<PAGE>
 
                                 Exhibit 10.83


                                                                  EXECUTION COPY

--------------------------------------------------------------------------------


                             AMENDED AND RESTATED
                      DISBURSEMENT AND SECURITY AGREEMENT


                                 by and among


                      SCRUBGRASS GENERATING COMPANY, L.P.
                                  as Lessor,


                          BUZZARD POWER CORPORATION,
                                  as Lessee,


                            BANKERS TRUST COMPANY,
                            as Disbursement Agent,


                                      and


                               CREDIT LYONNAIS,
                      acting through its New York Branch,
                                   as Agent.


                      -----------------------------------

                            Dated December 22, 1995

                      -----------------------------------


--------------------------------------------------------------------------------
<PAGE>
 
                               TABLE OF CONTENTS

<TABLE> 
<CAPTION> 
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                                                                            ----

                                   ARTICLE I

                 DEFINITIONS; ORIGINAL DISBURSEMENT AGREEMENT

<S>            <C>                                                          <C>
SECTION 1.01.  Definitions..................................................  3
SECTION 1.02.  Original Disbursement Agreement..............................  3
                                                                              
                                                                              
                                  ARTICLE II                                  
               APPOINTMENT AND DIRECTION OF DISBURSEMENT AGENT;               
                           CONTINUATION OF ACCOUNTS                           
                                                                              
SECTION 2.01.  Appointment and Direction of Disbursement Agent..............  4
SECTION 2.02.  Continuation of Lessor Accounts; Creation of Hedge             
               Account......................................................  5
SECTION 2.03.  Continuation of Lessee Accounts..............................  6
SECTION 2.04.  Creation of Capital Expenditure Fund.........................  7
                                                                              
                                                                              
                                  ARTICLE III                                 
                                                                              
                        ASSIGNMENT, PLEDGE AND GRANT OF                       
                              SECURITY INTERESTS                              
                                                                              
SECTION 3.01.  Assignment by Lessee.........................................  7
SECTION 3.02.  Assignment by Lessor.........................................  8
SECTION 3.03.  Transaction Documents Govern Obligations; No                   
               Waiver.......................................................  9
                                                                              
                                                                              
                                  ARTICLE IV                                  
                                                                              
                             CONSTRUCTION ACCOUNT                             
                                                                              
SECTION 4.01.  [INTENTIONALLY OMITTED)......................................  9
SECTION 4.02.  Disbursements from Construction Account......................  9
</TABLE> 

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                                   ARTICLE V

                               OPERATING ACCOUNT
<S>            <C>                                                          <C> 
SECTION 5.01.  Deposits into Operating Account.............................  10
SECTION 5.02.  Disbursements from Operating Account........................  10
                                                                             
                                                                             
                                   ARTICLE VI                                
                                                                             
               RENT SUSPENSE ACCOUNT; AVAILABLE CASH FLOW ACCOUNT            
                                                                             
SECTION 6.01.  Deposits into the Rent Suspense Account and the               
               Available Cash Flow Account.................................  14
SECTION 6.02.  Disbursements from the Rent Suspense Account and              
               the Available Cash Flow Account.............................  14
                                                                             
                                                                             
                                   ARTICLE VII                               
                                                                             
                              AMORTIZATION ACCOUNT                           
                                                                             
SECTION 7.01.  Deposits into Amortization Account..........................  15
SECTION 7.02.  Disbursement from the Amortization Account..................  15
                                                                             
                                                                             
                                  ARTICLE VIII                               
                                                                             
                           MAINTENANCE RESERVE ACCOUNT                       
                                                                             
                                                                             
SECTION 8.01.  Deposits into the Maintenance Reserve Account...............  15
SECTION 8.02.  Disbursements from the Maintenance Reserve Account..........  15
SECTION 8.03.  Deposits into the Maintenance Reserve Sub-Account...........  16
SECTION 8.04.  Disbursements from the Maintenance Reserve Sub-
               Account.....................................................  16
</TABLE> 


                                      ii
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                                  ARTICLE IX

                               INSURANCE ACCOUNT

<S>            <C>                                                           <C>
SECTION 9.01.  Deposit of Condemnation or Insurance Proceeds...............  17
SECTION 9.02.  Disbursement from Insurance Account.........................  17
                                                                             
                                                                             
                                   ARTICLE X

                            LESSOR REVENUE ACCOUNT
                                                                             
SECTION 10.01.  Deposits into the Lessor Revenue Account...................  17
SECTION 10.02.  Disbursements from the Lessor Revenue Account..............  17
                                                                             
                                                                             
                                  ARTICLE XI
                                                                             
             AGENT DEFAULT NOTICE; DISBURSEMENT BLOCK CERTIFICATE
                                                                             
SECTION 11.01. Delivery of Agent Default Notice and Disbursement             
               Block Certificate...........................................  18
SECTION 11.02. Distribution After Agent Default Notice, Disbursement         
               Block Certificate...........................................  18
SECTION 11.03. Distribution After Lessor Default Notice After Receipt        
               of Agent Release Notice.....................................  18
                                                                             
                                                                             
                                  ARTICLE XII
                                                                             
                INFORMATION ACCOMPANYING DEPOSITS; CERTIFICATES
                                                                             
SECTION 12.01. Information to Accompany Amounts Delivered to                 
               Disbursement Agent; Deposits Irrevocable....................  19
SECTION 12.02. Delivery of Certificates; Timing of Payments................  19
SECTION 12.03. Books of Account; Statements................................  19
</TABLE> 

                                      iii
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<CAPTION> 

                                                                            Page
                                                                            ----


                                  ARTICLE XIII

                                   INVESTMENT
<S>            <C>                                                           <C>
SECTION 13.01. Investment of Funds in Accounts.............................  20
                                                                             
                                                                             
                                  ARTICLE XIV
                                                                             
                              DISBURSEMENT AGENT
                                                                             
SECTION 14.01. Limitation of Liability.....................................  20
                                                                             
                                                                             
                                  ARTICLE XV
                                                                             
                                DETERMINATIONS
                                                                             
SECTION 15.01. Action in Accordance with Instructions......................  22
SECTION 15.02. Cash Available..............................................  22
SECTION 15.03. Regarding Disbursement and Enhancement Certificates.........  22
                                                                             
                                                                             
                                  ARTICLE XVI
                                                                             
                                 MISCELLANEOUS
                                                                             
SECTION 16.01. Fees and Indemnification of Disbursement Agent..............  23
SECTION 16.02. Appointment of the Disbursement Agent as Attorney...........  23
SECTION 16.03. Replacement or Resignation of Disbursement Agent............  23
SECTION 16.04. Termination.................................................  24
SECTION 16.05. Severability................................................  24
SECTION 16.06. Counterparts................................................  25
SECTION 16.07. Amendments..................................................  25
SECTION 16.08. Applicable Law..............................................  25
SECTION 16.09. Notices.....................................................  25
SECTION 16.10. Benefit of Agreement........................................  25
SECTION 16.11. Further Actions.............................................  25
SECTION 16.12. Submission to Jurisdiction; Waivers.........................  25
SECTION 16.13. Copies to Lessee............................................  26
</TABLE> 

                                      iv
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                                 ARTICLE XVII

               BORROWER ENVIRONMENTAL LIABILITY RESERVE ACCOUNT

<S>            <C>                                                           <C>
SECTION 17.01. Deposits into the Borrower Environmental Liability
               Reserve Account.............................................  26
SECTION 17.02. Disbursements from the Borrower Environmental                 
               Liability Reserve Account...................................  27
                                                                             
                                                                             
                                 ARTICLE XVIII
                                                                             
                LESSEE ENVIRONMENTAL LIABILITY RESERVE ACCOUNT
                                                                             
SECTION 18.01. Deposits into the Lessee Environmental Liability              
               Reserve Account.............................................  27
SECTION 18.02. Disbursements from the Lessee Environmental Liability         
               Reserve Account.............................................  27
                                                                             
                                                                             
                                  ARTICLE XIX
                                                                             
                           CAPITAL EXPENDITURE FUND
                                                                             
SECTION 19.01. Deposits into the Capital Expenditure Fund..................  28
SECTION 19.02. Disbursements from the Capital Expenditure Fund.............  28
SECTION 19.03. Discretion of Lessor and Lessee.............................  28
                                                                             
                                                                             
                                  ARTICLE XX
                                                                             
                                 HEDGE ACCOUNT
                                                                             
SECTION 20.01. Deposits into Hedge Account.................................  29
SECTION 20.02. Disbursement from the Hedge Account.........................  29
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                                       v
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                                                                            ----


                                   ARTICLE XXI

                            AMORTIZATION SUB-ACCOUNT

<S>            <C>                                                           <C>
SECTION 21.01. Deposits into Amortization Sub-Account......................  29
SECTION 21.02. Disbursement from the Amortization Sub-Account..............  29
</TABLE> 

<TABLE> 
<CAPTION> 

EXHIBITS
--------
<S>                  <C> 
EXHIBIT 5.02(a)(1)   Disbursement Certificate
EXHIBIT 5.02(a)(2)   Disbursement Block Certificate
EXHIBIT 5.02(a)(3)   Disbursement Release Certificate
EXHIBIT 5.02(a)(4)   Capital Expenditure Fund Deposit Certificate
EXHIBIT 5.02(b)      Advance Payment Certificate
EXHIBIT 5.02(d)(1)   Agent Release Notice
EXHIBIT 5.02(d)(2)   Lessor Release Notice
EXHIBIT 8.02(d)      Maintenance Reserve Account Reduction Certificate
EXHIBIT 8.04(a)      Enhancement Certificate
EXHIBIT 8.04(b)      Enhancement Consent Certificate Certificate
EXHIBIT 9.02(a)      Insurance Proceeds Disbursement
EXHIBIT 11.01(a)(1)  Agent Default Notice
EXHIBIT 11.01(a)(2)  Default Notice Withdrawal
EXHIBIT 11.01(a)(3)  Agent Post-Default Disbursement Certificate
EXHIBIT 11.02(a)(1)  Lessor Default Notice
EXHIBIT 11.02(a)(2)  Lessor Post-Default Disbursement Certificate
EXHIBIT 17.02(b)     Borrower Environmental Liability Reserve Account
                     Disbursement Certificate
EXHIBIT 17.02(c)     Borrower Environmental Liability Reserve Account Release
                     Notice
EXHIBIT 18.02(b)     Lessee Environmental Liability Reserve Account Disbursement
                     Certificate
EXHIBIT 18.02(c)     Lessee Environmental Liability Reserve Account Release
                     Notice
EXHIBIT 19.02        Capital Expenditure Fund Disbursement Certificate
EXHIBIT 21.02(a)     Amortization Sub-Account Disbursement Certificate
</TABLE> 

                                      vi
<PAGE>
 
                               TABLE OF CONTENTS

<TABLE> 
<S>                  <C> 
SCHEDULE I           Addresses for Payments or Notices
SCHEDULE II          Installment Payments
SCHEDULE III         [RESERVED]
SCHEDULE IV          Basic Rent (Equity)
SCHEDULE V           [RESERVED]
SCHEDULE VI          Junior Debt Holders and Junior Debt Amortization
</TABLE> 


                                      vii
<PAGE>
 
                             AMENDED AND RESTATED
                      DISBURSEMENT AND SECURITY AGREEMENT


     AMENDED AND RESTATED DISBURSEMENT AND SECURITY AGREEMENT (this
"Disbursement Agreement") dated December 22, 1995, by and among:
 ----------------------

     (a)  Buzzard Power Corporation, a Delaware corporation ("Lessee"),
                                                              ------

     (b)  Scrubgrass Generating Company, L.P., A Delaware limited partnership
("Lessor"),
  ------

     (c)  Bankers Trust Company, a New York banking corporation (the
"Disbursement Agent," in its individual capacity in Section 2.01 and
 ------------------
otherwise in its capacity as disbursement agent hereunder), and

     (d)  Credit Lyonnais, acting through its New York branch, as agent for the
Banks, the Bond LOC Issuer and the Contract LOC Issuer (as each such term is
defined in the Amended and Restated Participation Agreement referred to below)
(in such capacity, the "Agent").
                        -----


                              W I T N E S S E T H

     WHEREAS, the Lessee, the Lessor, Environmental Power Corporation ("EPC"),
                                                                        ---
Bankers Trust Company, not in its individual capacity but solely as trustee
under the Indenture (as defined in the Original Participation Agreement referred
to below) (in such capacity, the "Bond Trustee"), the Disbursement Agent,
                                  ------------
National Westminster Bank Plc ("NatWest"), as issuer of the Bond Letter of
                                -------
Credit and the Contract Letter of Credit (as each such term is defined in the
Original Participation Agreement referred to below) (in such capacity, the
"Original LOC Issuer") and NatWest, as agent for the Original LOC Issuer and the
 -------------------
banks listed on Schedule I to the Original Reimbursement Agreement referred to
below (the "Original Banks") (in such capacity, the "Original Agent"), are
            --------------                           --------------
parties to a Participation Agreement dated as of December 15, 1990 (as amended,
supplemented and otherwise modified and in effect to but excluding the date
hereof, the "Original Participation Agreement"), which provides for, among other
             --------------------------------
things, the financing and leasing of an approximately 85 megawatt coal and waste
coal-fired power generation facility located in Venango County, Pennsylvania;

     WHEREAS, the Lessor, the Original Banks, the Original LOC Issuer and the
Original Agent are parties to a Reimbursement and Loan Agreement dated as of
December 15, 1990 (as amended, supplemented and otherwise modified and in effect
to but excluding the date hereof, the "Original Reimbursement Agreement"), which
                                       --------------------------------
provides for, among other things, the making of loans to and the issuance of
letters of credit for the account of the Lessor, all to be secured by all of the
Lessor's right, title and interest in and to, inter alia, the Project and all
                                              ----- ----
Project Revenues (as each such term is defined in the Original Participation
Agreement) or other proceeds therefrom;


                                       1
<PAGE>
 
     WHEREAS, in connection with the transactions contemplated by the Original
Participation Agreement and the Original Reimbursement Agreement, Lessor and
Lessee have entered into that certain Lease Agreement, dated as of June 17, 1994
(as amended, restated, modified or supplemented in accordance with the
Participation Agreement and in effect to but excluding the date hereof, the
"Original Lease Agreement"), pursuant to which Lessee has leased the Project
 ------------------------
from Lessor, and in consideration of which Lessee has assigned to Lessor, as
collateral, all of Lessee's right, title and interest in and to, inter alia, the
                                                                 ----- ----
Project and all Project Revenues or other proceeds therefor.

     WHEREAS, in connection with the transactions contemplated by the Original
Participation Agreement and the Original Reimbursement Agreement, the Lessor,
the Lessee, the Disbursement Agent and the Original Agent entered into the
Disbursement and Security Agreement dated as of December 15, 1990, as amended by
Amendment Number One to Disbursement Agreement, dated as of November 30, 1992,
and Amendment Number Two to Disbursement Agreement, dated as of June 17, 1994
(the "Original Disbursement Agreement");
      -------------------------------

     WHEREAS, NatWest has resigned as Agent under (and as defined in) the
Original Participation Agreement, the Original Reimbursement Agreement, the
Original Disbursement Agreement and certain other documents entered into in
connection therewith;

     WHEREAS, the Original Banks have appointed Credit Lyonnais, acting through
its New York Branch, as successor Agent under (and as defined in) the Original
Participation Agreement, the Original Reimbursement Agreement, the Original
Disbursement Agreement and certain other documents entered into in connection
therewith (and the Lessor has acknowledged and ratified such appointment);

     WHEREAS, the Lessee, the Lessor, EPC, the Bond Trustee, the Disbursement
Agent and the Agent have entered into an Amended and Restated Participation
Agreement dated the date hereof (as amended, restated, supplemented and in
effect from time to time, the "Amended and Restated Participation Agreement"),
                               --------------------------------------------
providing for the amendment and restatement of the Original Participation
Agreement;

     WHEREAS, the Lessor and the Lessee have entered into an Amended and
Restated Lease Agreement dated the date hereof (as amended, restated,
supplemented and in effect from time to time, the "Amended and Restated Lease"),
                                                   --------------------------
providing for the amendment and restatement of the Original Lease Agreement;

     WHEREAS, the Lessor, certain banks (the "Banks"), the Original LOC Issuer
                                              -----
and the Agent have entered into an Amended and Restated Reimbursement and Loan
Agreement, dated the date hereof (as amended, restated, supplemented and in
effect from time to time, the "Amended and Restated Reimbursement Agreement"),
                               --------------------------------------------
providing for the amendment and restatement of the Original Reimbursement
Agreement, it being the intent that the loans and other extensions of credit
outstanding under the Original Reimbursement Agreement shall not be deemed to be
repaid or terminated upon the effectiveness of the Amended and Restated


                                       2
<PAGE>
 
Reimbursement Agreement but shall continue to remain outstanding under the
Amended and Restated Reimbursement Agreement; and

     WHEREAS, it is a condition precedent to the amendment and restatement of
the Original Participation Agreement and the Original Reimbursement Agreement
that the Lessee, the Lessor and the Disbursement Agent enter into this
Disbursement Agreement with the Agent, it being the intent that the security
interests granted by the Lessee and the Lessor, respectively, pursuant to, and
the liens created by, the Original Disbursement Agreement in favor of the
Disbursement Agent for the benefit of the Persons specified therein, be ratified
and continued (but not be terminated) in favor of the Disbursement Agent for the
benefit of the Persons specified herein upon the effectiveness of this
Disbursement Agreement.

     NOW THEREFORE, in consideration of the mutual agreements herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:


                                   ARTICLE I

                 DEFINITIONS; ORIGINAL DISBURSEMENT AGREEMENT
                 --------------------------------------------

     SECTION 1.01. Definitions. Capitalized terms used herein shall, unless the
                   -----------
context otherwise requires or they are otherwise defined herein, have the
meanings set forth in Appendix I to the Amended and Restated Participation
Agreement. Capitalized references to any notice or certificate attached as an
Exhibit hereto shall mean a duly executed and completed notice or certificate
substantially in the form of the applicable Exhibit. References in this
Disbursement Agreement to articles, sections, paragraphs and clauses are to
articles, sections, paragraphs and clauses of this Disbursement Agreement unless
otherwise indicated. All references herein to any agreements shall be to such
agreement as amended, restated, modified or supplemented to the date of
reference in accordance with the terms and conditions of the Transaction
Documents. All references to a particular entity shall include a reference to
such entity's permitted successors and permitted assigns. Except as otherwise
required by the context, such definitions shall be equally applicable to the
singular or plural forms of the terms defined. The words "herein," "hereof" and
"hereunder" shall refer to this Disbursement Agreement as a whole and not to any
particular section or subsection of this Disbursement Agreement. "Includes" or
"including" shall mean "including without limitation."

     SECTION 1.02. Original Disbursement Agreement. Effective on the Effective
                   -------------------------------
Date, the Original Disbursement Agreement shall automatically, without any
further notice, consent or other act, be amended and restated hereby and to the
extent this Disbursement Agreement restates the Original Disbursement Agreement,
the Original Disbursement Agreement is restated and to the extent this
Disbursement Agreement amends the Original Disbursement Agreement, the Original
Disbursement Agreement is amended; provided, that the security interests granted
                                   --------
by the Lessee and the Lessor, respectively, pursuant to, and the liens created
by, the Original 


                                       3
<PAGE>
 
Disbursement Agreement in favor of the Disbursement Agent for the benefit of
Persons specified therein, shall be ratified and continued (but not be
terminated) in favor of the Disbursement Agent for the benefit of the Persons
specified herein upon the effectiveness of this Disbursement Agreement, as the
terms and conditions thereof may be amended and restated hereby.

                                  ARTICLE II

               APPOINTMENT AND DIRECTION OF DISBURSEMENT AGENT;
                           CONTINUATION OF ACCOUNTS
                           ------------------------

     SECTION 2.01. Appointment and Direction of Disbursement Agent. Lessor and
                   -----------------------------------------------
Agent, on behalf of itself and the Secured Parties, hereby appoint Bankers Trust
Company as disbursement agent hereunder and Bankers Trust Company hereby accepts
such appointment, agrees to act as such and to accept all proceeds of Working
Capital Loans, Debt Service Loans, the New Term Loan, Project Revenues and other
amounts to be delivered to or held by the Disbursement Agent in trust and as
collateral agent for Lessor and for Agent, on behalf of the Secured Parties and
Lessor, as their interests appear, pursuant to the terms of this Disbursement
Agreement. Notwithstanding the preceding sentence or any other provision of this
Disbursement Agreement to the contrary, until the Disbursement Agent shall have
received an Agent Release Notice from Agent, the Disbursement Agent shall be
deemed the agent solely of Agent, and, except as expressly provided in Sections
8.02(d), 8.04(a), 13.01, 16.03(b) and 16.04 and the following provisos, shall
accept instructions solely from Agent; provided, however, that, the foregoing
                                       --------  -------
notwithstanding, unless and until the Disbursement Agent shall have received an
Agent Default Notice (which has not been withdrawn by the further receipt of a
Default Notice Withdrawal), the Disbursement Agent shall accept and be entitled
to rely on instructions delivered by Lessor and Agent (or instructions delivered
by Lessor and deemed delivered by Agent) pursuant to a completed original
counterpart of a Disbursement Certificate or Enhancement Certificate, in each
case delivered or deemed delivered in accordance with the terms of this
Disbursement Agreement and containing the applicable required certifications and
having attached thereto the applicable required schedules, and provided,
                                                               --------
further, that, following the Disbursement Agent's receipt of a Disbursement
-------
Block Certificate (which has not been withdrawn by the further receipt of a
Disbursement Release Certificate), the Disbursement Agent shall accept and be
entitled to rely on instructions delivered by Lessor only pursuant to a
completed Disbursement Certificate or Enhancement Certificate, in each case
executed by each of Lessor and Agent. In respect of each Disbursement
Certificate and Enhancement Certificate delivered to the Disbursement Agent
hereunder, (i) the original counterpart of such Disbursement Certificate or
Enhancement Certificate shall be delivered to the Agent with a true and complete
copy thereof contemporaneously delivered to the Disbursement Agent and the Agent
shall, provided such certificate meets the requirements of this Disbursement
Agreement, transmit the original counterpart of such Disbursement Certificate or
Enhancement Certificate to the Disbursement Agent on or prior to the date
disbursement of funds is to be made as specified in such certificate, provided
that if the Agent shall fail to deliver to the Disbursement Agent such original
counterpart of such Disbursement Certificate or Enhancement Certificate prior to
such 


                                       4
<PAGE>
 
date and the Agent shall not have delivered an Agent Default Notice or a
Disbursement Block Certificate (which has not been withdrawn by the further
receipt of a Default Notice Withdrawal or a Disbursement Release Certificate, as
applicable) then the Agent shall be deemed to have delivered to the Disbursement
Agent the original counterpart of the Disbursement Certificate or Enhancement
Certificate and (ii) each Disbursement Certificate and Enhancement Certificate
shall have attached thereto any applicable schedules setting forth, as
applicable, the identity of any recipients of funds to be disbursed, the nature
or purpose of any disbursement, computations demonstrating compliance with any
applicable Debt Service Coverage Ratio or Net Cash Flow test, and such other
information reasonably related to such certificate and any disbursement
requested thereby as the Agent may request, in each case in form and substance
reasonably satisfactory to the Agent. Upon receipt of an Agent Release Notice,
the Disbursement Agent shall be deemed the agent solely of Lessor, and except as
expressly permitted herein, shall accept instructions solely from Lessor. The
Disbursement Agent shall hold and safeguard the Accounts (and the revenues,
cash, payments, securities, insurance proceeds, condemnation proceeds,
investments and other amounts from time to time on deposit therein) during the
term of this Disbursement Agreement in segregated accounts for disbursement
strictly in accordance with the terms hereof.

     SECTION 2.02.   Continuation of Lessor Accounts; Creation of Hedge Account.
                     ----------------------------------------------------------

          (a) Construction Account. The "Construction Account" as defined in and
              --------------------
     created under the Original Disbursement Agreement is hereby ratified,
     confirmed and continued (but not terminated) under this Disbursement
     Agreement as a special, segregated and irrevocable account of Lessor
     entitled the "Construction Account" (the "Construction Account") to be held
                                               --------------------
     in the custody of the Disbursement Agent. No payments shall be made out of
     the Construction Account except for the purposes and on the terms herein
     stated.

          (b) Amortization Account; Amortization Sub-Account. The "Amortization
              ----------------------------------------------
     Account" as defined in and created under the Original Disbursement
     Agreement is hereby ratified, confirmed and continued (but not terminated)
     under this Disbursement Agreement as a special, segregated and irrevocable
     account of Lessor entitled the "Amortization Account" (the "Amortization
                                                                 ------------
     Account") to be held in the custody of the Disbursement Agent. No payments
     -------
     shall be made out of such account except for the purposes and on the terms
     herein stated. There is hereby created and established a special,
     segregated and irrevocable sub-account of the Amortization Account entitled
     the "Amortization Sub-Account" (the "Amortization Sub-Account") to be held
                                          ------------------------
     in the custody of the Disbursement Agent. No payments shall be made out of
     such sub-account except for the purposes and on the terms herein stated.

          (c) Insurance Account. The "Insurance Account" as defined in and
              -----------------
     created under the Original Disbursement Agreement is hereby ratified,
     confirmed and continued (but not terminated) under this Disbursement
     Agreement as a special, segregated and irrevocable account of Lessor
     entitled the "Insurance Account" (the "Insurance Account") 
                                            -----------------


                                       5
<PAGE>
 
     to be held in the custody of the Disbursement Agent. No payments shall be
     made out of such account except for the purposes and on the terms herein
     stated.

          (d) Lessor Revenues Account. The "Lessor Revenues Account" as defined
              -----------------------
     in and created under the Original Disbursement Agreement is hereby
     ratified, confirmed and continued (but not terminated) under this
     Disbursement Agreement as a special, segregated and irrevocable account of
     Lessor entitled the "Lessor Revenues Account" (the "Lessor Revenues
                                                         ---------------
     Account") to be held in the custody of the Disbursement Agent. No payments
     -------
     shall be made out of such account except for the purposes and on the terms
     herein stated.

          (e) Rent Suspense Account. The "Rent Suspense Account" as defined in
              ---------------------
     and created under the Original Disbursement Agreement is hereby ratified,
     confirmed and continued (but not terminated) under this Disbursement
     Agreement as a special segregated and irrevocable account of Lessor
     entitled the "Rent Suspense Account" (the "Rent Suspense Account") to be
                                                ---------------------
     held in the custody of the Disbursement Agent. No payments shall be made
     out of such account except for the purposes and on the terms herein stated.

          (f) Borrower Environmental Liability Reserve Account. The "Borrower
              ------------------------------------------------
     Environmental Liability Reserve Account" as defined in and created under
     the Original Disbursement Agreement is hereby ratified, confirmed and
     continued (but not terminated) under this Disbursement Agreement as a
     special, segregated and irrevocable account of Lessor entitled the
     "Borrower Environmental Liability Reserve Account" (the "Borrower
                                                              --------
     Environmental Liability Reserve Account") to be held in the custody of the
     ---------------------------------------
     Disbursement Agent. No payments shall be made out of such account except
     for the purposes and on the terms herein stated.

          (g) Hedge Account. There is hereby created and established a special,
              -------------
     segregated and irrevocable account of Lessor entitled the "Hedge Account"
     (the "Hedge Account") to be held in the custody of the Disbursement Agent.
           -------------
     No payments shall be made out of the Hedge Account except for the purposes
     and on the terms herein stated.

     SECTION 2.03.   Continuation of Lessee Accounts.
                     -------------------------------

          (a) Operating Account. The "Operating Account" as defined in and
              -----------------
     created under the Original Disbursement Agreement is hereby ratified,
     confirmed and continued (but not terminated) under this Disbursement
     Agreement as a special, segregated and irrevocable account of Lessee
     entitled the "Operating Account" (the "Operating Account") to be held in
                                            -----------------
     the custody of the Disbursement Agent. No payments shall be made out of
     such account except for the purposes and on the terms herein stated.

          (b) Maintenance Reserve Account. The "Maintenance Reserve Account" as
              ---------------------------
     defined in and created under the Original Disbursement Agreement is hereby
     ratified, 


                                       6
<PAGE>
 
     confirmed and continued (but not terminated) under this Disbursement
     Agreement as a special, segregated and irrevocable account of Lessee
     entitled the "Maintenance Reserve Account" (the "Maintenance Reserve
                                                      -------------------
     Account") to be held in the custody of the Disbursement Agent. No payments
     -------
     shall be made out of such account except for the purposes and on the terms
     herein stated. There is hereby created and established a special,
     segregated and irrevocable sub-account of the Maintenance Reserve Account
     entitled the "Maintenance Reserve Sub-Account" (the "Maintenance Reserve
                                                          -------------------
     SubAccount") to be held in the custody of the Disbursement Agent. No
     ----------
     payments shall be made out of such sub-account except for the purposes and
     on the terms herein stated.

          (c) Available Cash Flow Account. The "Available Cash Flow Account" as
              ---------------------------
     defined in and created under the Original Disbursement Agreement is hereby
     ratified, confirmed and continued (but not terminated) under this
     Disbursement Agreement as a special, segregated and irrevocable account of
     Lessee entitled the "Available Cash Flow Account" (the "Available Cash Flow
                                                             -------------------
     Account") to be held in the custody of the Disbursement Agent. No payments
     -------
     shall be made out of such account except for the purposes and on the terms
     herein stated.

          (d) Lessee Environmental Liability Reserve Account. The "Lessee
              ----------------------------------------------
     Environmental Liability Reserve Account" as defined in and created under
     the Original Disbursement Agreement is hereby ratified, confirmed and
     continued (but not terminated) under this Disbursement Agreement as a
     special, segregated and irrevocable account of Lessee entitled the "Lessee
     Environmental Liability Reserve Account" (the "Lessee Environmental
                                                    --------------------
     Liability Reserve Account") to be held in the custody of the Disbursement
     -------------------------
     Agent. No payments shall be made out of such account except for the
     purposes and on the terms herein stated.

     SECTION 2.04. Creation of Capital Expenditure Fund. There is hereby created
                   ------------------------------------
and established a special, segregated and irrevocable account of Lessor and
Lessee entitled the "Capital Expenditure Fund" (the "Capital Expenditure Fund")
                                                     ------------------------
to be held in the custody of the Disbursement Agent, solely for the benefit of
Lessor and Lessee. No payments shall be made out of such account except for the
purposes and on the terms herein stated. The Capital Expenditure Fund shall not
constitute a "Lessor Account," a "Lessee Account" or an "Account" and shall not
constitute part of the Collateral of the Bank Parties.


                                  ARTICLE III

                        ASSIGNMENT PLEDGE AND GRANT OF
                        ------------------------------
                               SECURITY INTERESTS
                               ------------------

     SECTION 3.01. Assignment by Lessee. To secure the timely payment and
                   --------------------
performance of all of the obligations of Lessee under the Amended and Restated
Lease, the Amended and Restated Lessee Working Capital Loan Agreement, the
Lessee Security Agreement 


                                       7
<PAGE>
 
and the other Transaction Documents, Lessee does hereby assign, transfer, pledge
and grant to the Disbursement Agent, as security agent for Lessor and for Agent,
on behalf of the Bank Parties, a security interest in all of the Lessee's right,
title and interest in, to and under the following, whether now owned or
hereafter acquired and whether now existing or hereafter coming into existence:
(i) all Project Revenues or proceeds of Lessee Working Capital Loans, (ii) each
of the Lessee Accounts, including all monies and investment securities held in
the Lessee Accounts and all other funds of Lessee held, from time to time, by
the Disbursement Agent under this Disbursement Agreement, and (iii) the proceeds
of all the foregoing (all the collateral described in clauses (i) through (iii)
above being herein collectively called the "Lessee Account Collateral"). Lessee
                                            -------------------------
acknowledges that the Disbursement Agent is the agent solely of the Lessor or
the Agent, as provided in Section 2.01 hereof, and hereby irrevocably
relinquishes to the Disbursement Agent as security agent for Lessor and the
Agent on behalf of the Secured Parties, all right, title and interest which
Lessee has in the Lessee Account Collateral, subject to the terms and conditions
of this Disbursement Agreement and grants the Disbursement Agent sole dominion
and control over such Lessee Account Collateral. The Lessee shall not have the
right to withdraw monies from any Account hereunder except to the extent such
monies are disbursed by the Disbursement Agent pursuant to the terms of this
Disbursement Agreement. Lessee further disavows and waives any claim that the
Disbursement Agent is a fiduciary of or owes any fiduciary duty to Lessee.
Lessee hereby acknowledges and agrees that the application and disbursement of
funds from the Lessee Accounts will occur pursuant to Disbursement Certificates,
the other Exhibits to this Disbursement Agreement and otherwise in accordance
with this Disbursement Agreement (including, without limitation, Article XI
hereof). In connection with the foregoing, Lessee shall, or shall cause the
Project Manager to, prepare and deliver to the appropriate Person in a timely
fashion all information, documentation and calculations reasonably required or
necessary to complete and deliver Disbursement Certificates and each other
applicable Exhibit in accordance with this Disbursement Agreement.

     SECTION 3.02. Assignment by Lessor. To secure the timely payment of the
                   --------------------
Obligations, Lessor does hereby assign, transfer, pledge and grant to the
Disbursement Agent, as security agent for Agent, on behalf of the Bank Parties,
a security interest in all of the Lessor's right, title and interest in, to and
under the following, whether now owned or hereafter acquired and whether now
existing or hereafter coming into existence: (i) all of Lessor's right, title
and interest in and to the Lessee Account Collateral, (ii) all proceeds of the
New Term Loan, Working Capital Loans, Debt Service Loans, any proceeds of
Construction Borrowings in the Construction Account, and all revenues, cash,
insurance proceeds, condemnation proceeds, and other monies derived from
Lessor's interest in and operation of the Project (including all Rent), (iii)
each of the Lessor Accounts, including all monies and investment securities held
in the Lessor Accounts and all other funds held by the Disbursement Agent under
this Disbursement Agreement, and (iv) the proceeds of all the foregoing (all the
collateral described in clauses (i) through (iv) above being herein collectively
called the "Lessor Account Collateral"). Lessor acknowledges that, except after
            -------------------------
the Disbursement Agent's receipt of an Agent Release Notice, the Disbursement
Agent is the agent solely of Agent and hereby relinquishes to the Disbursement
Agent as security agent for Agent on behalf of the Secured Parties, all right,
title and interest which Lessor has in the Lessor Account Collateral, subject


                                       8
<PAGE>
 
to the terms and conditions of this Disbursement Agreement and grants the
Disbursement Agent sole dominion and control over such Lessor Account
Collateral. The Lessor shall not have the right to withdraw monies from any
Account hereunder except to the extent such monies are disbursed by the
Disbursement Agent pursuant to the terms of this Disbursement Agreement. Lessor
further disavows and waives, during any period the Disbursement Agent is acting
solely as agent of Agent, any claim that the Disbursement Agent is a fiduciary
of or owes any fiduciary duty to Lessor.

     SECTION 3.03. Transaction Documents Govern Obligations; No Waiver. The
                   ---------------------------------------------------
parties hereto acknowledge that, except as provided in Article III hereof, the
interests of any party to the funds held in any Lessee Account or Lessor Account
and the obligations of Lessee or Lessor to pay any funds held in such Accounts
are created by the Amended and Restated Participation Agreement, the Amended and
Restated Reimbursement Agreement, the Amended and Restated Lease, the Amended
and Restated Lessee Working Capital Loan Agreement, the Indenture and the other
Transaction Documents and the transactions contemplated thereby. Each of Lessor
and Agent hereby covenant to each other and the Lessee that such party shall not
deliver any certificates or notices contemplated herein to the Disbursement
Agent or direct payment of any funds held in any Lessor Account or Lessee
Account except in strict compliance with such parties' rights under the
Transaction Documents; provided, however, that the direction by Agent or Lessor
to the Disbursement Agent to disburse funds from any Account shall not
constitute a waiver by Agent or Lessor of any of the obligations or conditions
of any party in any Transaction Document.


                                  ARTICLE IV

                             CONSTRUCTION ACCOUNT
                             --------------------

     SECTION 4.01.  [INTENTIONALLY OMITTED].
                    -----------------------

     SECTION 4.02.  Disbursements from Construction Account.
                    ---------------------------------------

          (a) Distribution on or after Effective Date. Upon receipt by the
              ---------------------------------------
     Disbursement Agent of written notice from Agent and Lessor from time to
     time prior to December 31, 1996, the Disbursement Agent shall apply amounts
     remaining in the Construction Account to the payment of costs, fees and
     expenses incurred or to be incurred in connection with improvements to the
     boiler area of the Facility and the ash handling area of the Facility.


                                       9
<PAGE>
 
                                   ARTICLE V

                               OPERATING ACCOUNT
                               -----------------

     SECTION 5.01. Deposits into Operating Account. During the period commencing
                   -------------------------------
on the Effective Date and ending on the last day of the term of the Amended and
Restated Lease, Lessee shall deposit or cause to be deposited with the
Disbursement Agent (i) all Project Revenues, (ii) all amounts received pursuant
to any business interruption insurance and (iii) all proceeds of Lessee Working
Capital Loans. The Disbursement Agent shall deposit all such Project Revenues
(other than investment earnings on amounts on deposit in any Account, which
shall be held as part of such Account in accordance with Section 13.01 of this
Disbursement Agreement) into the Operating Account.

     SECTION 5.02.  Disbursements from Operating Account.
                    ------------------------------------

          (a) Timing and Priority of Disbursements. Subject to Article XI and
              ------------------------------------
     Section 15.03 of this Disbursement Agreement and provided the Disbursement
     Agent shall not have received an Agent Default Notice or, following receipt
     of an Agent Release Notice, a Lessor Default Notice (which in either case
     shall not have been withdrawn by the further receipt of a Default Notice
     Withdrawal) upon satisfaction of any condition described below, the
     Disbursement Agent shall disburse, from the cash available in the Operating
     Account, the following amounts to the extent thereof at the times, for the
     purposes and in the order of priority set forth below:

          (X). AT ANY TIME, FROM TIME TO TIME, upon receipt, at least three (3)
     Business Days prior to the date of disbursement specified therein, of a
     completed original counterpart of a Disbursement Certificate substantially
     in the form of Exhibit 5.02(a)(1) hereto specifying that such Disbursement
     Certificate is delivered or deemed delivered pursuant to this Section
     5.02(a)(X) (with all applicable schedules completed and attached thereto),
     in the following order of priority (to the extent any of the following
     amounts are to be paid at such time):

               First to the Bond Trustee, certain rebates due with respect to
               -----
          certain interest income on funds to the extent required by Section
          4.07 of the Indenture as described in Schedule 1 to such Disbursement
          Certificate;

               Second to the applicable taxing authority, property taxes on the
               ------
          Facility or the Site as described in Schedule 1 to such Disbursement
          Certificate;

               Third to the Lessee or Lessee's designee, the Operating Expenses
               -----
          as described in Schedule 1 to such Disbursement Certificate;

               Fourth to Agent, any Unpaid Drawings or interest thereon, as
               ------
          described in Schedule 1 to such Disbursement Certificate;


                                      10
<PAGE>
 
               Fifth to Agent or the Bond Trustee, as applicable, interest on
               -----
          any Loans or Bonds, as described in Schedule 1 to such Disbursement
          Certificate;

               Sixth to the Disbursement Agent or the Bond Trustee, its periodic
               -----
          fees and expenses, as described in Schedule 1 to such Disbursement
          Certificate;

               Seventh to Agent, Fees due and payable, as described in Schedule
               -------
          1 to such Disbursement Certificate; and

               Eighth to Agent, an amount selected by Lessor to repay principal
               ------
          of outstanding Working Capital Loans and/or Debt Service Loans, as
          described in Schedule 2 to such Disbursement Certificate.

          (Y). ON EACH PAYMENT DATE, upon receipt, at least three (3) Business
     Days prior to the date of disbursement specified therein, of a completed
     original counterpart of a Disbursement Certificate substantially in the
     form of Exhibit 5.02(a)(1) hereto specifying that such Disbursement
     Certificate is delivered or deemed delivered pursuant to this Section
     5.02(a)(Y) (with all applicable schedules completed and attached thereto),
     in the following order of priority:

               First (i) to payment of the appropriate amounts described in Part
               -----
          X above which are due and unpaid as of such Payment Date, as described
          in Schedule 1 to such Disbursement Certificate, (ii) to retention in
          the Operating Account of any other amounts described in Part X above
          which are accrued and unpaid (but not due) as of such Payment Date, as
          described in Schedule 1 to such Disbursement Certificate and (iii) to
          retention in the Operating Account, up to $25,000 for application by
          the Disbursement Agent, upon written direction of Lessor, to the
          payment of costs and expenses relating to the Project;

               Second to the Amortization Account, the installment due on such
               ------
          Payment Date in respect of the redemption of Bonds as set forth in
          Schedule 5.02 of the Amended and Restated Reimbursement Agreement, a
          copy of which is attached hereto as Schedule II, as described in
          Schedule 1 to such Disbursement Certificate;

               Third to Agent, any scheduled installments of principal due on
               -----
          any Loan (other than the Debt Service Loans and Working Capital Loans)
          on such Payment Date as set forth in Schedule II hereto, as described
          in Schedule 1 to such Disbursement Certificate;

               Fourth to Agent, any other amounts due and payable to the Bond
               ------
          LOC Issuer, the Contract LOC Issuer, the Agent or any Bank under any
          Transaction Document, as described in Schedule 1 to such Disbursement
          Certificate;


                                      11
<PAGE>
 
               Fifth to (i) the Remarketing Agent, remarketing fees, if any, in
               -----
          respect of the Bonds and (ii) then, if the restriction in Section
          13.01(f)(iii) of the Amended and Restated Reimbursement Agreement
          shall apply, 100% of the balance remaining in the Operating Account
          shall be deposited into the Amortization Sub-Account, in each case as
          described in Schedule 1 to such Disbursement Certificate;

               Sixth to Lessor, an amount equal to the installment of Basic Rent
               -----
          (Equity) due on such Payment Date, as set forth in Schedule IV hereto
          (as such schedule may be amended from time to time) and as described
          in Schedule 1 to such Disbursement Certificate, unless the
          restrictions set forth in Section 11.08 of the Amended and Restated
          Reimbursement Agreement shall apply, then such amount shall be
          deposited in the Rent Suspense Account, in either case as set forth in
          paragraph 4 of such Disbursement Certificate;

               Seventh to Agent, the unpaid principal amount of any Debt Service
               -------
          Loan as described in such certificate;

               Eighth if the restrictions set forth in Section 11.08 of the
               ------
          Amended and Restated Reimbursement Agreement shall apply, then 100% of
          the balance remaining in the Operating Account shall be deposited into
          the Available Cash Flow Account;

               Ninth, in the following order of priority:
               -----

                    (i)  to the Maintenance Reserve Account, the amount required
               or permitted by Section 13.01(e) of the Amended and Restated
               Reimbursement Agreement to be deposited in the Maintenance
               Reserve Account, as described in Schedule 1 to such Disbursement
               Certificate and then

                    (ii) if required by Section 13.01(i) of the Amended and
               Restated Reimbursement Agreement, then 100% of the balance
               remaining in the Operating Account shall be deposited into the
               Hedge Account;

               Tenth to Agent on behalf of Lessor, an amount, as determined by
               -----
          Lessee and communicated to Lessor, up to the outstanding principal, if
          any, of any Lessee Working Capital Loans, as described in Schedule 1
          to such Disbursement Certificate (to be applied by Agent to the
          payment of outstanding Working Capital Loans and by Lessor to the
          payment of outstanding Lessee Working Capital Loans);

               Eleventh, in the following order of priority:
               --------


                                      12
<PAGE>
 
                    (i)  to the Bond Issuer, the payment of Bond Issuer Fees
               then due, as described in Schedule 1 to such Disbursement
               Certificate; and then

                    (ii) to the Project Manager, amounts due and owing to
               Project Manager, as described in Schedule 1 to such Disbursement
               Certificate;

               Twelfth to the Operator, the amount of Subordinated Operating
               -------
          Expenses due and owing to the Operator, as described in Schedule 1 to
          such Disbursement Certificate;

               Thirteenth to the holders of Junior Debt, if any, listed in
               ----------
          Schedule VI hereto, accrued interest and any installment of principal
          on Junior Debt due on or prior to such Payment Date as set forth in
          Schedule VI hereto (as such Schedule may be established or amended
          from time to time pursuant to written instructions from Lessor) and
          described in Schedule 1 to such Disbursement Certificate;

               Fourteenth to Lessor or its designee, any indemnity payment due
               ----------
          under Article X of the Amended and Restated Participation Agreement
          not otherwise paid pursuant to clause "Third" of Section 5.02(X), as
                                                 -----
          described in Schedule 1 to such Disbursement Certificate;

               Fifteenth to Lessor or an account specified by Lessor (if a
               ---------
          deposit is required to be made pursuant to Section 7.03(b) of the Tax
          Indemnity Agreement), the amount of any Indemnifiable Tax Loss
          described in Schedule 1 to such Disbursement Certificate;

               Sixteenth, for deposit in the Capital Expenditure Fund, provided
               ---------
          a Capital Expenditure Fund Deposit Certificate of Lessee is delivered
          to the Agent and the Disbursement Agent with the applicable
          Disbursement Certificate, the amount set forth in Schedule 1 to such
          Disbursement Certificate for application against Capital Expenditures
          in accordance with Article XX of this Disbursement Agreement; and

               Seventeenth, the balance remaining in the Operating Account to
               -----------
          payment to Lessor and Lessee of the amounts set forth in Schedule 1 to
          such Disbursement Certificate.

          (b)  Advance Payment of Basic Rent (Equity). From time to time, upon
               --------------------------------------
     receipt by Disbursement Agent of an Advance Payment Certificate of Agent
     authorizing such a distribution for the payment of income taxes and the
     amount thereof, the Disbursement Agent shall make a disbursement from the
     Operating Account to Lessor of the amounts referred to in clause "Sixth" of
                                                                       -----
     Section 5.02(a)(Y) on a date other than the Payment Date on which such
     amount was otherwise due.


                                      13
<PAGE>
 
          (c) Distribution after an Agent Default Notice or Disbursement Block
              ----------------------------------------------------------------
     Certificate. Upon receipt of (i) an Agent Default Notice (which has not
     -----------
     been withdrawn by the further receipt of a Default Notice Withdrawal), or
     (ii) a Disbursement Block Certificate (which has not been withdrawn by a
     Disbursement Release Certificate), the Disbursement Agent shall in each
     case suspend any further distribution from the Operating Account under
     Section 5.02(a) and shall thereafter disburse funds from the Operating
     Account pursuant to Article XI hereof.

          (d) Distribution after Discharge of Obligations. Upon receipt from
              -------------------------------------------
     Agent of an Agent Release Notice, the Disbursement Agent shall disburse
     from the cash available in the Operating Account at the times, in the
     amounts and in the order of priority specified in a Disbursement
     Certificate in accordance with 5.02(a)(X), clauses "First", "Second",
                                                         -----    ------
     "Third" and "Sixth" and 5.02(a)(Y) clauses "Fifth" , "Sixth" "Ninth" and
      -----       -----                          -----     -----   -----
     "Eleventh" through "Seventeenth" (without any application as provided in
      --------           -----------
     any other clause of Section 5.02). Upon receipt from Agent of the Agent
     Release Notice and from Lessor of a Lessor Release Notice the Disbursement
     Agent shall immediately disburse all remaining cash available in the
     Operating Account as provided in the preceding sentence (after giving
     effect to Section 8.02(c)).


                                  ARTICLE VI

              RENT SUSPENSE ACCOUNT; AVAILABLE CASH FLOW ACCOUNT
              --------------------------------------------------

     SECTION 6.01. Deposits into the Rent Suspense Account and the Available
                   ---------------------------------------------------------
Cash Flow Account. The Disbursement Agent shall deposit into the Rent Suspense
-----------------
Account and the Available Cash Flow Account all amounts so directed pursuant to
a Disbursement Certificate delivered pursuant to Section 5.02(a)(Y), clauses
"Sixth" and "Eighth" , respectively.
 -----       ------

     SECTION 6.02. Disbursements from the Rent Suspense Account and the
                   ----------------------------------------------------
Available Cash Flow Account. Subject to Article XI and Section 15.03, the
---------------------------
Disbursement Agent (a) shall disburse cash available in the Rent Suspense
Account and the Available Cash Flow Account promptly to the Amortization Account
upon receipt, at least three (3) Business Days prior to the date of disbursement
specified therein, of a completed original counterpart of a Disbursement
Certificate and as directed in a completed original counterpart of a
Disbursement Certificate (with all applicable schedules completed and attached
thereto) and (b) shall disburse cash available in the Rent Suspense Account to
the Lessor and cash available in the Available Cash Flow Account to the
Operating Account upon receipt of, at least three (3) Business Days prior to the
date of disbursement specified therein, of a completed original counterpart of a
Disbursement Certificate and as directed in such Disbursement Certificate (with
all applicable schedules completed and attached thereto).


                                      14
<PAGE>
 
                                  ARTICLE VII

                             AMORTIZATION ACCOUNT
                             --------------------

     SECTION 7.01. Deposits into Amortization Account. The Disbursement Agent
                   ----------------------------------
shall make such deposits into the Amortization Account as provided in clause
"Second" of Section 5.02(a)(Y) or Section 6.02(a).
 ------

     SECTION 7.02. Disbursement from the Amortization Account. Subject to
                   ------------------------------------------
Article XI and Section 15.03, the Disbursement Agent, from time to time, shall
disburse to the Bond Trustee or Agent, as the case may be, such amounts in the
Amortization Account upon receipt, at least three (3) Business Days prior to the
date of disbursement specified therein, of a completed original counterpart of a
Disbursement Certificate and as instructed in a completed original counterpart
of a Disbursement Certificate (with all applicable schedules completed and
attached thereto).


                                 ARTICLE VIII

                          MAINTENANCE RESERVE ACCOUNT
                          ---------------------------

     SECTION 8.01. Deposits into the Maintenance Reserve Account. The
                   ---------------------------------------------
Disbursement Agent shall make deposits into the Maintenance Reserve Account as
provided in Clause "Ninth" of Section 5.02(a)(Y) On the Effective Date, the
                    -----
Agent shall transfer to the Disbursement Agent proceeds of the New Term Loan in
the amount of $1,700,000. The Disbursement Agent shall deposit such amount in
the Maintenance Reserve Account for application in accordance with this
Disbursement Agreement.

     SECTION 8.02. Disbursements from the Maintenance Reserve Account.
                   --------------------------------------------------

          (a) Payments for Maintenance. Subject to Article XI and Section 15.03,
              ------------------------
     upon receipt, at least three (3) Business Days prior to the date of
     disbursement specified therein, of a completed original counterpart of a
     Disbursement Certificate (with all applicable schedules completed and
     attached thereto), the Disbursement Agent shall, from time to time,
     transfer from the funds available in the Maintenance Reserve Account, the
     amounts specified in such certificate to the Person(s) specified therein.

          (b) Excess Amounts. On each Payment Date, if there is on deposit in
              --------------
     the Maintenance Reserve Account an amount in excess of the Required
     Maintenance Reserve Account Balance, the Disbursement Agent shall transfer
     to the Operating Account from the Maintenance Reserve Account an amount
     equal to such excess.

          (c) Distribution to Operating Account. Upon receipt from Agent of an
              ---------------------------------
     Agent Release Notice and receipt from Lessor of a Lessor Release Notice,
     the Disbursement 


                                      15
<PAGE>
 
     Agent shall promptly close-out the Maintenance Reserve Account, deposit all
     remaining cash available in the Maintenance Reserve Account into the
     Operating Account, and clause "Ninth" of Section 5.02(a)(Y) and this
                                    -----
     Article VIII shall be of no further effect.

          (d)  Reductions of Required Balance. The Agent (acting at the
               ------------------------------
     direction of the Majority Banks) and Lessor, until the Disbursement Agent
     shall have received an Agent Release Notice, and thereafter Lessor, may,
     from time to time, reduce (but not increase) the Required Maintenance
     Reserve Account Balance. The Disbursement Agent shall, upon receipt of a
     Maintenance Reserve Account Reduction Certificate of the Agent and Lessor,
     or, following Disbursement Agent's receipt of an Agent Release Notice,
     Lessor, so instructing the Disbursement Agent of a reduction in the
     Required Maintenance Reserve Account Balance disburse any excess cash
     available in the Maintenance Reserve Account over the reduced Required
     Maintenance Reserve Account Balance:

               First: To Agent to prepay pro rata such portion of the
               -----
          outstanding principal of the Loans, as may be directed by Agent in
          such Maintenance Reserve Account Reduction Certificate; and

               Second: the balance to the Operating Account.
               ------

     SECTION 8.03. Deposits into the Maintenance Reserve Sub-Account. On the
                   -------------------------------------------------
Effective Date, the Agent shall transfer to the Disbursement Agent any proceeds
of the New Term Loan remaining after the payment in full of items (i) through
(vii) of Section 5.01(e) of the Amended and Restated Reimbursement Agreement.
The Disbursement Agent shall deposit such amount in the Maintenance Reserve
Sub-Account for application in accordance with this Disbursement Agreement.

     SECTION 8.04. Disbursements from the Maintenance Reserve Sub-Account.
                   ------------------------------------------------------

          (a)  Payments for Facility Enhancements. Upon receipt of an original
               ----------------------------------
     counterpart of an Enhancement Certificate of Lessor substantially in the
     form of Exhibit 8.04(a) delivered in accordance with Section 2.01 and
     confirmed in writing by the Independent Engineer (which confirmation the
     Agent shall not cause through its actions or withholding of any relevant
     information to be unreasonably withheld or delayed) and accompanied by an
     Enhancement Consent Certificate of Lessee, the Disbursement Agent shall,
     from time to time, transfer from the funds available in the Maintenance
     Reserve Sub-Account, the amounts specified in such Enhancement Certificate
     to the Person(s) specified therein for application to the payment of
     Facility Enhancements.

          (b)  Distribution Following Six Months after Effective Date. Upon
               ------------------------------------------------------
     receipt of written notice of Agent not less than six (6) months after the
     Effective Date so directing the Disbursement Agent, the Disbursement Agent
     shall transfer cash remaining in the Maintenance Reserve Sub-Account which
     has not been designated for use in accordance with the Amended and Restated
     Reimbursement Agreement to the Agent for prepayment 


                                      16
<PAGE>
 
     of the New Term Loan in accordance with the Amended and Restated
     Reimbursement Agreement.


                                  ARTICLE IX

                               INSURANCE ACCOUNT
                               -----------------

     SECTION 9.01. Deposit of Condemnation or Insurance Proceeds. Each of the
                   ---------------------------------------------
parties hereto agrees that all amounts and proceeds (including instruments) in
respect of the proceeds of any casualty insurance policy covering the Project
(the "Insurance Proceeds") or in respect of any Event of Eminent Domain (the
      ------------------
"Eminent Domain Proceeds") received after the Effective Date, shall be paid by
 -----------------------
the respective insurers or other parties directly to the Disbursement Agent, and
if any Insurance Proceeds or Eminent Domain Proceeds are paid directly to
Lessor, Lessee, the Agent or the Bond Trustee, such Insurance Proceeds and
Eminent Domain Proceeds shall be received only in trust for the Disbursement
Agent, shall be segregated from other funds of Lessor, Lessee, the Agent or the
Bond Trustee, as the case may be, and shall be forthwith paid over to the
Disbursement Agent (minus the reasonable costs incurred by such party in
collecting such proceeds) in the same form as received (with any necessary
endorsement). The Disbursement Agent shall deposit all such Insurance Proceeds
and Eminent Domain Proceeds into the Insurance Account.

     SECTION 9.02. Disbursement from Insurance Account. The Disbursement Agent
                   -----------------------------------
shall disburse funds held in the Insurance Account as directed from time to time
by an Insurance Proceeds Disbursement Certificate from Agent or, if the
Disbursement Agent shall have received an Agent Release Notice from Agent, as
directed from time to time by an Insurance Proceeds Disbursement Certificate
from Lessor.


                                   ARTICLE X

                            LESSOR REVENUE ACCOUNT
                            ----------------------

     SECTION 10.01. Deposits into the Lessor Revenue Account. The Disbursement
                    ----------------------------------------
Agent shall make deposits into the Lessor Revenue Account (i) from the proceeds
of Working Capital Loans from time to time deposited with the Disbursement
Agent, (ii) of any Segregated Lessor Revenues (as defined in Section 10.22 of
the Amended and Restated Reimbursement Agreement) from time to time deposited
with the Disbursement Agent, and (iii) of any other monies to which the Lessor
is entitled the deposit or payment of which is not otherwise provided for
herein.

     SECTION 10.02. Disbursements from the Lessor Revenue Account. Subject to
                    ---------------------------------------------
Article XI and Section 15.03 and provided the Disbursement Agent shall not have
received an Agent Default Notice (which shall not have been withdrawn by the
further receipt of a Default Notice Withdrawal), the Disbursement Agent shall
transfer cash available in the Lessor Revenue 


                                      17
<PAGE>
 
Account as directed, from time to time, and upon receipt or deemed receipt, at
least three (3) Business Days prior to the date of disbursement specified
therein, of a completed original counterpart of a Disbursement Certificate (with
all applicable schedules completed and attached thereto); provided, however,
that each such Disbursement Certificate shall instruct the Disbursement Agent to
transfer any Segregated Lessor Revenues to the Operating Account for application
in accordance with the terms of this Disbursement Agreement.


                                  ARTICLE XI

             AGENT DEFAULT NOTICE; DISBURSEMENT BLOCK CERTIFICATE
             ----------------------------------------------------


     SECTION 11.01. Delivery of Agent Default Notice and Disbursement Block
                    -------------------------------------------------------
Certificate. (a) Upon the occurrence and during the continuance of an Event of
-----------
Default the Agent may deliver an Agent Default Notice to the Disbursement Agent.

     (b) If an original counterpart of a Disbursement Certificate or Enhancement
Certificate (or a true and complete copy thereof) is not delivered in
substantially the form attached hereto as Exhibit 5.02(a)(i) or 8.04(a),
respectively, or if such certificate is not otherwise completed and delivered as
required hereunder (including with all applicable schedules completed and
attached thereto) , the Agent may deliver a Disbursement Block Certificate to
the Disbursement Agent.

     SECTION 11.02. Distribution After Agent Default Notice, Disbursement Block
                    -----------------------------------------------------------
Certificate. Notwithstanding anything herein to the contrary, upon receipt of
-----------
(i) an Agent Default Notice (which has not been withdrawn by a Default Notice
Withdrawal), the Disbursement Agent shall only disburse amounts in any Lessor
Account or Lessee Account as Agent may, from time to time direct, pursuant to an
Agent Post-Default Disbursement Certificate, and (ii) a Disbursement Block
Certificate (which has not been withdrawn by a Disbursement Release
Certificate), the Disbursement Agent shall only disburse amounts in any Lessor
Account or Lessee Account as the Lessor and the Agent may, from time to time
direct, pursuant to a Disbursement Certificate or Enhancement Certificate, as
applicable, executed by each of Lessor and Agent.

     SECTION 11.03. Distribution After Lessor Default Notice After Receipt of
                    ---------------------------------------------------------
Agent Release Notice. If the Disbursement Agent shall have received an Agent
--------------------
Release Notice and a Lessor Default Notice (which has not been withdrawn by a
Default Notice Withdrawal) , the Disbursement Agent shall disburse all amounts
in any Lessee Account as Lessor may, from time to time, direct pursuant to a
Lessor Post-Default Disbursement Certificate.


                                      18
<PAGE>
 
                                  ARTICLE XII

                 INFORMATION ACCOMPANYING DEPOSITS; CERTIFICATES
                 -----------------------------------------------

     SECTION 12.01. Information to Accompany Amounts Delivered to Disbursement
                    ----------------------------------------------------------
Agent; Deposits Irrevocable. (a) All amounts delivered to the Disbursement Agent
---------------------------
shall be accompanied by information in reasonable detail specifying the source
of the amounts and the Account (including any sub-account thereof) or Accounts
into which such amounts are to be deposited.

     (b) Any deposit made into any Account (except any deposit made through
clerical or other manifest error) shall be irrevocable and the amount of such
deposit and any security held in any Account and all interest and gains thereon
shall be held in trust by the Disbursement Agent and applied, invested and
transferred solely as provided herein.

     SECTION 12.02. Delivery of Certificates; Timing of Payments. (a) Each of
                    --------------------------------------------
the certificates required to be delivered hereunder shall be delivered to the
Disbursement Agent not later than one Business Day prior to the date of any
transfer or distribution contemplated by such certificate; provided that each
Disbursement Certificate and each Enhancement Certificate shall be delivered in
accordance with the applicable provisions of this Disbursement Agreement and
Section 11.08 of the Amended and Restated Reimbursement Agreement. Any
certificate delivered later than the time specified herein shall nevertheless be
considered valid and shall be honored by the Disbursement Agent on or as
promptly after the date otherwise specified herein for payment as is
practicable, subject to the availability of cash in the applicable Account.

     (b) Subject to the timely receipt of a certificate as prescribed herein and
to the availability of cash in the applicable Account, the Disbursement Agent
shall make any payment hereunder required by means of wire transfer of
immediately available funds, to the address of the payee set forth on such
certificate or the applicable schedule to such certificate, prior to 12 Noon
(New York City Time) on the date specified herein for such payment, or by such
other means of payment, to such other address or at such later time as shall be
specified by such payee.

     SECTION 12.03. Books of Account; Statements. (a) The Disbursement Agent
                    ----------------------------
shall maintain books of account on a cash basis and record therein all deposits
into and transfers to and from the Accounts and all investment transactions
effected by the Disbursement Agent pursuant to Article XIV. The Disbursement
Agent shall make such books of account available during normal business hours
for inspection and audit by Lessor, Lessee, Bond Trustee, and the Agent.

     (b) Not later than the 15th day following each Payment Date (or the next
succeeding Business Day if such day is not a Business Day), the Disbursement
Agent shall deliver to each of the parties hereto a statement setting forth the
transactions into and out of each Account since the previous Payment Date and on
the Payment Date for such period and specifying the 


                                      19
<PAGE>
 
revenues, cash, insurance proceeds, condemnation proceeds, payments, securities,
investments and other amounts held in each Account at the close of business on
such Payment Date and the amount thereof at such time.


                                 ARTICLE XIII

                                  INVESTMENT
                                  ----------

     SECTION 13.01. Investment of Funds in Accounts. Any cash held by the
                    -------------------------------
Disbursement Agent in any Lessor or Lessee Account shall be invested by the
Disbursement Agent in Permitted Investments from time to time as directed in
writing by Lessor unless an Agent Default Notice has been received (which shall
not have been withdrawn by the further receipt of a Default Notice Withdrawal),
in which case the Agent shall so direct the Disbursement Agent in writing as to
the investment of cash in any Lessor or Lessee Account in Permitted Investments.
The Disbursement Agent may sell any such Permitted Investment (without regard to
maturity date) whenever the Lessor or the Agent, as applicable, in its sole
discretion deems it necessary to make any distribution required by this
Disbursement Agreement and neither Agent nor Disbursement Agent shall be liable
to any Person for any loss suffered because of any such sale. Subject to the
provisions of Section 8.02(b), any income or gain realized as a result of any
such investment shall be held as part of the applicable Account and reinvested
as provided herein. Neither the Agent nor the Disbursement Agent shall have any
liability for any loss resulting from any such investment other than by reason
of its willful misconduct or gross negligence. Any cash held by the Disbursement
Agent in the Capital Expenditure Fund shall be invested by the Disbursement
Agent in investments from time to time as directed in writing by Lessor. The
Disbursement Agent may sell any such investment (without regard to maturity
date) whenever the Lessor in its sole discretion deems it necessary to make any
distribution required by this Disbursement Agreement and the Disbursement Agent
shall not be liable to any Person for any loss suffered because of any such
sale. Any income or gain realized as a result of any such investment shall be
held as part of the Capital Expenditure Fund and reinvested as provided herein.
The Disbursement Agent shall have no liability for any loss resulting from any
such investment other than by reason of its willful misconduct or gross
negligence.


                                  ARTICLE XIV

                              DISBURSEMENT AGENT
                              ------------------

     SECTION 14.01. Limitation of Liability. The acceptance by the Disbursement
                    -----------------------
Agent of its duties hereunder is subject to the following terms and conditions
which the parties to this Disbursement Agreement hereby agree shall govern and
control with respect to the rights, duties, liabilities and immunities of the
Disbursement Agent:


                                      20
<PAGE>
 
          (a) it shall not be responsible or liable in any manner whatever for
     the sufficiency, correctness, genuineness or validity of any revenues,
     cash, payments, securities, insurance proceeds, condemnation proceeds,
     investments or other amounts deposited with or held by it;

          (b) it shall be protected in acting upon any written notice,
     certificate, instruction, request or other paper or document as to the due
     execution thereof and the validity and effectiveness of the provisions
     thereof and as to the truth of any information therein contained, which the
     Disbursement Agent in good faith believes to be genuine;

          (c) it shall not be liable for any error of judgment or for any act
     done or step taken or omitted except in the case of its gross negligence,
     willful misconduct or bad faith;

          (d) it may consult with and obtain advice from counsel and other
     skilled Persons (at the expense of Lessee) in the event of any dispute or
     question as to the construction of any provision hereof and shall be fully
     protected in taking or not taking any action in good faith in reliance on
     such advice;

          (e) it shall have no duties as the Disbursement Agent except those
     which are expressly set forth herein, and in any modification or amendment
     hereof; provided, however, that no such modification or amendment hereof
     shall affect its duties unless it shall have given its written consent
     thereto;

          (f) it may execute or perform any duty hereunder either directly or
     through agents or attorneys and shall not be answerable for the negligence
     or misconduct of such agents or attorneys;

          (g) it may engage or be interested in any financial or other
     transaction with any party hereto and may act on, or as depository, trustee
     or agent for, any committee or body of holders of obligations of such
     persons as freely as if it were not the Disbursement Agent hereunder;

          (h) it shall not be obligated to take any action which in its
     reasonable judgment would involve it in expense or liability unless it has
     been furnished with adequate indemnity to its reasonable satisfaction
     against such expense or liability; and

          (i) it shall not be obligated to take instructions from any Person
     except those given in accordance with this Disbursement Agreement.


                                      21
<PAGE>
 
                                  ARTICLE XV

                                DETERMINATIONS
                                --------------

     SECTION 15.01. Action in Accordance with Instructions. The Disbursement
                    --------------------------------------
Agent shall accept, hold and disburse monies from the Accounts and the Capital
Expenditure Fund only in strict compliance with the terms of this Disbursement
Agreement, and all parties hereto waive irrevocably any and all objections, as
against the Disbursement Agent, to any action taken or not taken by the
Disbursement Agent in accordance with the provisions hereof. The Disbursement
Agent agrees that it shall apply monies in accordance with the directions of
Agent (including, without limitation, as directed by the Agent in accordance
with Article XI), the applicable Exhibits to this Disbursement Agreement
delivered in accordance with, and meeting the requirements of, this Disbursement
Agreement and the other terms and conditions of this Disbursement Agreement.

     SECTION 15.02. Cash Available. In determining the amount of cash available
                    --------------
in any Account and the Capital Expenditure Fund at any time, the Disbursement
Agent shall treat as cash available the net amount that the Disbursement Agent
would have received on such day if the Disbursement Agent had liquidated all the
securities then on deposit in such Account (at then prevailing market prices and
assuming normal sales expenses).

     SECTION 15.03. Regarding Disbursement and Enhancement Certificates. The
                    ---------------------------------------------------
Disbursement Agent shall notify the Agent of its receipt of any Disbursement
Certificate or Enhancement Certificate delivered by the Lessor hereunder not
later than one (1) Business Day after the date of such receipt. To the extent
permitted herein, the Disbursement Agent shall disburse monies from the Accounts
only in strict compliance with the terms of properly delivered original
counterparts of Disbursement Certificates and Enhancement Certificates (each
completed and containing the applicable required certifications and having
attached thereto the applicable required schedules), and all parties hereto
waive irrevocably any and all objections, as against the Disbursement Agent, to
any action taken or not taken by the Disbursement Agent in accordance with
thereof. The foregoing notwithstanding, if the Disbursement Agent shall have
received a Disbursement Block Certificate of Agent substantially in the form of
Exhibit 5.02(a)(2) hereto (which has not been withdrawn by the further receipt
of a Disbursement Release Certificate) prior to the making of any disbursement
set forth in a Disbursement Certificate or Enhancement Certificate, the
Disbursement Agent shall disburse monies from the Accounts only in strict
compliance with the terms of properly delivered Disbursement Certificates or
Enhancement Certificates executed by each of Lessor and Agent. Any contrary
provision of this Disbursement Agreement notwithstanding, upon receipt of an
Agent Default Notice (which has not been withdrawn by the further receipt of a
Default Notice Withdrawal), the Disbursement Agent shall suspend any further
distribution from the Accounts and shall thereafter disburse funds from the
Accounts pursuant to Article XI hereof. The Disbursement Agent's receipt of an
Agent Default Notice shall not affect the Lessor's ability to direct the
disbursement of monies from the Capital Expenditure Fund.


                                      22
<PAGE>
 
                                  ARTICLE XVI

                                 MISCELLANEOUS
                                 -------------

     SECTION 16.01. Fees and Indemnification of Disbursement Agent. On and after
                    ----------------------------------------------
the Effective Date, Lessee shall immediately pay from cash available in the
Operating Account, such fees as the Disbursement Agent charges as compensation
for its services under this Disbursement Agreement and such other fees and
expenses (including reasonable counsel fees) as the Disbursement Agent incurs in
connection therewith. In addition, Lessee hereby assumes liability for and
agrees to indemnify protect, save and keep harmless the Disbursement Agent and
its respective successors, assigns, agents and servants, from and against any
and all fees and expenses (including reasonable counsel fees) that may be
imposed on, incurred by, or asserted against, at any time, the Disbursement
Agent (whether or not also indemnified against by any other Person under any
contract or instrument) and in any way relating to or arising out of the
execution and delivery of this Disbursement Agreement, the establishment of the
Accounts and the Capital Expenditure Fund, the acceptance of deposits, the
purchase of securities, the retention of money and securities or the proceeds
thereof and any payment, transfer or other application of money or securities by
the Disbursement Agent in accordance with the provisions of this Disbursement
Agreement, or as may arise by reason of any act, omission or error of the
Disbursement Agent made in good faith in the conduct of its duties; except that
Lessor and Lessee shall not be required to indemnify, protect, save and keep
harmless the Disbursement Agent against its own gross negligence, active or
passive, or willful misconduct. The indemnities contained in this Section 16.01
shall survive the termination of this Disbursement Agreement.

     SECTION 16.02. Appointment of the Disbursement Agent as Attorney. Lessor
                    -------------------------------------------------
and Lessee respectively hereby constitute the Disbursement Agent the true and
lawful attorney-in-fact of Lessor and Lessee, with full power (in the name of
Lessor and Lessee or otherwise) to endorse any checks or other instruments or
orders received in connection herewith. The appointment of the Disbursement
Agent as the attorney-in-fact of Lessor and Lessee is coupled with an interest
and irrevocable.

     SECTION 16.03. Replacement or Resignation of Disbursement Agent. (a) The
                    ------------------------------------------------
Disbursement Agent may at any time resign by giving notice to each other party
to this Disbursement Agreement, such resignation to be effective upon the
appointment of a successor Disbursement Agent as hereinafter provided. If a
successor Disbursement Agent shall not have been appointed within 30 days after
the giving of written notice of such resignation, the Disbursement Agent may
apply to any court of competent jurisdiction to appoint a successor Disbursement
Agent to act until such time, if any, as a successor shall have been appointed
as herein provided.

     (b) The Majority Banks, with the consent of Lessor, such consent not to be
unreasonably withheld, and after delivery of a Release Notice, Lessor, in its
sole discretion, may remove the Disbursement Agent at any time by giving notice
to each other party to this 


                                      23
<PAGE>
 
Disbursement Agreement, such removal to be effective upon the appointment of a
successor Disbursement Agent as hereinafter provided. Unless an Event of Default
under the Amended and Restated Reimbursement Agreement has occurred and is
continuing, the Majority Banks will replace the Disbursement Agent pursuant to
Section 16.03(c) at the written request of Lessor if the Disbursement Agent has
twice failed to disburse monies held by it on a timely basis in accordance with
this Disbursement Agreement and if a replacement Disbursement Agent meeting the
standards set forth in Section 16.03(c) can be obtained.

     (c) In the event of any resignation or removal of the Disbursement Agent, a
successor Disbursement Agent, which shall be a bank or trust company organized
under the laws of the United States of America or any State thereof having a
corporate trust office in Pennsylvania and a capital and surplus of not less
than $100,000,000, shall be appointed by the Majority Banks, subject to the
approval of Lessor (which approval shall not be unreasonably withheld) or after
delivery of an Agent Release Notice, by Lessor, in its sole discretion. Any such
successor Disbursement Agent shall deliver to each party to this Disbursement
Agreement a written instrument accepting such appointment hereunder and
thereupon such successor Disbursement Agent shall succeed to all the rights and
duties of the Disbursement Agent hereunder and shall be entitled to receive the
Accounts from the predecessor Disbursement Agent.

     (d) Any corporation into which the Disbursement Agent may be merged or
converted or within which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Disbursement Agent
shall be a party, or any corporation to which substantially all the corporate
trust business of the Disbursement Agent may be transferred, shall, subject to
the terms of Section 16.03(c), be the Disbursement Agent under this Disbursement
Agreement without further act.

     SECTION 16.04. Termination. This Disbursement Agreement shall terminate
                    -----------
(except as to any provision which expressly survives termination) on the earlier
of (i) receipt by the Disbursement Agent of an Agent Release Notice and a Lessor
Release Notice or (ii) any date agreed to by the parties hereto. Upon
termination of this Disbursement Agreement, the Disbursement Agent shall
transfer any cash, securities and investments, together with any interest
thereon, then held in any of the Accounts to the Operating Account for
application as provided in Section 5.02(d). Upon termination of this
Disbursement Agreement, the Disbursement Agent shall transfer any cash,
securities and investments, together with any interest thereon, then held in the
Capital Expenditure Fund to the Lessor and the Lessee for application in
accordance with clause Seventeenth of Section 5.02(a)(Y)
                       -----------

     SECTION 16.05. Severability. If any one or more of the covenants or
                    ------------
agreements provided in this Disbursement Agreement on the part of the parties
hereto to be performed should be determined by a court of competent jurisdiction
to be contrary to law, such covenant or agreement shall be deemed and construed
to be severable from the remaining covenants and agreements herein contained and
shall in no way affect the validity of the remaining provisions of this
Disbursement Agreement.


                                      24
<PAGE>
 
     SECTION 16.06. Counterparts. This Disbursement Agreement may be executed in
                    ------------
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.

     SECTION 16.07. Amendments. The trust created by this Disbursement Agreement
                    ----------
is irrevocable. This Disbursement Agreement may not be modified or amended
without the prior written consent of each of the parties hereto.

     SECTION 16.08. Applicable Law. This Disbursement Agreement has been
                    --------------
negotiated and delivered in, and shall in all respects be governed by and
construed in accordance with, the laws of the State of New York applicable to
agreements made and to be performed entirely in that state including matters of
construction, validity and performance.

     SECTION 16.09. Notices. All certificates, notices, requests, consents,
                    -------
demands and other communications (collectively, "notices") required or permitted
                                                 -------
to be given under this Disbursement Agreement to any Person shall be in writing
and shall become effective upon receipt. Notices may be given in any manner,
including mail, telex, telecopy or telegram, when received, and shall be
directed to the address of such Person set forth in Schedule I hereto or
Schedule IV to the Amended and Restated Participation Agreement.

     SECTION 16.10. Benefit of Agreement. This Disbursement Agreement shall be
                    --------------------
binding upon, and inure to the benefit of, the parties hereto and their
permitted successors and assigns. Nothing in this Disbursement Agreement,
whether expressed or implied, shall be construed to give any Person any legal or
equitable right, remedy or claim under or in respect of this Disbursement
Agreement.

     SECTION 16.11. Further Actions. The Disbursement Agent, the Lessor or the
                    ---------------
Lessee will make, execute, endorse, acknowledge, file and/or deliver to the
Lessor and to Agent from time to time such lists, descriptions and designations
of the Lessee Collateral and Lessor Collateral, and take such further steps
relating to such collateral and other property or rights covered by the security
interest hereby granted, which the Lessor or Agent deem reasonably appropriate
or advisable to perfect, preserve or protect its security interest in the Lessee
Account Collateral and Lessor Account Collateral; provided, however, that in no
case shall the Disbursement Agent be obligated to file or register or reregister
any financing statement with respect to the Lessee Account Collateral or the
Lessor Account Collateral nor any amendments or supplements thereto.

     SECTION 16.12. Submission to Jurisdiction; Waivers. Each party hereto
                    -----------------------------------
hereby irrevocably and unconditionally:

          (a) submits for itself and its property in any legal action or
     proceeding relating to this Disbursement Agreement, or for recognition and
     enforcement of any judgment in respect hereof or thereof, to the
     non-exclusive general jurisdiction of the courts of the 


                                      25
<PAGE>
 
     State of New York, the courts of the United States of America for the
     Southern District of New York, and the appellate courts from any thereof;

          (b) consents that any such action or proceeding may be brought in such
     courts, and waives any objection that it may now or hereafter have to the
     venue of any such action or proceeding in any such court or that such
     action or proceeding was brought in an inconvenient forum and agrees not to
     plead or claim the same;

          (c) agrees that service of process in any such action or proceeding
     may be effected by mailing a copy thereof by registered or certified mail
     (or any substantially similar form and mail), postage prepaid, to such
     party at its address specified in Schedule I hereto, or at such other
     address of which the Agent shall have been notified pursuant thereto; and

          (d) agrees that nothing herein shall affect the right to effect
     service of process in any other manner permitted by law or shall limit the
     right to sue in any other jurisdiction.

     SECTION 16.13. Copies to Lessee. Lessor shall, promptly after delivery
                    ----------------
thereof to the Agent or the Disbursement Agent, deliver to Lessee a copy of each
Disbursement Certificate and each other Exhibit delivered by Lessor pursuant to
this Disbursement Agreement, such delivery to be accomplished in accordance with
Section 16.09 of this Disbursement Agreement.


                                 ARTICLE XVII

               BORROWER ENVIRONMENTAL LIABILITY RESERVE ACCOUNT
               ------------------------------------------------

     SECTION 17.01. Deposits into the Borrower Environmental Liability Reserve
                    ----------------------------------------------------------
Account.
-------

          (a) Deposit from Proceeds of Sale of Transmission Line. Upon the sale
              --------------------------------------------------
     of the Transmission Line, together with related easements, by the Lessor to
     an unrelated third party, the Disbursement Agent shall deposit into the
     Borrower Environmental Liability Reserve Account the first two hundred
     fifty thousand dollars ($250,000.00) from the proceeds of the sale of the
     Transmission Line.

          (b) Deposit of Funds Received from Lessee. The Disbursement Agent
              -------------------------------------
     shall deposit into the Borrower Environmental Liability Reserve Account all
     funds received by the Lessor from the Lessee pursuant to Section 10.1 of
     the Amended and Restated Participation Agreement for the indemnification of
     any Environmental Liability incurred by the Borrower.


                                       26
<PAGE>
 
     SECTION 17.02. Disbursements from the Borrower Environmental Liability
                    -------------------------------------------------------
Reserve Account.
---------------

          (a) Disbursement of Income Earned on Funds Deposited in the Borrower
              ----------------------------------------------------------------
     Environmental Liability Reserve Account. On each Payment Date, the
     ---------------------------------------
     Disbursement Agent shall pay to Lessor any investment income earned on the
     principal amount of the Borrower Environmental Liability Reserve Account
     that has not been previously disbursed.

          (b) Disbursement of Principal Amount Deposited in the Borrower
              ----------------------------------------------------------
     Environmental Liability Reserve Account. Upon receipt of a Borrower
     ---------------------------------------
     Environmental Liability Reserve Account Disbursement Certificate from the
     Agent, in substantially the form attached hereto as Exhibit 17.02(b), the
     Disbursement Agent shall, from time to time, transfer from the funds
     available in the Borrower Environmental Liability Reserve Account the
     amounts specified in such certificate to the Person(s) specified therein.

          (c) Termination of Account. Upon receipt of a Borrower Environmental
              ----------------------
     Liability Reserve Account Release Notice, in substantially the form
     attached hereto as Exhibit 17.02(c), delivered by the Agent pursuant to
     Section 13.01(g)(viii) of the Amended and Restated Reimbursement Agreement,
     the Disbursement Agent shall promptly liquidate the Borrower Environmental
     Liability Reserve Account, disburse all funds remaining in the Borrower
     Environmental Liability Reserve Account to the Lessor, and this Article
     XVII shall be of no further effect.


                                 ARTICLE XVIII

                LESSEE ENVIRONMENTAL LIABILITY RESERVE ACCOUNT
                ----------------------------------------------

     SECTION 18.01. Deposits into the Lessee Environmental Liability Reserve
                    --------------------------------------------------------
Account. The Disbursement Agent shall deposit into the Lessee Environmental
-------
Liability Reserve Account all funds loaned to the Lessee by U.S. Generating
Company ("USGen") pursuant to the Agreement, dated November 30, 1992, among
          -----
USGen, the Lessor, the Lessee and the Agent as supplemented and affirmed by the
Omnibus Reaffirmation Agreement.

     SECTION 18.02. Disbursements from the Lessee Environmental Liability
                    -----------------------------------------------------
Reserve Account.
---------------

          (a) Disbursement of Income Earned on Funds Deposited in the Lessee
              --------------------------------------------------------------
     Environmental Liability Reserve Account. On each Payment Date, the
     ---------------------------------------
     Disbursement Agent shall pay any investment income earned on the principal
     amount of the Lessee Environmental Liability Reserve Account that has not
     been previously disbursed to Lessee in accordance with clause Seventeenth
                                                                   -----------
     of Section 5.02(a)(Y)


                                      27
<PAGE>
 
          (b) Disbursement of Principal Amount Deposited in the Lessee
              --------------------------------------------------------
     Environmental Liability Reserve Account. Upon receipt of a Lessee
     ---------------------------------------
     Environmental Liability Reserve Account Disbursement Certificate, in
     substantially the form attached hereto as Exhibit 18.02(b) and executed by
     Agent, the Disbursement Agent shall, from time to time, transfer from the
     funds available in the Lessee Environmental Liability Reserve Account the
     amounts specified in such certificate to the Person(s) specified therein.

          (c) Termination of Account. Upon receipt of a Lessee Environmental
              ----------------------
     Liability Reserve Account Release Notice, in substantially the form
     attached hereto as Exhibit 18.02(c), delivered by the Agent pursuant to
     Section 13.01(h)(vi) of the Amended and Restated Reimbursement Agreement,
     the Disbursement Agent shall promptly liquidate the Lessee Environmental
     Liability Reserve Account, disburse all funds remaining in the Lessee
     Environmental Liability Reserve Account to the Lessor, and this Article
     XVII shall be of no further effect.


                                  ARTICLE XIX

                           CAPITAL EXPENDITURE FUND
                           ------------------------


     SECTION 19.01. Deposits into the Capital Expenditure Fund. The Disbursement
                    ------------------------------------------
Agent shall deposit into the Capital Expenditure Fund the amount made available
for such purpose in accordance with clause Sixteenth of Section 5.02(a)(Y) or
                                           ---------
such other amounts that Lessor and/or Lessee make available from time to time.

     SECTION 19.02. Disbursements from the Capital Expenditure Fund. Upon
                    -----------------------------------------------
receipt of a Capital Expenditure Fund Disbursement Certificate substantially in
the form of Exhibit 19.02 hereto, the Disbursement Agent shall transfer cash
available in the Capital Expenditure Fund as directed, from time to time,
pursuant to such Capital Expenditure Fund Disbursement Certificate solely (i) if
consented to in writing by Agent in accordance with the terms of the Amended and
Restated Reimbursement Agreement, to pay vendors for amounts due or to become
due in respect of Capital Expenditures, (ii) for deposit in the Maintenance
Reserve Account for application in accordance with this Disbursement Agreement
or (iii) for distribution in accordance with clause Seventeenth of Section
                                                    -----------
5.02(a)(Y) (without any application as provided in any other clause of Section
5.02).

     SECTION 19.03. Discretion of Lessor and Lessee. Disbursement of cash from
                    -------------------------------
the Capital Expenditure Fund by the Disbursement Agent shall be made at the
discretion of Lessee and Lessor as directed, from time to time, pursuant to
Capital Expenditure Fund Disbursement Certificates delivered to the Disbursement
Agent; provided that disbursements for use in accordance with clause (i) of
Section 19.02 of this Disbursement Agreement shall only be made if consented to
in writing by Agent in accordance with the terms of the Amended and Restated
Reimbursement Agreement. The existence of the Capital Expenditure Fund, and the
disbursement of cash therefrom, shall not prohibit the payment of Capital
Expenditures set forth 


                                      28
<PAGE>
 
in the Operating Budget as an Operating Expense in accordance with the Amended
and Restated Reimbursement Agreement or the payment of Capital Expenditures
otherwise in accordance with the Amended and Restated Reimbursement Agreement.


                                  ARTICLE XX

                                 HEDGE ACCOUNT
                                 -------------


     SECTION 20.01. Deposits into Hedge Account. The Disbursement Agent shall
                    ---------------------------
make such deposits into the Hedge Account as provided in clause "Ninth" of
                                                                 -----
Section 5.02(a)(Y)

     SECTION 20.02. Disbursement from the Hedge Account. Subject to Article XI
                    -----------------------------------
and Section 15.03, the Disbursement Agent, from time to time, shall disburse to
the Agent or transfer to the Operating Account for application in accordance
with clauses Tenth through Seventeenth of Section 5.02(a)(Y), as the case may
             -----         -----------
be, such amounts in the Hedge Account upon receipt or deemed receipt, at least
three (3) Business Days prior to the date of disbursement specified therein, of
a completed original counterpart of a Disbursement Certificate and as instructed
in a completed original counterpart of Disbursement Certificate (with all
applicable schedules completed and attached thereto).


                                  ARTICLE XXI

                           AMORTIZATION SUB-ACCOUNT
                           ------------------------

     SECTION 21.01. Deposits into Amortization Sub-Account. The Disbursement
                    --------------------------------------
Agent shall make such deposits into the Amortization Sub-Account as provided in
clause "Ninth" of Section 5.02(a)(Y).
        -----

     SECTION 21.02. Disbursement from the Amortization Sub-Account. The
                    ----------------------------------------------
Disbursement Agent, from time to time, shall disburse to the Agent or transfer
to the Operating Account, as the case may be, such amounts in the Amortization
Sub-Account upon receipt, at least three (3) Business Days prior to the date of
disbursement specified therein, of an Amortization Sub-Account Certificate and
as instructed in a completed Amortization Sub-Account Certificate.


                 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                      29
<PAGE>
 
     IN WITNESS WHEREOF, the parties hereto have each caused this Disbursement
Agreement to be executed by their duly authorized officers and attested on the
date first above written.

LESSOR:                             SCRUBGRASS GENERATING COMPANY, L.P. , a
                                    Delaware limited partnership


                                    By: /s/ Donald C. Sturmer
                                       ----------------------------------------
                                       Name: DONALD C. STURMER
                                       Title: VICE PRESIDENT


AGENT:                              CREDIT LYONNAIS, acting through its New York
                                    Branch as Agent,


                                    By:/s/ Michael F.G.Kyn
                                       ----------------------------------------
                                       Name: Michael F.G. Kyn
                                       Title: Vice President

                                    By:/s/ Nina S. Eshoo
                                       ----------------------------------------
                                       Name: Nina S. Eshoo
                                       Title: PVF


LESSEE:                             BUZZARD POWER CORPORATION, a Delaware
                                    corporation

                                    By: /s/ Joseph E. Cresci
                                       ----------------------------------------
                                       Name:  Joseph E. Cresci
                                       Title: Vice President


DISBURSEMENT
AGENT:                              BANKERS TRUST COMPANY

                                    By: /s/ Lisa Lai
                                       ----------------------------------------
                                       Name: Lisa Lai
                                       Title: ASSISTANT TREASURER