability (DMNC) Testing. GENCO will perform
capacity tests on its Generating Facilities to determine the DMNC rating,
consistent with the "NYPP Methods and Procedure 2 - Uniform Method for Rating
Generating Capability," as it may be revised or replaced. If the NYPP Methods
and Procedure -2 is revised or replaced, the target level in the DMNC incentive
will be modified as required to reflect these changes. GENCO will provide LIPA
with sufficient advance notice of the capacity test dates and provide LIPA the
opportunity to witness such tests. GENCO will also provide to LIPA the results
of the DMNC tests for each individual generating unit.

2.6. DMNC Target. GENCO will use reasonable efforts, in accordance with Prudent
Utility Practice to maintain a DMNC level of 3975 MW (to be revised to be equal
to the average of annual DMNC values for the last five-year period prior to the
Closing Date as described in Appendix F) during the Summer Operating Period. It
is the intent of the Parties that the expense and capital budgets will be
sufficient to provide GENCO a reasonable opportunity to maintain the DMNC target
level. If LIPA should not approve an adequate budget it is recognized that the
DMNC target may not be achieved. In such event, the incentive/disincentive
provisions of the DMNC performance incentive shall equitably be adjusted
consistent with Section 9.2. In addition, this value will be reduced to reflect
any Generating Facility that has been Ramped Down, mothballed, retired,
significantly derated, removed from service or incurs a long term outage, except
that for a significant derating, removal from service or long term outage the
reduction in the DMNC target will apply only to the extent that these events
were not attributable to GENCO's failure to follow Prudent Utility Practice.

2.7. T&D System Access. LIPA will provide open access service to GENCO on its
T&D System for Off System Sales to the extent that the required T&D capacity is
available, priced at applicable FERC tariffs or other non-discriminatory terms
and prices.


                                     - 10 -
<PAGE>


                  PART II- POWER SUPPLY PLANNING AND OPERATIONS
                       ARTICLE 3- FUTURE RESOURCE PLANNING

3.1. Power Supply Planning. This article provides for the provision of
information by GENCO to LIPA as requested by LIPA to conduct an Integrated
Electric Resource Planning study, and does not obligate LIPA to perform such a
study.

         3.1.1. Integrated Electric Resource Planning (IERP). The Parties to
this Agreement recognize that LIPA intends to perform a comprehensive analysis
for meeting the future electric energy requirements of LIPA's Electricity
Customers on a periodic basis with due consideration given for environmental
issues. This analysis would evaluate all available resource options to meet the
electric energy requirements of LIPA Electricity Customers. LIPA, in
consultation with GENCO, may establish a schedule for conducting any IERP study.
The IERP analysis is intended to be performed to determine the optimum mix of
the Generating Facilities and purchased power in an effort to provide the least
cost mix of electricity resources including demand side management (DSM) options
for LIPA Electricity Customers while observing established reliability criteria.
GENCO will contribute to any LIPA evaluation by providing information to LIPA
regarding the operation of the Generating Facilities as requested. At the
request of LIPA, GENCO shall:

         (a) Provide projected short and long term maintenance schedules and
cost information;

         (b) Provide information on planned capacity improvements and capital
additions on the Generating Facilities (including environmental compliance
modifications);

         (c) Provide information and analysis regarding Fuel usage (type);

         (d) Provide any other information that may reasonably be required for
the conduct of the IERP study.

LIPA will pay all reasonable costs for providing this information which are not
otherwise compensated by payments to GENCO under this Agreement.

                             PART III - OTHER ITEMS
                      ARTICLE 4 - GENERATING FACILITY SITES

4.1. Interference Compensation. If LIPA's construction or operation of new
generating units at Generating Facility Sites materially interferes with either
the physical operation of the Generating Facilities or with GENCO's
environmental compliance, LIPA shall ensure that GENCO will be compensated for
the adverse impact on GENCO of such interference.


                                     - 11 -
<PAGE>


4.2. Generating Facilities. GENCO shall not sell or otherwise assign any
interest in any of its generating units (as set forth on Appendix C) except for
(i) liens securing bona fide debt or other encumbrances incurred in the ordinary
course of business, (ii) capita] leases or (iii) sales or assignments made with
LIPA's prior written consent, which consent shall be deemed to have been given
in respect of any and all easements granted pursuant to either Section 5.3(d) of
the Generation Purchase Right Agreement dated as of the date hereof by and
between GENCO and LIPA or Paragraph 5 of the Grant of Future Rights attached as
Schedule F to the Merger Agreement.

4.3. Transmission Requirements. LIPA will be responsible for all transmission
reinforcements required in conformance with Prudent Utility Practice for any new
generation, including any new interconnections and other T&D System requirements
regardless of their location, sufficient to maintain the Delivery of Electricity
from the Generating Facilities onto the T&D System. The additional costs charged
to GENCO for such transmission reinforcements shall not be greater than if such
costs were allocated to all of LIPA's Electricity Customers and transmission
service customers on an average system basis.

                              ARTICLE 5 - REGULATlON

5.1. Regulation. GENCO will seek all necessary regulatory approvals appropriate
for the provision of the service to LIPA as described herein. LIPA agrees to
provide all reasonable support needed to obtain any required regulatory
approvals of this Agreement. In addition, each of LIPA and GENCO agree to
provide all necessary information in its possession that is reasonably requested
by the other Party for future regulatory filings.

                          ARTICLE 6 - STORM RESTORATION

6.1. Storm Declaration. A storm restoration condition shall be deemed to exist
when LIPA requests GENCO personnel to assist in restoring storm caused damage to
the T&D System. LIPA shall promptly notify GENCO of a storm restoration
condition.

6.2. Responsibility During Storm Condition. Personnel designated by GENCO (in
its sole discretion) will be made available to perform storm restoration duties
for LIPA upon LIPA's request, as contemplated above, provided that GENCO will
follow the same storm restoration practice currently followed by GENCO to make
GENCO employees available. LIPA will pay for the incremental costs incurred by
GENCO in providing storm restoration services in accordance with this Agreement;
personnel costs will be paid in accordance with GENCO's personnel salary scale
(including any overtime premiums) consistent with the personnel salary cost
basis used to establish fixed operation and maintenance costs in the Capacity
Charge in accordance with this Agreement. LIPA will also coordinate and pay any
incremental costs related to storm restoration training (e.g. car lease,
equipment, meals, etc.). This cost will


                                     - 12 -
<PAGE>


be reimbursed by LIPA either through an adjustment in the Monthly Variable
Charge as contemplated herein or through another mutually agreed-upon method.

                    ARTICLE 7 - ENVIRONMENTAL CONSIDERATIONS

7.1. Environmental Compliance. GENCO shall comply in all material respects with
all Applicable Laws including all applicable laws regulating or affecting any
spill, discharge, or release of any Hazardous Waste into or upon any of its
land, air, surface water, ground water, or improvements located thereon and
shall take all action required (including any investigation, study, sampling and
testing, cleanup, removal and remediation) by any Governmental Authority having
jurisdiction to remedy any notice of violation or non-compliance issued by such
entity, with regard to air emissions, water discharges, noise emissions,
hazardous discharges, or any other environmental, health, or safety problems
affecting the Generating Facilities. All costs, including those related to any
legal or regulatory proceedings, related to such compliance will be reimbursed
by LIPA through an adjustment in the Monthly Capacity Charge and Monthly
Variable Charge as contemplated herein. GENCO's liability to LIPA for
nonperformance of this Section 7.1 shall be limited to liabilities under Article
19, and its recoverability from LIPA for environmental compliance to the extent
allowed under Article 8 and Appendix A shall be limited to the extent addressed
in Article 19.

                        ARTICLE 8 - PURCHASE PRICE AND PAYMENT

8.1. Price Components. Except as otherwise specifically provided in this
Agreement, the prices LIPA will pay to GENCO for Electricity delivered pursuant
to this Agreement will be those prices calculated as set forth in Appendix A and
Appendix B. During the Term of this Agreement, LIPA will make monthly payments
to GENCO consisting of an amount equal to: (i) the Monthly Capacity Charge, (ii)
the Monthly Variable Charge, (iii) the Monthly Ancillary" Service Charge, (iv)
the Monthly Capacity Payment Adjustment Charge and (v) the Monthly Variable
Adjustment Charge.

         8.1.1. Monthly Capacity Charge. The Monthly Capacity Charge is 1/12 of
the annual Capacity Charge as set forth in Appendix A. The annual Capacity
Charge will compensate GENCO for its fixed costs of generating Electricity from
the Generating Facilities (including associated common costs) including: (a)
return on investment, and depreciation for the undepreciated cost of the
Generating Facilities, (b) completed capital additions approved in accordance
with Article 9 including Allowance for Funds Used During Construction (AFUDC)
(c) insurance, (d) income taxes (federal, state, local, net or gross), (e)
property and all other taxes, (f) fixed operations and maintenance costs,
including an allowance for scheduled major maintenance and overhauls, (g)
research and development costs and (h) administration costs. Generation charges
will not be increased as a result of any step-up in the book or tax basis of the
assets. In establishing the depreciation schedule for the recovery of the costs
of existing


                                     - 13 -
<PAGE>


plant and approved capital additions thereto, the Parties will commission an
engineering and economic depreciation study which reflects the age, condition,
and market circumstances which influence the remaining economic lives of the
Generating Facilities. The results of such depreciation study will be taken into
account in determining the proper depreciation schedule and resulting
depreciation charges to be included in the filing of the FERC regulated Capacity
Charge component of the formula rate described in this Article 8. The annual
Capacity Charge will exclude demolition costs, environmental remediation costs
related to demolition and site restoration costs in excess of amounts recovered
in GENCO's retail rates applicable as of March 1997 and recovered as part of
GENCO's depreciation charge, and charges for starts, fired hours of operation
and fuel swaps as defined in Appendix B after meeting the threshold levels
established in Appendix B.

         8.1.2. Monthly Variable Charge. The Monthly Variable Charge will be
based on the variable operation and maintenance costs as set forth in Appendix
A, multiplied by the actual MWh of operation of the Generating Facilities. The
variable operation and maintenance costs include those materials, supplies and
maintenance costs, environmental fees or charges, and labor costs, if any, which
vary directly with the amount of energy generated. Variable operation and
maintenance costs do not include charges for fixed operation and maintenance
costs nor charges for starts, fired hours of operation and fuel swaps defined in
Appendix B after meeting threshold levels established in Appendix B. Fuel
required to operate the Generating Facilities for the purpose of providing
energy will be provided in accordance with the provisions of the Energy
Management Agreement and, accordingly, there will be no charge for fuel.

         8.1.3. Monthly Ancillary Service Charge. LIPA will pay for any costs
incurred by GENCO in providing Ancillary Services to LIPA, if any such services
are required by LIPA which are not otherwise compensated by LIPA through the
Monthly Capacity Charge or the Monthly Variable Charge or otherwise, such charge
defined as the "Monthly Ancillary Service Charge." Fuel, if any, required to
operate the Generating Facilities for the purpose of providing Ancillary
Services will be provided in accordance with the provisions of the Energy
Management Agreement and, accordingly, there will be no charge for fuel.

         8.1.4. Monthly Capacity Payment Adjustment Charge. The Monthly Capacity
Payment Adjustment Charge will provide for the payment by LIPA to GENCO of
non-variable related expenses net of insurance proceeds, that can not be planned
for with any certainty and are outside the control of GENCO, including
extraordinary uninsured damage from storms and other acts of God, catastrophic
failure of one or more units of a Generating Facility, and environmental
compliance (for events that were not planned for and not of a type covered by
any contingency in the applicable budget), provided that all capital
expenditures are subject to approval by LIPA as provided in Article 9.4.
Incremental costs associated with the retirement of a Generating Facility, as
set forth in Section 8.3, or through a Ramp-Down of a Generating Facility in
accordance with Article 11 of this Agreement may also be included in the Monthly
Capacity Payment Adjustment Clause.


                                     - 14 -
<PAGE>


         8.1.5. Monthly Variable Payment Adjustment Charge. The Monthly Variable
Payment Adjustment Charge will provide for the payment of starts, fired hours of
operation, and fuel swaps defined in Appendix B after meeting the threshold
levels established in Appendix B. Charges incurred for starts, fired hours of
operation and swaps after meeting the threshold levels will be billed in total
to LIPA by GENCO immediately following the month incurred in accordance with
Section 8.5.

         8.1.6. NOx and SOx Emission Credit. GENCO shall apply to the Generating
Facilities all NOx, SOx and other air emission credits owned by GENCO or
attributable to the Generating Facilities, the cost of which to LIPA shall be
included at cost without markup in the Monthly Capacity Charge to the extent
such costs are fixed costs and in the Monthly Variable Charge to the extent such
costs vary with levels of generation. Sixty-seven percent (67%) of any sale or
other disposition of emission credits which are excess to the needs of the
operation of the Generating Facilities shall be credited to the annual charges
to LIPA under the Agreements. GENCO will receive thirty-three percent (33 %) of
the net proceeds of any such sale or disposition of emission credits. Parent
shall provide LIPA with notice of its intention to sell or otherwise dispose of
emission credits in order to allow LIPA sufficient time to submit a bid for such
credit, if it so chooses.

8.2. Power Plant Electric Use. It is recognized and agreed that the Generating
Facilities require electricity for operating auxiliary systems. This electricity
shall be provided by the specific generating units located at the appropriate
Generating Facilities and/or from LIPA's T&D System. Any charges from LIPA to
GENCO for this auxiliary power from LIPA's T&D System, will be charged to GENCO
at non-discriminatory rates, and such charges will be added, without any markup
thereto, to the Monthly Variable Charge.

8.3. Generating Facility Major Failure. LIPA and GENCO may mutually agree to
cease operating any Generating Facility, due to a major failure of such
Generating Facility that the Parties mutually agree is uneconomic to repair.
Upon mutual agreement, the Parties may elect to either mothball or retire such a
Generating Facility.

In the event the Parties mutually agree to mothball such a Generating Facility,
with or without preserving the operability of such Generating Facility, LIPA
will continue to pay the associated Capacity Charge which will reflect any net
cost reduction achieved from the mothballing of such Generating Facility.

In the event the Parties mutually agree that a Generating Facility should be
retired and decommissioned, LIPA will pay GENCO the remaining unrecovered net
plant cost of such Generating Facility, including any unreimbursed approved
capital expenditures that have been made and reasonably incurred demolition
costs, site restoration costs and any other costs associated with retiring such
Generating Facility net of site restoration costs recovered in rates together
with accumulated interest on reserves carried by Long Island Lighting Company
for such site restoration costs, if any, over the life of such Generating
Facility. LIPA will have the


                                     - 15 -
<PAGE>


option to make such payment to GENCO immediately following the decision to
retire such Generating Facility or agree to a payment schedule over the
remaining term of the Agreement, including interest through an adjustment to the
Monthly Capacity Payment Adjustment Clause.

8.4. Incentives/Disincentives. The incentive/disincentive payments contemplated
by Appendix F in this Agreement will be calculated and billed separately from
the charges established in Appendix A and B no less frequently than annually.

8.5. Payment. GENCO will submit a monthly invoice to LIPA for the Monthly
Capacity Charge by the first (1st) Business Day of the month for capacity
provided during the month, consistent with the provisions in Section 8.1. GENCO
will also submit monthly invoices to LIPA for the Monthly Variable Charge, and
any other charges that may be required, consistent with this Article 8, by the
fifth (5th) Business Day following the month of service, consistent with the
provisions in this Article. Payment of the Monthly Capacity Charge invoiced
amounts shall be due and payable by LIPA on the later of the tenth (10th)
Business Day of the month or ten (10) Business Days after LIPA receipt of the
monthly invoice. Payment of the Monthly Variable Charge invoiced amounts and any
other invoices shall be due and payable by LIPA on the later of the first
Business Day following the nineteenth (19th) of the month or ten (10) Business
Days of LIPA receipt of such invoices.

All such payments shall be made in the form of immediately available funds by
wire transfer to a bank or financial institution specified by GENCO or in such
other form as may be reasonably requested by GENCO. The wired funds will be
deemed timely paid if received by the close of business on or before the due
date of such payment.

8.6 Late Payment. Any invoiced amount not paid by LIPA by the due date will bear
interest at the Base Interest Rate.

                               ARTICLE 9 - BUDGETS

9.1. Budget Preparation.

         9.1.1. Initial Capacity and Variable Charge Determination. Not less
than a mutually agreed upon number of days prior to (a) the Closing Date and (b)
the commencement of each successive five year period thereafter during the Term
of this Agreement, GENCO shall prepare and submit to LIPA for review and
approval a proposed Five Year Budget Plan, which shall provide details on the
fixed and variable costs of operating the GENCO Generating Facilities, as set
forth in Sections 8.1.1 and 8.1.2 and as described by Appendix A. The initial
such budget, upon approval by LIPA, shall establish the Monthly Capacity Charge
and Monthly Variable Charge for the first year of the five year period, which
forms the basis for adjustment for subsequent Contract Years in the five year
period in accordance with Appendix A. The budget plan for the first Contract
Year of the first Five Year Budget Plan will be based upon the


                                     - 16 -
<PAGE>


agreed upon disaggregated generation cost elements relating to the Generating
Facilities (including associated common costs) and contained in the proposed
1997 rate year budget in the GENCO 1996 rate case filing with the New York State
Public Service Commission, updated for known changes in facts and circumstances,
adjusted to the First Contract Year and as set forth in Appendix A. Such budget
shall also consider actual historical results prepared on a comparable
disaggregated basis for 1996 and thereafter up to the date of adoption of such
budget. For subsequent Contract Years the Monthly Capacity Charge and Monthly
Variable Charge will be based upon the previous year as adjusted in accordance
with indices and approved capital improvement budgets as set forth in Appendix
A.

         9.1.2. The Year Capital Improvement Budgets. GENCO shall annually
prepare and submit to LIPA a rolling Five Year Capital Improvement Budget for
incremental capital expenditures and associated rate adjustments for LIPA review
and approval. Each Five Year Budget Plan shall consist of five individual
Contract Year Budget Plans.

9.2. Budget Review. Not more than a mutually agreed upon number of days
subsequent to LIPA receipt of the proposed Five Year Budget Plan and/or rolling
Five Year Capital Improvement Budget from GENCO, LIPA shall provide GENCO with
any requested changes, additions, deletions or revisions. The GENCO
Representative and LIPA Representative will employ reasonable efforts to agree
upon a final Five Year Capital Improvement Budget by a mutually agreed upon
number of days before the commencement of the initial Contract Year and to
approve the first year of the rolling Five Year Capital Improvement Budget a
mutually agreed upon number of days prior to the commencement of each Contract
Year. Such approved budget for the initial Contract Year (a "Contract Year
Budget") shall be effective throughout the Contract Year, subject to
modifications as provided in Section 9.4. It is the intent of the Parties that
the amounts provided in the Five Year Budget Plan and rolling Five Year Capital
Improvement Plan for operation and maintenance expenses and capital expenditures
will be sufficient to provide GENCO (or its affiliate, as the case may be) no
less of an opportunity to maintain the DMNC, Availability and Heat Rate target
levels (as defined in Appendix F) than GENCO has at the execution of this
Agreement, and to otherwise maintain the Generating Facilities in good working
order, consistent with Prudent Utility Practices, provided that LIPA shall have
the final right to determine whether GENCO should proceed with specific capital
projects. In the event that LIPA does not approve amounts for operating and
maintenance expenses and capital expenditures that provide GENCO (or its
affiliate, as the case may be) with the same opportunity to maintain the DMNC,
Availability and Heat Rate target levels (as defined in Appendix F) as GENCO has
at the execution of this Agreement, such target levels shall be equitably
adjusted.

9.3 Failure To Adopt Contract Year Budget. If the Parties are unable to reach
agreement concerning all or any portion of the Contract Year Budget for the
initial Contract Year of a Contract Year Budget Plan or the first year of the
Five Year Capital Improvement Budget as contemplated in Section 9.2, those
portions of the Contract Year Budget that are in dispute for


                                     - 17 -
<PAGE>


such Contract Year shall be resolved in a proceeding before the FERC. Those
portions of the Contract Year Budget not in dispute shall become effective.

9.4. Capital Improvement Budget Performance. GENCO will provide to LIPA, on a
quarterly basis, a report of actual total capital improvement costs versus the
approved capital expenditures in the Five Year Capital Improvement Budget. GENCO
will prepare a detailed explanation outlining variations of more than ten (10)
percent and one million dollars ($1,000,000) from the Five Year Capital
Improvement Budget. GENCO will promptly notify LIPA when an event occurs, or is
anticipated to occur, which would result in any required unbudgeted capital
expenditures. As soon as practical, GENCO will provide an explanation and
estimate of such unforeseen incremental costs, as well as a proposal for
modification of the applicable Monthly Capacity Charge to recover such costs.
LIPA will review and respond to such explanation and Capacity Charge
modification proposal within thirty (30) days after receipt. If the parties are
unable to reach agreement, this dispute shall be resolved by a final and
non-appealable order of FERC in a proceeding under the Federal Power Act.

                     ARTICLE 10 - INCENTIVES/DISINCENTIVES

10.1. Incentives/Disincentives. Four performance incentives/disincentives are
established under this Agreement: DMNC, Availability, Hat Rate, and Property
Taxes. Each of these incentives/disincentives mechanisms are set forth in
Appendix F.

                         ARTICLE 11 - CAPACITY RAMP DOWN

11.1. Capacity Ramp Down Option. Beginning in Year Seven, LIPA may determine to
reduce ("Ramp Down") the amount of capacity purchased from GENCO. In such an
event, LIPA shall immediately reimburse GENCO for the Capacity Charges in the
amount set forth below which would have been recovered from LIPA over the
remaining portion of the original term of this Agreement.

The Ramp Down will be an aggregate potential reduction amount of no greater than
1500 MW. The Ramp Down schedule is as follows:


                                     - 18 -
<PAGE>


   ==============   =========   ======================   ======================
   Capacity Block      Year*            Units              Approximate Summer
                                                             Capacity DMNC
   ==============   =========   ======================   ======================
         1             7-9          Far Rockaway 4              300 MW
                                    Glenwood 4 & 5       
   --------------   ---------   ----------------------   ----------------------
         2            10-11       E.F.Barrett l & 2             380 MW
   --------------   ---------   ----------------------   ----------------------
         3            12-13       Pt.Jefferson 3 & 4            380 MW
   --------------   ---------   ----------------------   ----------------------
         4            14-15         Northport l                 380 MW
   ==============   =========   ======================   ======================
*Year Seven begins on the sixth anniversary of the Closing Date.

If economic conditions change during the term of this Agreement, the order of
the above Ramp Down schedule may be changed if mutually agreed upon by the
Parties. The Ramp Down amount shall be for the full amount of the capacity in
each agreed upon capacity block as set forth above.

If LIPA exercises this option in years 7 through 10 of this Agreement, LIPA will
immediately pay GENCO 100 percent of the present value, at the time the Ramp
Down option is exercised, of all the related Capacity Charges, that it would
have otherwise received for that capacity block of unit(s) which was ramped
down, for the remainder of the term of this Agreement, adjusted for the removal
of net salvage as used in the depreciation calculation. GENCO will be entitled
to these payments regardless of the future disposition of the Generating
Facilities. GENCO will have the responsibility for all costs for demolition,
environmental remediation and site restoration.

If LIPA exercises this option in subsequent years, the recovery percentage will
be reduced for such capacity block(s) through the end of the term of this
Agreement as follows:

          =========================  ========================
            Year Option Exercised      Fixed Cost Reduction  
          =========================  ========================
                     11                       12.5%
          -------------------------  ------------------------
                     12                       25.0%
          -------------------------  ------------------------
                     13                       37.5%
          -------------------------  ------------------------
                     14                       50.0%
          -------------------------  ------------------------
                     15                       62.5%
          =========================  ========================

If LIPA exercises this option, GENCO will be entitled to the fixed cost reduced
by the above percentages regardless of the future disposition of any released
capacity. The present value will be determined using GENCO's weighted cost of
capital used in the Capacity Charge to LIPA


                                     - 19 -
<PAGE>


GENCO may use any capacity released pursuant to this option to bid on new LIPA
capacity requirements or on LIPA capacity requirements to replace other Ramp
Down capacity. If GENCO wins such bid, it will be paid its bid price.

If GENCO continues to operate the ramped down unit, GENCO will use reasonable
efforts to market the released capacity. Allocation of profits from Off System
Sales of capacity and energy from non-ramped down and ramped down units during
the term of this Agreement shall be shared based on the following schedule:

            ============================  =====================
              Non Ramped Down Capacity      Ratio: LIPA/GENCO
            ----------------------------  ---------------------
                   Years 1 to 15               67% / 33%
            ----------------------------  ---------------------
               Ramped Down Capacity
            ----------------------------  ---------------------
                   Years 7 to 10               67% / 33%
            ----------------------------  ---------------------
                     Year 11                   60% / 40%
            ----------------------------  ---------------------
                     Year 12                   53% / 47%
            ----------------------------  ---------------------
                     Year 13                   46% / 54%
            ----------------------------  ---------------------
                     Year 14                   39% / 61%
            ----------------------------  ---------------------
                     Year 15                   33% / 67%
            ============================  =====================
         
The profits for any capacity sales from such Ramp Down capacity will be based on
all costs required for such sale that have not been recovered by GENCO. Such
recovery is understood to include any prepayment by LIPA of fixed O&M costs. If
LIPA exercise of this option results in operational inefficiencies at Northport,
the Capacity Charges will be adjusted to reflect demonstrable cost increases due
to such inefficiencies.

                        ARTICLE 12 - TERM and TERMINATION

12.1. Term. The Term of this Agreement shall commence on the Closing Date and,
except as provided in Article 4 and as otherwise provided herein, shall remain
in full force and effect for an initial term of fifteen (15) years from such
Closing Date. At the end of the Term of this Agreement, LIPA may renew this
Agreement, for all capacity upon which it has not exercised its Ramp Down
option, under substantially the same terms and conditions as set forth herein,
including but not limited to the continuation of a Ramp Down option. This
Agreement (other than Article 4) shall terminate upon the purchase of the
Generating Facilities by LIPA under the Generation Purchase Right Agreement
attached as Exhibit D to the Merger Agreement.


                                     - 20 -
<PAGE>


12.2. Termination For Cause by GENCO. GENCO shall have the right to terminate
this Agreement for cause after an Event of Default determined in accordance with
the provisions of this Section 12.2 shall have occurred.

         12.2.1 Events of LIPA Default Defined. Each of the following shall
constitute an Event of Default on the part of the LIPA for which GENCO may
terminate this Agreement upon compliance with the notice and cure provisions set
forth below:

                  (1) Failure to Pay. The failure of LIPA to pay undisputed
         amounts owed to GENCO under this Agreement within 90 days of such
         amounts having become due.

                  (2) Failure to Comply with Agreement. The failure or refusal
         by LIPA substantially to perform any material obligation under this
         Agreement unless such failure or refusal is excused by Force Majeure
         except that no such failure or refusal to pay or perform in clauses (1)
         and (2) of this Section 12.2(A) shall constitute an Event of Default
         giving GENCO the right to terminate this Agreement for cause under this
         Section unless:

                           (a) GENCO has given prior written notice to LIPA
                  stating that a specified failure or refusal to perform exists
                  which will, unless corrected, constitute a material breach of
                  this Agreement on the part of LIPA and which will, in its 
                  opinion, give GENCO a right to terminate this Agreement for
                  cause under this Section unless such default is corrected
                  within a reasonable period of time, and

                           (b) LIPA has neither challenged in an appropriate
                  forum GENCO's conclusion that such failure or refusal to
                  perform has occurred or constitutes a material breach of this
                  Agreement nor corrected or diligently taken steps to correct
                  such default within a reasonable period of time but not more
                  than 60 days from the date of the notice given pursuant to
                  clause (a) of this subsection (but if LIPA shall have
                  diligently taken steps to correct such default within a
                  reasonable period of time, the same shall not constitute an
                  Event of Default for as long as LIPA is continuing to take
                  such steps to correct such default).

12.3. Termination For Cause by LIPA. LIPA shall have the right to terminate this
Agreement for cause after an Event of Default determined in accordance with the
provisions of this Section 12.3 shall have occurred.

         12.3.1 Events of GENCO Default Defined. (1) Events of Default Not
Requiring Cure Opportunity for Termination. Each of the following shall
constitute an Event of Default on the part of GENCO for which LIPA may terminate
this Agreement without any requirement of cure opportunity:

                  (a) Change of Control of GENCO. Change of Control of GENCO or
         the Guarantor has occurred; provided, however, that the combination
         effectuated under the


                                     - 21 -
<PAGE>


         Merger Agreement shall not constitute a Change of Control of GENCO for
         purposes of this provision.

                  (b) Voluntary Bankruptcy. The written admission by GENCO or
         the Guarantor that it is bankrupt, or the filing by GENCO or the
         Guarantor of a voluntary petition under the Federal Bankruptcy Code, or
         the consent by GENCO or the Guarantor to the appointment by a court of
         a receiver or trustee for all or a substantial portion of its property
         or business, or the making by GENCO or the Guarantor of any arrangement
         with or for the benefit to its creditors involving an assignment to a
         trustee, receiver or similar fiduciary, regardless of how designated,
         of all or a substantial portion of GENCO's or the Guarantor's property
         or business.

                  (c) Involuntary Bankruptcy. The final adjudication of GENCO or
         the Guarantor as bankrupt after the filing of an involuntary petition
         under the Federal Bankruptcy Code, but no such adjudication shall be
         regarded as final unless and until the same is no longer being
         contested by GENCO or the Guarantor nor until the order of the
         adjudication shall be regarded as final unless and until the same is no
         longer being contested by GENCO or the Guarantor nor until the order of
         the adjudication is no longer appealable.

                  (d) Credit Enhancement. Failure of GENCO to supply, maintain,
         renew, extend or replace the credit enhancement required under Article
         18 hereof in the event there is a Material Decline in the Guarantor's
         Credit Standing, as defined in Section 18.1.2. hereof.

                  (e) Letter of Credit Draw. Failure of GENCO to supplement,
         replace or cause to be reinstated the letter of credit as described in
         Section 18.1.3. hereof within 30 days following draws equal to, in the
         aggregate, 50% of the face value thereof.

                  (2) Events of Default Requiring Cure Opportunity for
         Termination. Each of the following shall constitute an Event of Default
         on the part of GENCO for which the LIPA may terminate this Agreement
         upon compliance with the notice and cure provisions set forth below:

                  (a)      Failure to Comply with Agreement. The failure or
                           refusal by GENCO to substantially perform any
                           material obligation under this Agreement except that
                           no such failure or refusal shall constitute an Event
                           of Default giving LIPA the right to terminate this
                           Agreement for cause under this subsection unless:

                                    (i) LIPA has given prior written notice to
                           GENCO or the Guarantor, as applicable, stating that a
                           specified failure or refusal to perform exists which
                           will, unless corrected, constitute a material breach


                                     - 22 -
<PAGE>


                           of this Agreement on the part of GENCO or the
                           Guaranty on the part of the Guarantor and which will,
                           in it opinion, give LIPA a right to terminate this
                           Agreement for cause under this Section unless such
                           default is corrected within a reasonable period of
                           time, and

                                    (ii) GENCO or the Guarantor, as applicable,
                           has neither challenged in an appropriate forum the
                           LIPA conclusion that such failure or refusal to
                           perform has occurred or constitutes a material breach
                           of this Agreement nor corrected or diligently taken
                           steps to correct such default within a reasonable
                           period of time, but not more than 60 days, from
                           receipt of the notice given pursuant to clause (i) of
                           this subsection (but if GENCO or the Guarantor shall
                           have diligently taken steps to correct such default
                           within a reasonable period of time, the same shall
                           not constitute an Event of Default for as long as
                           GENCO or the Guarantor is continuing to take such
                           steps to correct such default).

12.4. Procedure For Termination For Cause. (A) Two-Year Notice. If any Party
shall have a right of termination for cause in accordance with either Section
12.2 or Section 12.3, the same may be exercised by notice of termination given
to the Party in default at least two years prior to (or, in the case of a
bankruptcy or insolvency default or a Change of Control, simultaneously with or,
in the case of an Event of Default specified in clause (d) or (e) of Section
12.3.1 hereof, six months) the date of termination specified in such notice (the
"Termination Date").

12.5. Non-Binding Mediation; Arbitration.

         (a) Dispute Resolution. Any dispute arising out of or relating to this
Agreement shall be resolved in accordance with the procedures specified in this
Section, which shall constitute the sole and exclusive procedures for the
resolution of such disputes.

         (b) Negotiation and Non-Binding Mediation. The parties agree to use
their best efforts to settle promptly any disputes or claims arising out of or
relating to this Agreement through negotiation conducted in good faith between
executives having authority to reach such a settlement. Either party hereto may,
by written notice to the other party, refer any such dispute or claim for advice
or resolution by mediation by an Independent Engineer, financial advisor or
other suitable mediator. The parties shall mutually agree on the selection of
such mediator. If the parties are unable to agree, the panics shall each
designate a qualified mediator who, together, shall choose the mediator for the
particular dispute or claim. If the mediator is unable, within 30 days of such
referral, to reach a determination as to the dispute that is acceptable to the
parties hereto, the matter shall be referred to applicable Legal Proceedings.


                                     - 23 -
<PAGE>


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

         (c) Arbitration. Any dispute arising out of or relating to this
Agreement or the breach, termination, or validity thereof, except for a
termination due to a Change in Control or due to a bankruptcy or insolvency or a
failure to provide, renew, reinstate or replace the credit enhancement required
pursuant to Section 18.1 or a dispute concerning the charging or establishment
of rates under this Agreement which dispute has not been resolved by a
negotiation or mediation as provided in subsection (B) hereof within 30 days
from the date that either negotiations or mediation shall have been first
requested, shall be settled by arbitration before three independent and
impartial arbitrators (the "Arbitrators") in accordance with the then current
rules of the American Arbitration Association, except to the extent such rules
are inconsistent with any provision of this Agreement, in which case the
provisions of this Agreement shall be followed, and except that the arbitrations
under this Agreement shall not be administered by the American Arbitration
Association. The Arbitrators shall be (a) independent of the parties and
disinterested in the outcome of the dispute, provided that residents of Long
Island shall not be deemed to be interested merely by virtue of their residence
on Long Island, (b) attorneys, accountants, investment bankers, commercial
bankers or engineers familiar with contracts governing the operation of electric
utility assets, and (c) qualified in the subject area of the issue in dispute.
The Arbitrators shall be chosen by the parties, with each party choosing one
arbitrator and those arbitrators choosing the thin! Arbitrator. Judgment on the
award rendered by the Arbitrators may be entered in any court in the State of
New York having jurisdiction thereof. If either party refused to participate in
-- faith in the negotiations or mediation proceedings described in subsection
12.5(B) hereof, the other may initiate arbitration at any time after such
refusal without waiting for the expiration of the applicable time period. Except
as provided in subsection 12.5(D) hereof relating to provisional remedies, the
Arbitrators shall decide all aspects of any dispute brought to them including
attorney disqualification and the timeliness of the making of any claim.

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

         (e) Awards. The Arbitrators shall have no authority to award punitive
damages or any other damages aside from the prevailing party's actual and
consequential damages plus interest at the Base Interest Rate from the date such
damages were incurred. The Arbitrators shall not have the authority to make any
ruling, finding, or award that does not conform to the terms and conditions of
this Agreement. The Arbitrators may award reasonble attorneys' fees and costs of
the arbitration. The Arbitrator's award shall be in writing and shall be set
forth the factual and legal bases for the award.


                                     - 24 -
<PAGE>


         (f) Information Exchange. The Arbitrators shall have the discretion to
order a prehearing exchange of information by the parties, including, without
limitation, the production of requested documents, the exchange of summaries of
testimony of proposed witnesses, and the examination by disposition of parties.
The parties hereby agree to produce all such information as ordered by the
Arbitrators and shall certify that they have provided all applicable information
and that such information is true, accurate and complete.

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

                   ARTICLE 13 - DESIGNATION OF REPRESENTATIVES

13.1. LIPA Representative. Within thirty (30) Business Days after the execution
of this Agreement, LIPA shall select a Representative (the "LIPA
Representative"). The LIPA Representative will act for and on behalf of LIPA on
all matters concerning this Agreement for which LIPA has authorized such agent
to act. LIPA will advise GENCO as to the scope of such authorization. In all
such matters, LIPA shall be bound, to the extent permitted by Applicable Law by
the written communications, directions, requests and decisions made by the LIPA
Representative. LIPA shall promptly notify GENCO in writing of LIPA
Representative selection and any subsequent replacement(s).

13.2. GENCO Representative. Within thirty (30) Business Days after the execution
of this Agreement, GENCO will select a Representative (the "GENCO
Representative") subject to LIPA approval. The GENCO Representative will act for
and on behalf of GENCO in all matters concerning this Agreement for which GENCO
has authorized such agent to act. In all such matters, GENCO shall be bound by
the written communications, directions, requests and decisions made by GENCO
Representative. GENCO will advise LIPA as to the scope of such authorization.
GENCO shall promptly notify LIPA in writing of GENCO's Representative selection
and any subsequent replacement(s).

                              ARTICLE 14 - METERING

14.1. Electric Metering.

         14.1.1. Electric Metering Equipment. If the existing meters are
inadequate to meet the electricity measuring requirement set forth below, GENCO
at its own expense (but subject to cost recovery provision of Article 8 and 9)
shall procure, own, install, test, operate and maintain industry standard
revenue meters and instrument transformers; shall install metering mounting
equipment; shall install and maintain a dedicated datalink for telemetry
purposes to measure electricity Delivered to LIPA by GENCO. The aforementioned
equipment (the "Metering Equipment") shall be procured, tested, installed,
operated and maintained by GENCO, or


                                     - 25 -
<PAGE>


GENCO's designee, in accordance with Prudent Utility Practice. LIPA shall not
breach the integrity of the wiring or instrument transformers for any reason.
LIPA, at its own expense, may own, install and maintain other meters and
associated equipment for purposes of measuring Electricity Delivered from GENCO.
("LIPA's Metering Equipment").

         14.1.2 Testing of Metering Equipment. GENCO shall test the Metering
Equipment for accuracy every two (2) years or at any time within thirty (30)
days after a written request by LIPA if LIPA reasonably believes the metering
measurement accuracy of the Metering Equipment is inaccurate by two (2) percent.
At LIPA's option, such tests may be witnessed by a LIPA representative. Metering
measurement accuracy between ninety eight (98) and one hundred and two (102)
percent shall be deemed acceptable. In the event any Metering Equipment is found
outside the acceptable limits of accuracy specified in the prior sentence, it
shall be immediately repaired, calibrated or replaced. Upon completion of any
examination, maintenance, repair, calibration or replacement of any Metering
Equipment, such equipment shall be, sealed by GENCO.

         14.1.3 Meter Reading. Meter readings shall be conducted every month or
as otherwise mutually agreed by the Parties.

         14.1.4 Metering Inaccuracies. When, as the result of a test pursuant to
section 14.1.2, the Metering Equipment is found to be inaccurate by more than
two (2) percent or the Metering Equipment is otherwise functioning improperly,
the correct amount of Electricity Delivered to LIPA for the period during which
such inaccurate measurements were made, shall be determined as follows:

                  (a) GENCO and LIPA may mutually agree to use the readings of
         LIPA Metering Equipment, if any, to calculate the correct amount of
         Electricity Delivered. LIPA shall furnish the most recent test and
         calibration documentation for LIPA metering equipment. If LIPA's meters
         are utilized, an adjustment for transmission and transformation losses
         shall be made to such meter readings, as applicable;

                  (b) If LIPA's Metering Equipment has not been installed, or if
         it is found to be unacceptable, then the Parties shall jointly prepare
         an estimate of the correct reading on the basis of available
         information, including the assumption that if the duration of the
         metering inaccuracy cannot be determined, such duration shall be deemed
         to have persisted for fifty percent (50%) of the time between the last
         meter reading and the discovery of the inaccuracy.

14.2. Gas Metering

         14.2.1. Gas Metering Equipment. If the existing meters are inadequate
to meet the gas measuring requirements set forth below, GENCO at its own expense
(but subject to the cost recovery provision of Articles 8 & 9 shall procure,
own, install, operate and maintain industry standard revenue grade meters;
install, operate and maintain, at the Receipt Points, a dedicated


                                     - 26 -
<PAGE>


datalink for telemetery purposes to measure gas fuel delivered by GENCO or other
gas suppliers. The aforementioned equipment (the "Gas Metering Equipment")
shall be installed, operated and maintained by GENCO, or GENCO's designee, in
accordance with prudent gas utility practice. LIPA shall not breach the
integrity of the wiring or piping for any reason. LIPA, at its own expense, may
own, install and maintain other meters and associated equipment for purposes of
measuring gas Delivered from GENCO. ("LIPA's Gas Metering Equipment").

         14.2.2. Testing of Self Checking Gas Metering Equipment. GENCO shall
test the Metering Equipment for accuracy at any time within thirty (30) days
after a written request by LIPA, if LIPA reasonably believes the metering
measurement accuracy of the Metering Equipment is inaccurate by two (2) percent.
At LIPA's option, such tests shall be witnessed by LIPA representative. Metering
measurement accuracy between ninety eight (98) and one hundred and two (102)
percent shall be deemed acceptable. In the event any Metering Equipment is found
outside the acceptable limits of accuracy specified in the prior sentence, it
shall be immediately repaired, recalibrated or replaced. Upon completion of any
examination, maintenance, repair, recalibration or replacement of any Metering
Equipment, such equipment shall be, sealed by GENCO.

         14.2.3. Testing of Non Self Checking Gas Metering Equipment. At LIPA
expense, GENCO shall test the Metering Equipment for accuracy on a regular
schedule that conforms with industry revenue metering practices, and which is
prudent to maintain acceptable metering accuracy or at any time within thirty
(30) days after a written request by LIPA, if LIPA reasonably believes the
metering measurement accuracy of the Metering Equipment is inaccurate by two (2)
percent. LIPA's option, such tests shall be witnessed by LIPA representative.
Metering measurement accuracy between ninety eight (98) and one hundred and two
(102) percent shall be deemed acceptable. In the event any Metering Equipment is
found outside the acceptable limits of accuracy specified in the prior sentence,
it shall be immediately repaired, recalibrated or replaced at the expense of
LIPA. Upon completion of any examination, maintenance, repair, recalibration or
replacement of any Metering Equipment, such equipment shall be, sealed by GENCO.

         14.2.4. Gas Meter Reading. Meter readings shall be conducted every
month, or as otherwise mutually agreed by the Parties.

         14.2.5. Gas Metering Inaccuracies. When, as the result of a test
pursuant to section 14.2.2 and/or 14.2.3, the Gas Metering Equipment is found to
be inaccurate by more than two (2) percent or the Gas Metering Equipment is
otherwise functioning improperly, the correct amount of Gas delivered to LIPA
for the period during which such inaccurate measurements were made, shall be
determined as follows:

                  (a) GENCO and LIPA may mutually agree to use the readings of
         LIPA's Metering Equipment, if any, to calculate the correct amount of
         Gas Delivered. LIPA shall furnish the most recent test and calibration
         documentation for LIPA metering equipment. If


                                     - 27 -
<PAGE>


         LIPA's meters are utilized, an adjustments for supercompressibility
         (following AGA standards) and base pressure should be made to such
         meter readings, as applicable.

                  (b) If LIPA Metering Equipment has not been installed, or if
         it is found to be inaccurate, then the Parties shall jointly prepare an
         estimate of the correct reading on the basis of available information,
         including the assumption that if the duration of the metering
         inaccuracy cannot be determined, such duration shall be deemed to have
         persisted for fifty percent (50%) of the time between the last meter
         reading and the discovery of the inaccuracy.

14.3. Oil Fuel Measurement. GENCO will perform monthly Fuel oil tank gauging to
determine the amount of No. 6 Fuel oil, No. 2 Fuel oil and kerosene in storage
at each Generating Facility. The gauging will occur on a pre-determined date
prior to the end of the month. Usage from the gauging date until the last
calendar day of the month will be calculated based on the average monthly Heat
Rate at each Generating Facility and the actual generation between the gauging
date and the end of such month. This calculated amount will be subtracted from
the oil in storage on the gauging day to determine the oil in storage on the
last day of the month. Fuel oil deliveries during each month will be measured at
the time of delivery. The difference between the oil in storage at the beginning
and end of the month will be added to the oil deliveries received during the
month to calculate the net oil consumed for the month, in accordance with the
current methodology of calculating Generating Facility Fuel oil consumption.
Changes in unit operation may necessitate mutually agreed to modifications to
this procedure.

                              ARTICLE 15 - REPORTS

15.1. Reports. Twenty Business Days following the end of each quarter, GENCO
shall submit to LIPA a report summarizing the Electricity Delivered, Fuel
burned, the status of maintenance on the Generating Facilities, the status of
all construction projects, Contract Year Budget Plan performance and such other
information as the Parties may mutually agree.

15.2. Other Information. (a) Upon LIPA reasonable request, GENCO shall submit to
LIPA any other material information in GENCO's possession concerning the
Generating Facilities. If such requested information is not in GENCO's
possession, GENCO will obtain and prepare such information, to the extent
possible, and charge LIPA for all additional reasonable costs incurred to obtain
and prepare such information.

         (b) Prior to the Closing Date, GENCO shall provide to LIPA the
following information, which information shall be certified by GENCO to be to
the best of its knowledge, based on reasonably available information


                                     - 28 -
<PAGE>


         (i)      the historical fixed costs for each year from 1994 through
                  1996 associated with the Generating Facilities, broken down by
                  the categories of costs set forth in Section 8.1.1(a) through
                  (h);

         (ii)     the historical costs of complying with all Government Approval
                  applicable to the Generating Facilities.

15.3. Litigation; Permit Lapses. Promptly upon obtaining knowledge thereof, each
Party shall submit to the other Party written notice of (and, upon request,
copies of any relevant non-privileged documents in the Party's possession
relating to): (i) any material litigation, claims, disputes or actions actually
filed, or any material litigation, claims, disputes or actions which are
threatened, concerning in each case this Agreement or the Generating Facilities;
(ii) actual refusal to grant, renew or extend, or any action pending or any
action filed with respect to, the granting, renewal or extension of any permit
or any material threatened action regarding the same in this Agreement or the
Generating Facilities; (iii) any dispute with any Governmental Authority
relating to this Agreement or the Generating Facilities of GENCO or LIPA; and
(iv) without regard to their materiality, all penalties or notices of violation
issued by any Governmental Authority relating to this Agreement or the
Generating Facilities.

                    ARTICLE 16 - GENERAL SERVICE REQUIREMENTS

16.1. General Service Requirements.

         16.1.1. Standard of Performance. In performing its obligations under
this Agreement GENCO shall operate in accordance with Prudent Utility Practice
and all Governmental Rules and shall seek to minimize costs in accordance with
Prudent Utility Practice and Governmental Rules.

         16.1.2. Limitation of Liability. GENCO liability for any failure to
comply with Section 16.1.1 shall be limited to the performance incentives
provided in Article 10, except as set fort in Article 19.

         16.1.3. Accounting Controls. GENCO shall provide all accounting,
bookkeeping, an administrative services in connection with the Electricity
Costs, such accounting to be consistent with the Federal Energy Regulatory
Commission Uniform System of Accounts and Generally Accepted Accounting
Principles (GAAP) consistently applied. In areas of conflict, FERC, accounting
principles apply. All books and records upon which any rates or charges under
this Agreement are based shall be made available by GENCO for audit by LIPA.

                             ARTICLE 17 - INSURANCE


                                     - 29 -
<PAGE>


         GENCO shall maintain an insurance program with respect to the
Generating. Facilities and its activities under this Agreement similar in all
material respects to the program described in Appendix 4 - Insurance of the
Management Services Agreement dated the date hereof between LIPA and the Energy
Manager.

                         ARTICLE 18 - CREDIT ENHANCEMENT

18.1 Credit Enhancement in Certain Circumstances.

         18.1.1. Limitations. After the Closing Date, GENCO agrees that it will
remain an affiliate of the Guarantor.

         18.1.2. Material Decline in the Guarantor's Credit Standing. For
purposes of this Section, a "Material Decline in the Guarantor's Credit
Standing" shall be deemed to have occurred if (1) in the event that the
Guarantor has long-term senior debt outstanding which has a credit rating by a
Rating Service, such rating by a Rating Service is established or is reduced
below investment grade level or (2) in the event the Guarantor does not have
long-term senior debt outstanding which has a credit rating by a Rating Service,
and the Guarantor has a credit rating by a Rating Service, such credit rating is
established or reduced below investment grade level, or (3) in the event the
Guarantor does not have long-term senior debt outstanding which has a credit
rating by a Rating Service and the Guarantor does not have a credit rating by a
Rating Service, in which event the Guarantor shall seek a credit rating for the
Guaranty from a Rating Service, such rating is established or is reduced below
investment grade level or if no rating is established. GENCO immediately shall
notify LIPA of any Material Decline in the Guarantor's Credit Standing.

         18.1.3. Credit Enhancement. If, at any time during the Term hereof, a
Material Decline in the Guarantor's Credit Standing occurs, GENCO shall
immediately notify LIPA's Representative thereof and, within 30 days after such
occurrence, shall provide credit enhancement of its obligations hereunder at its
sole cost and expense in the form either of (1) an unconditional guarantee of
all of GENCO's obligations hereunder, the Manager's obligations under the
Management Services Agreement, and the Energy Manager's obligations under the
Energy Management Agreement provided by a corporation or financial institution
whose long-term senior debt is or would be rated investment grade by a Rating
Service or (2) an irrevocable letter of credit securing GENCO's obligations
hereunder, the Manager's obligations under the Management Services Agreement,
and the Energy Manager's obligations under the Energy Management Agreement in a
face amount of $60,000,000 provided by a financial institution whose long-term
senior debt is rated investment grade by a Rating Service; provided, however,
that if any such letter of credit is drawn upon in the aggregate in an amount
equal to 50% of the face value of such letter of credit, GENCO shall, within 30
days thereafter, supplement or replace such letter of credit with an additional
letter of credit such that the total amount of such letter of credit then
available equals $60 million. The amount of such letter of credit shall be


                                     - 30 -
<PAGE>


reduced by $30 million if the Energy Management Agreement has theretofore been
or is thereafter terminated and by $26 million if the Management Services
Agreement has theretofore been or is thereafter terminated, such obligation to
continue until the expiration or termination of this Agreement, the Management
Services Agreement and the Energy Management Agreement.

                       ARTICLE 19 - ALLOCATION OF RISK OF

                         CERTAIN COSTS AND LIABILITIES.

Except to the extent due to LIPA Fault (as determined by either a final
non-appealable order or judgment of a court of competent jurisdiction (including
administrative tribunals) or a final non-appealable binding arbitration
decision), GENCO shall be responsible and liable to LIPA for, and shall not be
entitled to reimbursement or cost recovery under Article 8 or otherwise from
LIPA for any Loss-and-Expense incurred by GENCO:

         (a)      due to any gross negligence or willful misconduct by GENCO
                  during the period commencing six months prior to the Closing
                  Date to the extent GENCO knew or should have known of such
                  gross negligence or willful misconduct and during the Term in
                  carrying out its obligations hereunder,

         (b)      due to any violation of or failure of compliance with
                  Applicable Law by GENCO (except as provided below) during the
                  period commencing six months prior to the Closing Date to the
                  extent GENCO knew or should have known of such violation or
                  failure of compliance and during the Term which materially and
                  adversely affects

                  (i)      the condition or operations of the T&D System or the
                           Generating Facilities,

                  (ii)     the financial condition of LIPA,

                  (iii)    the performance or ability of GENCO to perform its
                           obligations under this Agreement, or

                  (iv)     the cost of providing electric service to the
                           customers of the T&D System,

                  provided, however, that GENCO shall not be responsible and
                  liable to LIPA under this clause b) with respect to any
                  violation of, failure of compliance with, or liability under,
                  Environmental Laws (as defined in the Acquisition Agreement)
                  for which LIPA or GENCO may be strictly liable


                                     - 31 -
<PAGE>


                  provided that GENCO acted in a manner consistent with Prudent
                  Utility Practice. Notwithstanding the foregoing, GENCO shall
                  in all events be liable for any fine or penalty arising by
                  reason of any violation of or failure of compliance with
                  Applicable Law for acts or omissions of GENCO not consistent
                  with Prudent Utility Practice,

         (c)      due to any criminal violation of Applicable Law by GENCO prior
                  to, on or after the Closing Date, or

         (d)      due to an event which would otherwise permit recovery of a
                  cost under Section 8.1.4 (Monthly Capacity Payment Adjustment
                  Charge) of an excess capital expenditure under Section 9.4,
                  that is incurred by reason of actions or omissions of GENCO
                  not consistent with Prudent Utility Practice.

         Any such action or omission identified in (a), (b), (c) or (d) shall be
determined by either a final non-appealable order or judgment of a court or
regulatory body of competent jurisdiction (including administrative tribunals)
or a final non-appealable binding arbitration decision and shall be attributable
to GENCO for purposes of the preceding sentence whether it is attributable to
GENCO or to any officer, member, agent, employee or representative of GENCO or
any Affiliate and any contractor, subcontractor of any tier.

         The provisions of this Article 19 are intended to modify GENCO's right
to receive payments under Article 8 and Appendix A.

                      ARTICLE 20 - PROPRIETARY INFORMATION

20.1. Request Not To Disclose. The parties hereto hereby acknowledge that GENCO
has a proprietary interest in certain information that may be furnished pursuant
to the provisions of this Agreement. GENCO acknowledges that LIPA may be
required to disclose information upon request under Applicable Law. GENCO shall
have the right to request LIPA in writing not to publicly disclose any
information which GENCO believes to be proprietary and not subject to public
disclosure under Applicable Law, any such request to be accompanied by an
explanation of its reasons for such belief. Any information which is the subject
of such a request shall be clearly marked on all pages, shall be bound, and
shall be physically separate from all non-proprietary information. At GENCO's
request, LIPA and its agents, consultants and employees (including its
consulting engineer) given access to such information shall execute and comply
with the terms of a confidentiality agreement in a mutually acceptable form,
subject to Applicable Law.

20.2. LIPA's Non-Disclosure. In the event LIPA receives a request from the
public for the disclosure of any information designated as proprietary by GENCO
pursuant to Section 20.1,


                                     - 32 -
<PAGE>


LIPA (i) shall use reasonable efforts, consistent with applicable law, to
provide notice to GENCO of the request prior to any disclosure, and (ii) shall
use reasonable efforts, consistent with applicable law, to keep in confidence
and not disclose such information unless it is entitled to do so pursuant to the
provisions of Section 2O.3. GENCO shall indemnify, hold harmless and defend LIPA
against costs incurred from the withholding from public disclosure of
information designated as proprietary by GENCO or otherwise requested by GENCO
to be withheld.

20.3. Permitted Disclosures. Notwithstanding any confidential or proprietary
designation thereof by GENCO, LIPA may disclose the following information (i)
information which is known to LIPA without any restriction as to disclosure or
use at the time it is furnished, (ii) information which is or becomes generally
available to the public without breach of any agreement, (iii) information which
is received from a third party without limitation or restriction on such third
party or LIPA at the time of disclosure, (iv) with regard to capacity that has
not been ramped down, documentation of historical Generation Facilities'
operations and costs, and all costs, assumptions and supporting data associated
with the determination of the FERC approved contract rate for capacity and
energy under this agreement, (v) information with respect to (a) Electricity
sales to LIPA by time of day, month and year, to the extent available; (b)
prices paid by LIPA to GENCO for capacity, energy and any Ancillary Services
under this Agreement; and (c) power plant emission information and environmental
compliance information and any information required to be provided to FERC to
support rate filings with FERC to the extent such information directly relates
to GENCO's provision of service to LIPA under this Agreement, and (vi) following
notice to GENCO pursuant to Section 20.2, information which, in the opinion of
counsel for LIPA, is required to be or may be disclosed under any Applicable
Law, an order of a order of competent jurisdiction, or a lawful subpoena.

                      ARTICLE 21 - MISCELLANEOUS PROVISIONS

21.1. Agreement. This Agreement consists of the terms and conditions set forth
in the body hereof and the Appendices and other attachments hereto. This
Agreement contains the entire agreement between the Parties with respect to the
subject matter hereof. In the event of a conflict, variation or inconsistency
between or among the Appendices, other attachments and the terms and conditions
set forth in the body hereof, the terms and conditions contained in the body
hereof shall govern.

21.2. Relationship of the Parties. GENCO is deemed to be an independent
contractor hereunder and shall not be deemed as a partner, joint venturer or
affiliate of LIPA.

21.3. Assignment. This Agreement shall not be assignable by either party without
the prior written consent of the other party hereto, which consent shall not be
unreasonably withheld or delayed except LIPA may assign its interest in this
Agreement to another State agency if required by or as the result of State law.
Notwithstanding the foregoing sentence, nothing herein shall prevent GENCO,
without LIPA's consent, from selling, assigning or transferring a


                                     - 33 -
<PAGE>


pecuniary interest in any payment, revenues, proceeds, incentive, profits or
income derived from this Agreement. Effective upon the Closing Date, LIPA may
assign its rights, obligations and interests hereunder to Long Island Lighting
Company (then a wholly owned subsidiary of IRA) and GENCO shall assign all of
its rights, obligations and interests hereunder to the Guarantor or any
affiliate thereof.

21.4. Cooperation in Financing. Each Party shall reasonably cooperate with the
other Party during negotiations with any Financing Party and will promptly
execute any reasonable amendment or addition to this Agreement required by any
Financing Party, provided that neither Party shall be required to execute any
amendment or addition it determines in its sole discretion to be disadvantageous
in any respect.

21.5. Force Majeure.

         21.5.1. Events Constituting Force Majeure. As used in this Agreement,
Force Majeure means any act, event, or condition that causes delay in or failure
of performance of obligations under this Agreement, or otherwise materially and
adversely affects a party's ability to perform, if such act, event or condition
(i) is beyond the reasonable control of the party relying thereon, (ii) is not
the result of the willful misconduct or negligent act or omission of such party,
and (iii) is not an act, event or condition, the risk or consequence of which
such party expressly assumed under this Agreement, including but not limited to:

                  (1) acts of God, accident, flood, sabotage, fire, epidemic,
         earthquake, or similar occurrence, act of public or foreign enemy, war
         and other hostilities, invasion, blockade, insurrection, rebellion,
         riot and disorder, strikes or labor disturbances, general arrest or
         restraint of government and people, civil disturbance or similar
         occurrence;

                  (2) entry of an injunctive or restraining order or judgment of
         any Governmental Authority, if such order or judgment is not the result
         of the act, or failure to act, of a party or its subcontractors or
         suppliers; or

                  (3) suspension, termination, interruption of, or failure to
         obtain any permit required or necessary for the construction, operation
         or maintenance of the Generating Facilities, provided such suspension,
         termination, interruption or failure is not the result of the action or
         inaction of a party relying thereon or its subcontractors or suppliers.

         Notwithstanding the foregoing, neither the failure of a subcontractor
or supplier to perform its obligations to LIPA or GENCO, which failure is not
itself caused by a Force Majeure event with respect to such subcontractor or
supplier, nor financial difficulty suffered by LIPA or GENCO or any
subcontractor, supplier or vendor in performing its obligations, shall be deemed
a Force Majeure event.


                                     - 34 -
<PAGE>


         21.5.2. Event of Force Majeure. Except for the obligations of either
party to make payments of amounts due to the other party, either party shall be
excused from performance and shall not be considered to be in default in respect
of any obligation under this Agreement to the extent that a failure of
performance of such obligation shall be due to Force Majeure. If either party's
ability to perform its obligations under this Agreement is affected by a Force
Majeure, the party claiming such inability shall: (i) promptly notify the other
party of' such Force Majeure and its cause and confirm the same in writing
within five Business Days of discovery of the event or circumstances
constituting such Force Majeure; (ii) immediately supply such available
information about the event or circumstances constituting the Force Majeure and
the cause thereof as is reasonably requested by the other party; and (iii)
immediately initiate removal of the cause of the Force Majeure or, if immediate
removal is not possible, to mitigate the effect thereof.

         21.5.3. Scope. The suspension of performance due to a Force Majeure
shall be of no greater scope and no longer duration than that which is
necessary. The excused party shall use its reasonable best efforts to remedy its
inability to perform.

21.6. Amendments. No amendments or modifications of this Agreement shall be
valid unless evidenced in writing and signed by duly authorized representatives
of both Parties.

21.7. No Waiver. It is understood and agreed that any delay, waiver or omission
by GENCO or LIPA to exercise any right arising from any breach or default by
GENCO or LIPA with respect to any of the terms, provisions, or covenants of this
Agreement shall not be construed to be a waiver by GENCO or LIPA, as the case
may be, of any subsequent breach or default of the same or other terms,
provisions or covenants on the part of the other party.

21.8. Notice. Any written notice under this Agreement shall be deemed properly
given if sent by registered or certified mail, return receipt requested, postage
prepaid, or by nationally recognized overnight delivery service, signature
required upon signed receipt, to the address specified below, unless otherwise
provided for in this Agreement:


                                     - 35 -
<PAGE>



To LIPA:                                    Long Island Power Authority
                                            333 Earle Ovington Blvd.
                                            Uniondale, NY 11553
                                            Attention: Executive Director

To GENCO:                                   Long Island Lighting Company
                                            Executive Offices
                                            175 East Old Country Road
                                            Hicksville, NY 11801
                                            Attention: President


Either party may, by written notice to the other party, change the name or
address of the person to receive notices pursuant to this Agreement.


21.9. Representations and Warranties.

     21.9.1. GENCO Representations and Warranties. GENCO, as of the date of this
Agreement, makes the following representations and warranties as the basis for
its undertakings contained herein:

     (a) After the Closing Date, any assignee of GENCO pursuant to Section 21.3
hereof will be a wholly owned subsidiary of Guarantor duly organized, validly
existing and in good standing under the laws of the State of New York, is
qualified to do business under the laws of the State of New York, has the power
and authority to own its properties, to carry on its business as it now is being
conducted, and to enter into this Agreement and carry out the transactions
contemplated hereby, and to perform and carry out all covenants and obligations
on its part to be performed under and pursuant to this Agreement, and is duly
authorized to execute and deliver this Agreement and consummate the transactions
herein contemplated.

     (b) The execution and delivery of this Agreement, the consummation of the
transactions contemplated herein and the fulfillment of and compliance with the
provisions of this Agreement do not materially conflict with or constitute a
material breach of or a material default under any of the terms, conditions or
provisions of any law, any order of any court or other agency of government, the
articles of incorporation or by-laws of GENCO, or outstanding trust indenture,
deed of trust, mortgage, loan agreement, other evidence of indebtedness or any
other agreement or instrument to which GENCO is a party or by which it or any of
its property is bound or result in a material breach of or a material default
under any of the foregoing, and this Agreement is the legal, valid and binding
obligation of GENCO enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.

                                      -36-

<PAGE>

     (c) As of the Closing Daze and throughout the Term of this Agreement,
GENCO, will be in material compliance with, or will have acted in good faith and
used all reasonable efforts to be in material compliance with, all laws,
judicial and administrative orders, rules and regulations with respect to the
ownership and operation of the Generating Facilities including but not limited
to the following: all requirements to obtain and comply with the conditions of
any applicable Governmental Rules, including, to the extent required, the filing
of all applicable environmental impact analyses; and, if applicable and required
by Environmental Law, the mitigation of all environmental impacts.

     (d) As of the date provided, all historical records supplied to LIPA with
respect to the Dependable Maximum Net Capability, availability and Heat Rate of
each Generating Facility are to GENCO's best knowledge accurate in all material
respects.

     (e) To the best of GENCO's knowledge, all Governmental Approvals necessary
for the full load operation of each Generating Facility with all types of fuel
for which such Generating Facility is operated have been validly issued and are
in full force and effect. GENCO knows of no pending action to cancel any such
Governmental Approval.

     21.9.2. LIPA Representations and Warranties. LIPA, as of the date of this
Agreement, makes the following representations and warranties as the basis for
its undertakings contained herein:

     (a) LIPA is a corporate municipal instrumentality and political
sub-division of the State of New York, has the corporate power and authority to
own its properties, to carry on its business as now being conducted, and to
enter into this Agreement and the transactions contemplated herein and perform
and carry out all covenants and obligations on its paint to be performed under
and pursuant to this Agreement, and is duly authorized to execute and deliver
this Agreement and consummate the transactions herein contemplated.

     (b) The execution and delivery of this Agreement, the consummation of the
transactions contemplated herein and the fulfillment of and compliance with the
provisions of this Agreement do not materially conflict with or constitute a
material breach of or a material default under, any of the terms, conditions or
provisions of any law, any other of any court or other agency of government, or
any contractual limitation, corporate or partnership restriction or outstanding
trust indenture, deed of trust, mortgage, loan agreement, other evidence of
indebtedness or any other agreement or instrument to which LIPA is a party or by
which it or any of its property is bound or result in a material breach of or a
material default under any of the foregoing, and this Agreement is the legal,
valid and binding obligation of LIPA enforceable in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting creditors' rights and to
general equity principles.

                                      -37-


<PAGE>

     (c) All corporate or other organization consents, authorizations, and
approvals, and all other actions required for LIPA to execute, deliver and
perform its obligations hereunder have been obtained or completed.

21.10. Counterparts. The Parties may execute this Agreement in counterparts,
which shall, in the aggregate, when signed by both Parties constitute one and
the same instrument; and thereafter, each counterpart shall be deemed an
original instrument.

21.11. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York. Any action arising out of or
relating to this Agreement shall be brought in New York State Court or Federal
District Court.

21.12. Captions; Appendices. Tides or captions of the articles contained in this
Agreement are inserted only as a matter of convenience and for reference, and in
no way define, limit, extend, describe or otherwise affect the scope or meaning
of this Agreement or the intent of any provision hereof.

21.13. Non-Recourse. Except as otherwise agreed, neither party shall have any
recourse against any parent, affiliate, or constituent of the other party, or
the successors and assigns of such parent, affiliate or constituent
(collectively, "Party Affiliates") and each party expressly waives its rights of
recourse against, and releases from liability, the other party's Party
Affiliates. Each party shall look solely to the other party, and the assets
thereof, to effect recovery of such party's claims against the other party.

21.14. Severability. The invalidity or unenforceability of any provision of this
Agreement shall be determined only by a court of competent jurisdiction, and the
Parties hereby agree to negotiate an equitable adjustment to the invalid or
unenforceable provisions with a view toward effecting the purposes of this
Agreement; the validity or enforceability of the remaining provisions or
portions or applications thereof, shall not be affected thereby.

21.15. Rules of Interpretation. The terms and provisions of this Agreement shall
be interpreted and construed as follows: (a) words of the masculine gender shall
include corresponding words of the feminine or neuter genders and vice versa;
(b) the plural shall include the singular and vice versa; (c) unless the context
indicates otherwise, all references herein to Articles, Sections, paragraphs,
exhibits, schedules, and Appendices shall refer, respectively, to the Articles,
Sections, paragraphs, exhibits, schedules and Appendices of this Agreement; (d)
the words "includes" or "including" mean "including, but not limited to" and are
not limiting; (e) any reference to an agreement, a contract or any other
document means the same as it may be amended, modified, supplemented or replaced
from time to time, unless otherwise noted; and (f) any reference to a Person
includes such Person's successors and assigns.

21.16. Property Taxes. After the Contract Date, GENCO, in its sole discretion,
may challenge any property tax assessment on its Generating Facilities or
Generating Facility Sites

                                      -38-

<PAGE>

only if the assessment on any such challenged facilities is increased not in an
appropriate proportion to the increase in value related to taxable capital
additions affixed to the tax parcel between the last two tax status dates. If
the tax attributable to the assessment on the Generating Facilities or
Generating Facilities Sites is not included in the costs paid by LIPA or its
Affiliates (e.g., gas facility located on Generating Facility Site) then GENCO,
in its sole discretion, may pursue tax challenges on such assessments. This
provision shall expire upon the termination of this Agreement.

In the event GENCO challenges any tax assessments on its Generating Facilities,
any tax refunds received by GENCO shall be shared 25%/75% between GENCO and
LIPA, respectively. GENCO shall be responsible for all preparatory efforts and
litigation-related costs pertaining to any such challenge, and such costs shall
not be included in any charge under Article 8 or otherwise under this Agreement.
This provision shall expire upon the termination of this Agreement, except that
LIPA will continue to share 75% of tax refunds received after such termination
to the extent that such refunds relate to property taxes for which LIPA has
reimbursed GENCO under Section 8.1.1.

21.17. Binding Effect. This Agreement shall become binding and effective on the
Closing Date and shall thereafter bind and inure to the benefit of the parties
hereto and any successor or assignee acquiring an interest hereunder in
compliance with the provisions of Section 21.3 hereof.

                                     - 39 -



<PAGE>

     IN WITNESS WHEREOF, the Parties have executed this Agreement through their
duly authorized officers as of the date set forth in the preamble to this
Agreement.


                                            LONG ISLAND POWER AUTHORITY

                                            By: /s/ Richard M. Kessell
                                               ---------------------------------
                                            Name:  Richard M. Kessell
                                            Title: Chairman


                                            By: /s/ Patrick Foye
                                               ---------------------------------
                                            Name:  Patrick Foye
                                            Title: Deputy Chairman


                                            LONG ISLAND LIGHTING COMPANY

                                            By: /s/ Dr. William Castacosinos
                                               ---------------------------------
                                            Name:  Dr. William Catacosinos
                                            Title: Chief Executive Officer




                                     - 40 -


<PAGE>

                                   APPENDIX A

                                  Formula Rate

     Appendix A provides the detailed methodology for determining the Monthly
Capacity Charge, Monthly Variable Charge, Monthly Ancillary Service Charge and
Monthly Capacity Payment Adjustment Charge as set forth in Articles 8 and 9.
This Appendix will be developed and agreed upon promptly after the date hereof
and, in any event, prior to the Closing Date.


                                      A-1


<PAGE>


                                   APPENDIX B

                       Monthly Variable Adjustment Charge

This Appendix will be developed and agreed upon promptly after the date hereof
and, in any event, prior to the Closing Date.

Variable Rates for Generating Facilities Stare Up / Shut Down Wear and Tear
Rates

================================================================================
            Unit                    $/start (per unit)          For starts above
                                                                   (per unit)
================================================================================
Steam Units
--------------------------------------------------------------------------------
Northport Units 1-4
--------------------------------------------------------------------------------
185 MW Unit-E. F. Barrett Units
1&2; Port Jefferson Units 3&4
--------------------------------------------------------------------------------
100 MW Unit - Glenwood Units 4&5;
Far Rockaway Unit 4
--------------------------------------------------------------------------------
Internal Combustion Units
--------------------------------------------------------------------------------
Wading River Units 1-3
--------------------------------------------------------------------------------
E. F. Barrett 1-8
--------------------------------------------------------------------------------
E. F. Barrett 9-12
--------------------------------------------------------------------------------
Glenwood
--------------------------------------------------------------------------------
Northport
--------------------------------------------------------------------------------
Port Jefferson
--------------------------------------------------------------------------------
Southold
--------------------------------------------------------------------------------
Southhampton
--------------------------------------------------------------------------------
Glenwood 2 & 3
--------------------------------------------------------------------------------
West Babylon
--------------------------------------------------------------------------------
Shoreham 1
================================================================================


                                       B-l

<PAGE>

Variable Rates (f) Internal Combustion Units for Fired Hours of Operation

================================================================================
Unit                                $/MWH                   For generation*
                                   (per Unit)               above (per unit)
================================================================================
Glenwood 2 & 3
--------------------------------------------------------------------------------
West Babylon
--------------------------------------------------------------------------------
Shoreham 1
--------------------------------------------------------------------------------
Holtsville 1 - 10
--------------------------------------------------------------------------------
Barrett 9 - 12
--------------------------------------------------------------------------------
Barrett 1 - 8
--------------------------------------------------------------------------------
Glenwood 1
--------------------------------------------------------------------------------
Port Jefferson
--------------------------------------------------------------------------------
East Hampton
--------------------------------------------------------------------------------
Shoreham 2
--------------------------------------------------------------------------------
Northport
--------------------------------------------------------------------------------
East Hampton Diesels
--------------------------------------------------------------------------------
Montauk Diesels
--------------------------------------------------------------------------------
Southhampton
--------------------------------------------------------------------------------
Southold
--------------------------------------------------------------------------------
Wading River 1-3
================================================================================
*    These MWhG may be revised if required due to environmental compliance.

     Steam Unit Fuel Swaps

================================================================================
Maximum           per day        per month      per year       Cost swaps above
================================================================================
Northport Unit
--------------------------------------------------------------------------------
185 MW Unit
================================================================================

                                       B-2

<PAGE>

                          APPENDIX C - GENERATING UNITS

This Appendix will be developed and agreed upon promptly after the date hereof
and, in any event, prior to the Closing Date.


==========================================
Unit Name                      Name Plate
                              Rating (MW)
==========================================
Steam Units
------------------------------------------
Northport 1                       375
------------------------------------------
Northport 2                       375
------------------------------------------
Northport 3                       375
------------------------------------------
Northport 4                       375
------------------------------------------
Port Jefferson 3                  175
------------------------------------------
Port Jefferson 4                  175
------------------------------------------
Glenwood 4                        100
------------------------------------------
Glenwood 5                        100
------------------------------------------
E.F. Barrett 1                    175
------------------------------------------
E.F. Barrett 2                    175
------------------------------------------
Far Rockaway 4                    100
==========================================



==========================================
Unit Name                      Name Plate
                              Rating (MW)
==========================================
Internal Combustion Units
------------------------------------------
E.F. Barrett 1-8                  144
------------------------------------------
E.F. Barrett 9-12                 167
------------------------------------------
Holtsville 1-10                   567
------------------------------------------
Wading River 1-3                  239
------------------------------------------
Shoreham 1                         53
------------------------------------------
Shoreham 2                         19
------------------------------------------
Glenwood 1                         16
------------------------------------------
Glenwood 2-3                      110
------------------------------------------
East Hampton 1                      6
------------------------------------------
East Hampton 2-4                   21
------------------------------------------
Northport G-l                      16
------------------------------------------
Port Jefferson G-l                 16
------------------------------------------
W. Babylon 4                       52
------------------------------------------
Southhold 1                        14
------------------------------------------
So. Hampton 1                      12
------------------------------------------
Montauk 2-4                         6
==========================================

                                       C-l

<PAGE>

                          APPENDIX D - DELIVERY POINTS

This Appendix will contain all the interconnections points between each
generating unit and the T&D System. These will be the same points as identified
in Appendix 2 to the Management Service Agreement.






























                                       D-1

<PAGE>




        APPENDIX E - MINIMUM LOADINGS, RAMP RATES, START-UP & SCHEDULED
                                  SHUTDOWN TIME

This Appendix will be developed and agreed upon promptly after the date hereof
and, in any event, prior to the Closing Date.

               Minimum Loadings:

=================================================
Unit                     Minimum Loadings
=================================================
-------------------------------------------------
Northport
-------------------------------------------------
Port Jefferson
-------------------------------------------------
E. F. Barrett
-------------------------------------------------
Glenwood
-------------------------------------------------
Far Rockaway
=================================================

                 Ramp Rates:

=================================================
    Unit                        Ramp Rates
=================================================
  Northport
-------------------------------------------------
Port Jefferson
-------------------------------------------------
 E. F. Barrett
-------------------------------------------------
  Glenwood
-------------------------------------------------
 Far Rockaway
=================================================


                                 Start-Up Times:
================================================================================
Unit                  Cold > 90 hrs             Warm             Hot < 24 hrs
================================================================================
Northport
--------------------------------------------------------------------------------
Port Jefferson
--------------------------------------------------------------------------------
E. F. Barrett
--------------------------------------------------------------------------------
Glenwood
--------------------------------------------------------------------------------
Far Rockaway
================================================================================

                                       E-1


<PAGE>




                           Minimum Scheduled Shutdown
                 ==============================================
                        Unit                   Minimum Shutdown
                 ==============================================
                    Northport
                 ----------------------------------------------
                 Port Jefferson
                 ----------------------------------------------
                 E. F. Barrett
                 ----------------------------------------------
                    Glenwood
                 ----------------------------------------------
                  Far Rockaway
                 ==============================================

                                           E-2

<PAGE>

Internal Combustion Loadings

These units can be placed in service at the load points (base or peak) listed in
Appendix E. For variable maintenance costs, one hour operation at peak load is
equivalent to three hours of operation at base load.


================================================================================
          Unit                     Base Load (MW) (1)     Peak Load (MW) (1)
================================================================================
Holtsville 1-5 (C1 eng.)
--------------------------------------------------------------------------------
Holtsville 6-10 (C1D eng.)
--------------------------------------------------------------------------------
Wading River 1-3
--------------------------------------------------------------------------------
Southold
--------------------------------------------------------------------------------
Port Jefferson
--------------------------------------------------------------------------------
East Hampton G.T.
--------------------------------------------------------------------------------
East Hampton Diesels 2,3,4
--------------------------------------------------------------------------------
Montauk Diesels 2,3,4
--------------------------------------------------------------------------------
Southampton
--------------------------------------------------------------------------------
Shoreham 1
--------------------------------------------------------------------------------
Shoreham 2
--------------------------------------------------------------------------------
E.F. Barrett 1-8
--------------------------------------------------------------------------------
E.F. Barrett 9-12
--------------------------------------------------------------------------------
Glenwood 1
--------------------------------------------------------------------------------
Glenwood 2,3
--------------------------------------------------------------------------------
West Babylon
--------------------------------------------------------------------------------
Northport
================================================================================
Note: 1. At 80(degrees)

                                       E-3


<PAGE>

               APPENDIX F - PERFORMANCE INCENTIVES/DISINCENTIVES

I. DMNC Incentive/Disincentives

GENCO will use its best efforts to maintain its generating units such that
during the six month Summer Operating Period (May through October) the total
dependable maximum net capability ("Annual DMNC") as defined by the New York
Power Pool (NYPP) Methods & Procedures - 2 (MP-2), meets or exceeds the
predetermined level ("Target DMNC"). GENCO shall determine the Annual DMNC each
year in accordance with the New York Power Pool Methods and Procedures -2
("MP-2"). The MP-2 test will be conducted once between June 1 through September
15 for each unit. [LIPA shall have the right to witness such tests and/or review
the test data and results. If the MP-2 is revised by the NYPP, the Parties agree
to revise or replace this incentive/disincentive mechanism in a manner that
reflects the intended purpose.

The Annual DMNC and the Target DMNC ratings shall be considered only for the
total system (the sum of all steam and internal combustion generating units
under contract to (LIPA).

The Target DMNC shall be computed as the simple average of the Annual DMNC
values (as adjusted for the average temperature for the last five year
period prior to the Closing Date) for the last five-year period prior to the
Closing Date. The Target DMNC is based upon all of the existing GENCO steam and
internal combustion units in service. The Target DMNC shall remain fixed unless
(a) LIPA exercises its option to ramp down its GENCO capacity purchases, or (b)
any GENCO unit is mothballed, retired, significantly derated, incurs a long-term
outage, or is otherwise removed from service in whole, or in part, or (c) any
capital improvement approved by LIPA that materially increases the DMNC of the
Generating Facilities. Under these conditions, the Target DMNC shall be
equitably adjusted based on the generating unit data for the original
computation period with appropriate adjustments for the new conditions, except
that for a significant derating, removal from service or long term outage the
reduction in the DMNC target will apply only to the extent that these events
were not attributable to GENCO's failure to follow Prudent Utility Practice.

Should the Annual DMNC be in excess of the Target DMNC, LIPA shall make a
payment to GENCO equal to $30,000 per MW above that Target DMNC. Should the
Annual DMNC be less than 99% of the Target DMNC, GENCO shall make a payment to
LIPA equal to $30,000 for each MW deficiency below 99% of the Target DMNC. There
shall not be any incentives or disincentives payments for a year in which the
Annual DMNC is between 99% and 100% of the Target DMNC. The maximum
incentive/disincentives will be $1 million annually.

In the event that LIPA does not approve amounts for operating and maintenance
expenses and capital expenditure, that provide GENCO with the same opportunity
to maintain the DMNC target levels as GENCO has at the execution of this
Agreement, such target levels shall be equitably adjusted.

                                       F-1


<PAGE>

Any DMNC incentive/disincentive payments will be determined after October 31,
the end of the Summer Operating Period for each year and will be reflected in
the first monthly invoice following the end of such Summer Operating Period.

II. Availability Incentive/Disincentive

GENCO will use its best efforts to maintain its generating units such that
during the three month summer peak period (June through August) the availability
of its steam and internal combustion units meets or exceeds the predetermined
level ("Target Availability") as measured by the National Electric Reliability
Council (NERC) - Generating Availability Data System (GADS) Availability Factor
formula set forth as follows:

                                         AH
                                      AF=--
                                         PH

where:

     AH = Available Hours are the sum of in-service hours and reserve shutdown
     hours in the period. In-serwce hours are defined as those hours where the
     unit is in service and electrically connected to the system. Reserve
     shutdown hours are those hours whenever the unit is available to generate
     but is not electrically connected due to a lack of demand or the
     availability of lower cost power.

     PH = Period Hours are the total number of hours in the period.

Unit availability is tracked and calculated by GENCO for submittal to NERC. All
data collection, reporting and calculations are defined in the GADS Data
Reporting Instructions.

The average generation availability for the GENCO system (for the June through
August period) shall be calculated annually ("Availability") as a weighted total
of each units availability. The weighting is based on the Net Dependable
Capacity (NDC), as submitted to NERC.

The Availability Target for each summer period (June through August) shall be
97.5 percent of the simple average of the annual Availability values for the
last five year period prior to the Closing Date.

                                       F-2

<PAGE>

     5 Year Average Availability = 96.5 percent (to be revised to reflect last
     five year period prior to the Closing Date)

     Target Availability = 97.5 percent of 5 Year Average Availability (to be
     revised to reflect last five year period prior to the Closing Date)

                     .975 * 96.5% = 94.1% (Target Availability)


As noted, the above target is based upon all of the existing GENCO steam and
internal combustion units in service. The Target Availability shall remain fixed
unless (a) LIPA exercises its option to Ramp Down GENCO's Generating Facilities,
or (b) any of GENCO's Generating Facilities is mothballed, retired,
significantly derated, removed from service, or incurs a long term outage for
unforeseen reasons. In the event any changes are required the Target
Availability will be adjusted appropriately.

For each year the Availability shall be compared with the Target Availability to
determine the amount of incentive or disincentive. Should the Availability
exceed the Target Availability by 0.5 percent, LIPA shall provide an incentive
payment to GENCO of $100,000. Such incentive payment shall increase by $100,000
for each 0.1 percent increase in the Availability. Should the Availability be
less than the Target Availability by 0.5 percent, GENCO will incur a
disincentive of $100,000. Such disincentive shall increase by $100,00 for each
0.1 percent decrease in the Availability. The maximum incentive/disincentive
shall be $2 million annually.

In the event that LIPA does not approve amounts for operating and maintenance
expenses and capital expenditure, that provide GENCO with the same opportunity
to maintain the Availability levels as GENCO has at the execution of this
Agreement, such target levels shall be equitably adjusted.

Any Availability incentive/disincentive payments will be determined after August
30 for each year and will be reflected in the first monthly invoice following
August 30.


                                       F-3

<PAGE>

III. Property Tax Incentive

This incentive shall be as described in this Agreement in Section 21.16 Property
Taxes.

















                                       F-4


<PAGE>

IV.   Heat Rate Incentive/Disincentive

GENCO will use its best efforts to maintain the efficiency of its generating
units in order to reduce the fuel consumption for production of electric energy
for LIPA. An incentive or disincentive shall be determined monthly based on a
measure of the overall efficiency of GENCO's steam generating units, including
steam units at the Northport, Barrett, Glenwood, Port Jefferson, and Far
Rockaway power stations, in comparison with a predetermined standard as
described herein.

For purposes of this incentive plan, LIPA and GENCO have established a
functional relationship between monthly net generation (MWhN) and monthly fuel
burned, expressed in terms of millions of British thermal units ("MMBtu"),
considering (i) the relationship between total net MWhN generated and average
efficiency of the generating units; and (ii) the relative efficiency of
generating units when burning natural gas or oil. This relationship (the "Btu
Curve") is expressed by the following equation:


      MMBtu  = 10.7106* MWhN + 173,252
      Where:   MMBtu = Target Btu
               MWhN  = Steam Unit Net Generation

The Btu Curve represents the average amount of fuel required to generate a given
amount of monthly electricity (the "Target Btu") from GENCO's steam generating
units.

Each month the total net generation shall be used to establish the corresponding
Target Btu based on the Btu Curve. Actual fuel used for generation shall be
expressed in Gas Equivalent MMBtu by multiplying the MMBtu of oil consumption by
1.04 (the "Gas Conversion Factor") to account for differences in the average
Unit Heat Rates when burning oil versus natural gas. Deviations in the Gas
Equivalent MMBtu for the month in comparison to the Target Btu shall be shared
as follows: (a) LIPA shall absorb the cost of fuel used for Gas Equivalent MMBtu
between 100% and 101 % of the Target Btu; (b) LIPA shall receive the savings
resulting in the cost of fuel used for Gas Equivalent MMBtu between 99% and 100%
of the Target Btu; (c) LIPA and GENCO shall share equally in the cost or savings
resulting from Gas Equivalent MMBtu in excess of 101% or less than 99%. No
payments are contemplated under items (a) and (b) above.

There shall be no incentive or disincentive in any month when the net generation
from the GENCO steam Generating Facilities is less than 475,000 MWhN.

For purposes of computing the incentives or disincentives, the cost of fuel
shall be stated in dollars per Gas Equivalent MMBtu based on the cost of fuel
actually burned for generation in each month (i.e. that month's weighted average
fuel cost) including fuel cost incentive or disincentives as defined in the
Energy Management Agreement, and adjustment for the Gas Conversion Factor,
applicable to the fuel oil burned. The annual maximum incentive or disincentive
shall be $1 million.

                                       F-5

<PAGE>

The above BTU Curve equation is based upon all of the existing GENCO steam units
in service. The BTU Curve shall remain fixed unless (a) LIPA exercises its
options to Ramp Down GENCO's Generating Facilities, or (b) any of GENCO's
Generating Facilities is mothballed, retired, significantly devated, removed
form service, or incurs a long term outage for unforeseen reasons. If a
significant change in the operation of GENCO's steam units occurs the Parties
shall mutually agree on modifications to the incentive/disincentive mechanism

In the event that LIPA does not approve amounts for operating and maintenance
expenses and capital expenditure, that provide GENCO with the same opportunity
to maintain the Heat Rate target levels as GENCO has at the execution of this
Agreement, such target levels shall be equitably adjusted.

Any incentive/disincentive payments will be determined after the end of each
month and will be reflected in the first monthly invoice following the end of
each month.









                                       F-6