EXHIBIT 10-40




                          ENERGY EAST CORPORATION
                      ANNUAL EXECUTIVE INCENTIVE PLAN

I.   Plan Objective
     The objective of the Annual Executive Incentive Plan (the "Plan")
     is to provide certain key employees of Energy East Corporation
     (the "Company") with the opportunity to earn annual incentive
     compensation through superior management performance.
     Exceptional performance will promote the future growth and
     success of the Company and enhance the linkage between employee
     and shareholder interests.

II.  Definitions
     Wherever used in the Plan, unless the context clearly indicates
     otherwise, the following words and phrases shall have the
     meanings set forth below:
     A.   "Plan" shall mean the Energy East Corporation Annual
          Executive Incentive Plan as embodied herein and as amended
          from time to time.
     B.   "Participant" shall mean an individual who has satisfied the
          eligibility requirements of Article IV hereof.
     C.   "Performance Period" shall mean the period commencing
          January 1 and ending December 31 of the same calendar year
          for which performance is being measured.
     D.   "Earnings Per Common Share (Earnings)" shall mean the
          Company's annual net income reduced by preferred stock
          dividends and divided by the average common shares
          outstanding during the year.
     E.   "Threshold Earnings Level" shall mean the minimum level of
          Earnings Per Common Share at which an award may be earned.
     F.   "Maximum Earnings Level" shall mean the level of Earnings
          Per Common Share at which a maximum award may be earned.
     G.   "Level of Achievement" shall mean the Participant's
          achievement of a Participant's individual objective for the
          Performance Period expressed as a percentage, ranging from
          zero to 100%.
     H.   "Board" shall mean the Board of Directors of the Company.

III. Administration
     The Plan shall be administered by the Executive Compensation and
     Succession Committee (the "Committee") of the Board composed of
     such members as shall be appointed from time to time by the
     Board. No member of the Committee while serving as such shall be
     eligible for participation in the Plan.

     Except as otherwise provided in this Plan, decisions and
     determinations by the Committee shall be final and binding upon
     all parties.  The Committee shall have the authority to interpret
     the Plan, to establish and revise rules and regulations relating
     to the Plan, and to make any other determinations that it
     believes necessary or advisable for the administration of the
     Plan.

IV.  Eligibility
     Eligibility for participation in the Plan is limited to officers
     of the Company holding the positions set forth below, plus any
     other employee of the Company who is approved for participation
     by the Chairman.  Persons who are participants in any other
     annual incentive compensation plan provided by the Company or any
     of its affiliates are not eligible to participate in the Plan.
     Participants shall be grouped as follows:

          Group I   Chairman
          Group II  Executive Vice Presidents
          Group III Senior Vice Presidents
          Group IV  Vice Presidents and Other Executives

     In the event that, during the Performance Period, an employee
     becomes eligible for participation in the Plan, incentive awards
     payable under the Plan will be determined based on length of
     participation in the Plan measured retroactively from the first
     day of the month in which the employee becomes eligible for
     participation in the Plan provided, however that if an employee
     is participating in the Plan on December 31, 1999, he shall be
     deemed to have participated in the Plan for all of 1999.

     In the event that, during the Performance Period a Participant
     changes from one eligibility group to another, incentive awards
     payable under the Plan will be prorated based on length of
     participation in each eligibility group measured from the first
     day of the month coinciding with or following the Participant's
     change in eligibility.

     If during any Performance Period a Participant ceases to be an
     employee of the Company for any reason, other than disability,
     retirement or death, such Participant shall not be entitled
     to receive an award for such Performance Period unless otherwise
     determined by the Committee in its sole discretion.  In the event
     that, during a Performance Period a Participant ceases to be an
     employee of the Company by reason of a transfer of employment to
     a subsidiary of the Company, such Participant will be eligible to
     receive a prorated award for such Performance Period based on the
     number of full months of participation as an employee of the
     Company.  In the event of disability, retirement or death, the
     Participant (or his or her successor in interest) shall be
     entitled to a prorated award based on the number of full months
     of participation.

     Participation in the Plan precludes a Participant's eligibility
     in any other annual incentive compensation plan provided by the
     Company and its subsidiaries.  Individuals entering the Plan
     during a Performance Period remain eligible to receive prorated
     awards under other annual incentive compensation plans provided
     by the Company and its subsidiaries for periods prior to their
     participation in the Plan.
V.   Performance Measurement and Criteria
     The Plan uses the financial performance measure of Earnings Per
     Common Share (Earnings) in determining whether incentive awards
     may be earned by Participants.  A Threshold Earnings Level, a
     Maximum Earnings Level and individual objectives for each
     Participant will be established for each Performance Period.  The
     Threshold Earnings Level must be achieved by the Company in order
     for Participants to be eligible for incentive awards.  The actual
     Earnings level achieved at or above Threshold Level will then be
     used to determine the Participant's Incentive Level Percentage in
     accordance with the provisions of Article VII.  A Participant's
     actual award will also depend on the Participant's Level of
     Achievement of the Participant's individual objectives for the
     Performance Period, as further set forth in Article VII.

VI.  Objective Setting
     A.   Corporate
     Performance objectives will be established annually (or for an
     individual who becomes eligible to participate in the Plan while
     a Performance Period is in progress in accordance with Item C
     below) upon a recommendation of the Chairman which recommendation
     shall be reviewed by the Committee and approved by the Board.

     Notwithstanding paragraph C below, the Board may establish
     additional or substitute performance objectives at any time
     during a Performance Period; provided that such objectives shall
     not reduce any awards to which the Participant may be entitled in
     connection with previously established objectives without the
     Participant's consent.

     B.   Adjustments
     The Committee may adjust the size of incentive awards in its
     discretion for extraordinary events if it determines that such
     adjustment is necessary for the benefit of the Company.  All
     determinations of the Committee pursuant to this Article VI,
     Section B shall be submitted to the Board for approval.

     C.   Timing
     The Threshold and Maximum Earnings Levels and the individual
     objectives for each Participant for the yearly Performance Period
     are to be established not later than the end of February,
     retroactive to the first of that year.  Performance objectives
     for individuals who become eligible to participate in the Plan
     while the yearly Performance Period is in progress are to be
     established at such time as the Committee determines it necessary
     for the benefit of the Company.

VII. Determination of Incentive Award
     At the conclusion of each Performance Period a determination will
     be made by the Committee as to the Earnings level achieved by the
     Company.  The achievement of an Earnings level at or above the
     Threshold Earnings Level is the first step in qualifying
     Participants for an incentive award.

     Each Participant has Threshold and Maximum Incentive Level
     Percentages assigned to the Participant's Group,  as defined in
     Article IV, based on that Group's potential impact on the
     Company's performance.  The Threshold and Maximum Incentive
     Level Percentages by Group are as follows:

                    Threshold Incentive      Maximum Incentive
     Group          Level Percentages        Level Percentages

       I                  100%                      200%
       II                  70%                      125%
       III                 55%                       90%
       IV                  45%                       65%


     A Participant's Incentive Level Percentage will depend on the
     Earnings level achieved by the Company for each Performance
     Period.  If only the Threshold Earnings Level is achieved, the
     Participant's Incentive Level Percentage will be the Threshold
     Incentive Level Percentage for the Participant's Group.  If the
     Maximum Earnings Level is met or exceeded, the Participant's
     Incentive Level Percentage will be the Maximum Incentive Level
     Percentage for the Participant's Group.  When the Earnings level
     achieved by the Company is greater than the Threshold Earnings
     Level but less than Maximum Earnings Level, the Participant's
     Incentive Level Percentage will be calculated based on a
     corresponding interpolation between Threshold and Maximum
     Incentive Level Percentages for the Participant's Group.

     Each Participant will be assigned individual objectives for
     the Performance Period which will be used to measure individual
     performance.  Each individual objective will also be assigned a
     relative weight, which in the aggregate will total 100%.  To
     determine the Incentive Award Percentage to be used in
     calculating a Participant's Incentive Award, the weight of each
     individual objective will be multiplied by the Participant's
     Level of Achievement for that objective with the product further
     multiplied by the Participant's Threshold Incentive Level
     Percentage. The resultant Incentive Award Percentages for each
     individual objective will then be aggregated to determine the
     Participant's Incentive Award Percentage.  The following is an
     example of the calculation of an Incentive Award Percentage for a
     Group III Participant at the Threshold Incentive Level
     Percentage:
<TABLE>
<CAPTION>
<S>                              <C>          <C>           <C>                   <C>
                                 Objective      Level of   Threshold Incentive   Incentive Award
                                  Weight      Achievement   Level Percentage        Percentage
        Individual Objective 1      40%  x       100%     x      55%            =       22%
        Individual Objective 2      40%  x        50%     x      55%            =       11%
        Individual Objective 3      20%  x         0%     x      55%            =        0%
                                   100 %                                                33%
</TABLE>


     To calculate an Incentive Award for a Participant, the
     Participant's cumulative Incentive Award Percentage will be
     multiplied by the Participant's annual base salary as of the last
     day of the Performance Period.  The Incentive Award will be
     rounded to the nearest whole dollar amount.

     The Committee's determination of incentive awards will be
     submitted to the Board for approval.  Final determination of
     incentive awards will be made by the Board not later than the end
     of February following the end of each Performance Period.
     Distribution of incentive awards will be made as soon thereafter
     as practical.

   VIII.  Incentive Award
     Incentive awards will be granted in cash.  Participants may
     elect, during the year preceding the performance period, to defer
     up to 100% of any potential incentive award pursuant to the
     Company's Deferred Compensation Plan for Salaried Employees.
     Incentive awards payable under the Plan will not be considered as
     a component of regular earnings or base compensation for any
     purpose.

IX.  Effective Date
     This Plan shall be effective as of January 1, 1999.

 X.  Miscellaneous
     The Board may at any time suspend, terminate, modify or amend
     this Plan.

     No Participant shall have any claim or right to be granted an
     award under this Plan.  Participation in the Plan shall not be
     deemed an employment contract.

     The Company shall have the right to deduct from the cash
     incentive awards made pursuant to this Plan any taxes required by
     law to be withheld with respect to such cash payments.

     In the case of a Participant's death, an incentive award shall be
     made to his or her designated beneficiary, or in
     the absence of such designation, by will or the laws of descent
     and distribution.

     Except as set forth in the preceding paragraph, a Participant's
     rights and benefits under the Plan shall not be subject in any
     manner to anticipation, alienation, sale, transfer, assignment,
     pledge, encumbrance, charge, garnishment, attachment, execution
     or levy of any kind, either voluntary or involuntary, including
     any such liability which arises from the Participant's bankruptcy
     or for the support of a spouse or former spouse or for any other
     relative of the Participant prior to the incentive award actually
     being received by the person eligible to benefit under the Plan.
     Any attempt at such prohibited anticipation, alienation, sale,
     transfer, assignment, pledge, encumbrance, charge, garnishment,
     attachment, execution or levy, shall be void and unenforceable
     except as otherwise provided by law.

XI.  Payments Upon a Change in Control
     A.  Calculation of Payments
     Notwithstanding any other provisions hereof (including, without
     limitation, Article VIII hereof), if a Change in Control (as
     defined in Section B of this Article XI) shall occur, the
     following shall be paid, in cash, no later than the tenth (10th)
     day following such Change in Control:

     i)  all incentive awards for any completed fiscal year of the
     Company which preceded the Change in Control, which awards have
     been finally determined but not yet either (x) distributed or (y)
     deferred pursuant to the Company's Deferred Compensation Plan for
     Salaried Employees,

     ii)  if, at the time of the Change in Control, the Board has not
     yet finally determined the incentive awards with respect to the
     fiscal year of the Company immediately preceding the fiscal year
     in which the Change in Control occurs, an incentive award with
     respect to such fiscal year, determined by the Board in
     accordance with the provisions of the preceding Articles hereof,
     and

     iii)  an incentive award with respect to the fiscal year of the
     Company in which the Change in Control occurs which shall be
     calculated by (x) assuming that the Threshold Earnings Level for
     such fiscal year has been achieved and that a Participant's Level
     of Achievement for each individual objective is one hundred
     percent, and (y) multiplying the result so obtained by a fraction
     the numerator of which is the number of days elapsed from the
     beginning of such fiscal year until the Change in Control and the
     denominator of which is three hundred and sixty-five (365).
     Notwithstanding anything contained herein to the contrary,
     following a Change in Control, the Plan shall continue in full
     force and effect, and a Participant shall be entitled to receive
     an additional incentive award with respect to the fiscal year in
     which the Change in Control occurs, equal to the excess (if any)
     of the amount of the incentive award for such year, determined in
     accordance with Article VII hereof, over the amount paid pursuant
     to the preceding provision of this paragraph (iii).

B.   Definition of a Change in Control
     A "Change in Control" shall be deemed to have occurred if the
     conditions set forth in any one of the following paragraphs shall
     have been satisfied:

     i)  any Person (as defined in this Section B) is or becomes the
     Beneficial Owner (as defined in this Section B), directly or
     indirectly, of securities of the Company (not including in the
     securities beneficially owned by such Person any securities
     acquired directly from the Company or its affiliates)
     representing 25% or more of the combined voting power of the
     Company's then outstanding securities; or

     ii) during any period of two consecutive years (not including any
     period prior to May 1, 1998), individuals who at the beginning of
     such period constitute the Board and any new director (other than
     a director designated by a Person who has entered into an
     agreement with the Company to effect a transaction described in
     paragraph (i), (iii) or (iv) of this Change in Control definition
     or a director whose initial assumption of office occurs as a
     result of an actual or threatened election contest with respect
     to the election or removal of directors or other actual or
     threatened solicitations of proxies or consents by or on behalf
     of a Person other than the Board) whose election by the Board or
     nomination for election by the Company's stockholders was
     approved by a vote of at least two thirds (2/3) of the directors
     then still in office who either were directors at the beginning
     of the period or whose election or nomination for election was
     previously so approved, cease for any reason to constitute a
     majority thereof; or

     iii) the shareholders of the Company approve a merger or
     consolidation of the Company with any other corporation, other
     than (x) a merger or consolidation which would result in the
     voting securities of the Company outstanding immediately prior
     thereto continuing to represent (either by remaining outstanding
     or by being converted into voting securities of the surviving
     entity), in combination with the ownership of any trustee or
     other fiduciary holding securities under an employee benefit plan
     of the Company or any of its affiliates, at least 75% of the
     combined voting power of the voting securities of the Company or
     such surviving entity outstanding immediately after such merger
     or consolidation, or (y) a merger or consolidation effected to
     implement a recapitalization of the Company (or similar
     transaction) in which no Person acquires more than 50% of the
     combined voting power of the Company's then outstanding
     securities; or

     iv) the shareholders of the Company approve a plan of complete
     liquidation of the Company or an agreement for the sale or
     disposition by the Company of all or substantially all of the
     Company's assets.

     For purposes of the definition of Change in Control in this
     Section B:

     "Beneficial Owner" shall have the meaning defined in Rule 13d-3
     under the Exchange Act.

     "Exchange Act" shall mean the Securities Exchange Act of 1934, as
     amended from time to time.

     "Person" shall have the meaning given in Section 3(a) (9) of the
     Exchange Act, as modified and used in Sections 13(d) and 14(d)
     thereof; however, a Person shall not include (i) the Company or
     any of its affiliates, (ii) a trustee or other fiduciary holding
     securities under an employee benefit plan of the Company or any
     of its affiliates, (iii) an underwriter temporarily holding
     securities pursuant to an offering of such securities, or (iv) a
     corporation owned, directly or indirectly, by the stockholders of
     the Company in substantially the same proportions as their
     ownership of stock of the Company.

XII. Plan Administration After a Change in Control
     Notwithstanding any other provisions of the Plan (including,
     without limitation, Articles VI (B) and X hereof), upon and after
     the occurrence of a Change in Control, neither the Board, nor the
     Committee shall be authorized to, and no termination, suspension,
     modification or amendment of the Plan shall be permitted to,
     amend or modify the terms and provisions (including, without
     limitation, the payment provisions) of any incentive awards
     theretofore made to Participants in any way which adversely
     affects the rights of such Participants.