Document:

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                                                                     EXHIBIT 4.6

                                                                  EXECUTION COPY

                              SECURITY AGREEMENT

                         Dated as of December 6, 1999

                                    Between

                CITY OF SYRACUSE INDUSTRIAL DEVELOPMENT AGENCY,
                    a New York public benefit corporation,

                                      and

                     U.S. BANK TRUST NATIONAL ASSOCIATION,
                       as Agent for the Secured Parties
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                               TABLE OF CONTENTS

                                 ____________

<TABLE>
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                                                                            PAGE
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<S>                                                                         <C>
Section 1.  Definitions.................................................     2
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Section 2.  Assignment, Pledge and Grant of Security Interest...........     2
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Section 3.  Events of Default...........................................     7
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Section 4.  Remedies....................................................     7
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Section 5.  Remedies Cumulative; Delay Not Waiver.......................     9
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Section 6.  Covenants...................................................    10
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Section 7.  Notices.....................................................    10
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Section 8.  Further Assurances..........................................    11
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Section 9.  Place of Perfection; Records................................    11
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Section 10. Covenants of Grantor........................................    12
                                                                            --
Section 11. Continuing Assignment and Security Interest; Transfer of
            Senior Secured Notes........................................    12
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Section 12. Severability................................................    12
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Section 13. Successors and Assigns......................................    12
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Section 14. Headings....................................................    13
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Section 15. Governing Law...............................................    13
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Section 16. References to Other Documents...............................    13
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Section 17. Agreement for Security Purposes.............................    13
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Section 18. Scope of Liability..........................................    13
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Section 19. Regarding the Agent.........................................    13
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Section 20. Limitation of the Grantor's Liability.......................    14
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Section 21. POA Indemnification of the Grantor..........................    15
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</TABLE>
<PAGE>

                              SECURITY AGREEMENT

     This Security Agreement ("Agreement") dated as of December 6, 1999, is
entered into by and between the City of Syracuse Industrial Development Agency,
a New York public benefit corporation (the "Grantor") and U.S. Bank Trust
National Association, ("Agent"), as Agent for the benefit of the holders from
time to time (the "Holders" and, together with the Agent and the Trustee, the
"Secured Parties") of the Senior Secured Notes issued pursuant to the Financing
Agreement described below.

                                    PREFACE

     Grantor and POA (as defined below) intends to operate the Project (as
defined in the Financing Agreement described below) located in Syracuse,
Onondaga County, New York.

     Project Orange Funding, L.P. ("Funding L.P."), a Delaware limited
partnership (together with its successors, including Project Orange Associates,
L.P. ("Orange L.P."), a Delaware limited partnership, as the survivor of the
merger of Funding L.P. with and into Orange L.P. concurrently with the issuance
and sale of the Senior Secured Notes referred to below, and the execution and
delivery of this Agreement by the parties hereto ("POA"), Project Orange Capital
Corp., a Delaware corporation ("Capital Co." and together with POA, the
"Issuers") and U.S. Bank Trust National Association, as Trustee (the "Trustee")
and as Agent, have entered into that certain Indenture dated as of December 6,
1999 (the "Financing Agreement") for the issuance by the Issuers of $68 million
principal amount of its 10.5% Senior Secured Notes due 2007 (the " Series A
Notes").

     The Holders of the Series A Notes will have the registration rights set
forth in the Registration Rights Agreement dated as of December 6, 1999 between
the Issuers and Donaldson Lufkin & Jenrette Securities Corporation (the "Initial
Purchaser") pursuant to which the Issuers agree to file with the Securities and
Exchange Commission (i) a registration statement relating to 10.5% Senior
Secured Notes due 2007 (the "Series B Notes") to be offered in exchange for the
Series A Notes and (ii) a shelf registration statement pursuant to Rule 415
under the Securities Act of 1933 relating to the resale by certain Holders of
the Series A Notes.  The Series A Notes and the Series B Notes are collectively
referred to herein as the "Senior Secured Notes".

     As a condition precedent to the issuance of the Series A Notes under the
Financing Agreement, Orange L.P. shall have granted the assignment and security
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interest contemplated by the Security Agreement dated as of December 6, 1999
between Orange L.P. and the Agent.

     As a condition precedent to the issuance of the Series A Notes under the
Financing Agreement, Grantor shall have granted the assignment and security
interest contemplated by this Agreement.

                                   AGREEMENT

     In consideration of the premises herein and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged,
Grantor hereby agrees with the Agent as follows:

     Section 1.  Definitions.  All capitalized terms used but not otherwise
defined herein shall have the respective meanings ascribed thereto in the
Financing Agreement.

     Section 2.  Assignment, Pledge and Grant of Security Interest.

     (a)  To secure the timely payment and performance of the Obligations (as
that term is defined in this Section), Grantor does hereby assign, grant and
pledge to, and subject to a security interest in favor of, the Agent, on behalf
of and for the benefit of the Secured Parties, all the estate, right, title and
interest, if any (and subject to the last sentence of this Section 2(a)), of
Grantor in, to and under:

          (i)  the following agreements and documents, as amended from time to
     time (individually, an "Assigned Agreement," collectively, the "Assigned
     Agreements"):

               (A)  the Niagara Mohawk Agreements;

               (B)  the Canadian Hunter Agreements;

               (C)  the O&M Agreement;

               (D)  the Fuel Supply Agreements;

               (E)  the PILOT Agreement;

               (F)  the Natural Gas Transportation Agreements;

               (G)  the Asset Manager Agreements;

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               (H)  the University Agreements;

               (I)  the Steam Plant Operating Agreement;

               (J)  the Host Community Agreement;

               (K)  insurance policies required to be maintained by Grantor or
          the Issuers or any other Person under the Financing Documents,
          including, without limitation, any such policies insuring against loss
          of revenues by reason of interruption of the operation of the Project
          and all loss proceeds and other amounts payable to Grantor thereunder,
          and all eminent domain proceeds;

               (L)  any agreements providing for the investment of equity or
          payment of liquidated damages with respect to the Project entered into
          on or after the date hereof;

               (M)  all other agreements, including vendor warranties, running
          to Grantor or assigned to Grantor, relating to transport of material,
          equipment and other parts of the Project, including all Project
          Documents;

               (N)  the Ground Lease, the Easement Agreements, the Master Lease
          and any other lease or sublease agreements or easement agreements
          relating to the Project or the Premises or any ancillary facilities,
          to which Grantor may become a party;

               (O)  each Additional Project Document, and any other agreements
          to which Grantor may become a party relating to the operation of the
          Project or any part thereof;

               (P)  all amendments, supplements, substitutions and renewals to
          any of the aforesaid agreements; and

               (Q)  all Applicable Permits;

          (ii) all revenues derived in any other manner by Grantor from its
     leasehold interest in the Project and the operation of the Project;

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          (iii)  all other personal property and fixtures of Grantor related to
     or arising from its leasehold interest in the Project, whether now owned or
     existing or hereafter acquired or arising, or in which Grantor may have an
     interest, and wheresoever located, whether or not of a type which may be
     subject to a security interest under the Uniform Commercial Code (the
     "UCC"), including without limitation all goods, money, instruments,
     investment securities, accounts, contract rights, documents, deposit
     accounts, chattel paper, general intangibles, equipment, inventory,
     machinery, tools, turbine generators (including without limitation those
     certain LM5000 STIG 80 gas turbine generator sets and incorporating two (2)
     GE aircraft derivative gas turbine engines, serial numbers 474157 and
     474158, and two (2) Brush Electric generators, serial numbers 611 73A-3G
     and 611 73A-5G, and any replacements thereof), boilers (including without
     limitation that certain three pressured level, natural circulation, finned
     tube heat recovery steam generator with supplemental firing capability
     fabricated by Deltek and any replacements thereof), engines, appliances,
     mechanical and electrical systems, elevators, lighting, alarm systems, fire
     control systems, furnishings, furniture, service equipment, building or
     maintenance equipment, building or maintenance materials, pipes and
     pipelines, supplies, goods and property covered by any warehouse receipts
     or bills of lading or other such documents, spare parts, maps, plans,
     specifications, architectural, engineering, construction or shop drawings,
     manuals or similar documents, copyrights, trademarks and trade names, and
     any replacements, renewals or substitutions for any of the foregoing or
     additional tangible or intangible personal property hereafter acquired by
     Grantor;

          (iv)   the Accounts (as defined in the Depositary Agreement),
     including any sub-accounts within such accounts, and all other accounts and
     sub-accounts established by the Collateral Agent pursuant to the Depositary
     Agreement;

          (v)    all Permitted Investments and other investment property and the
     proceeds thereof; and

          (vi)   the proceeds of all of the foregoing (all of the collateral
     described in the foregoing clauses (i) through (v) together with the
     proceeds described in this clause (vi) being herein collectively referred
     to as the "Collateral"), including, without limitation, (A) all rights of
     Grantor to receive moneys due and to become due under or pursuant to the
     Collateral, (B) all rights of Grantor to receive return of any premiums for
     or proceeds of any insurance, indemnity, warranty or guaranty with respect
     to the Collateral, (C) all claims of Grantor for damages arising out of or
     for breach of or default under the Assigned

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     Agreements or any other Collateral, (D) all rights of Grantor to terminate,
     amend, supplement, modify or waive performance under the Assigned
     Agreements, to perform thereunder and to compel performance and otherwise
     exercise all remedies thereunder and (E) to the extent not included in the
     foregoing, all proceeds receivable or received when any and all of the
     foregoing Collateral is sold, collected, exchanged or otherwise disposed
     of, whether voluntarily or involuntarily.

     Anything contained in this Agreement or any other Financing Documents to
the contrary notwithstanding, Grantor is not assigning, granting or pledging to,
nor subjecting to a security interest in favor of, the Agent or the Secured
Parties any of Grantor's estate, right, title, interest in, to or under (1) any
of the Unassigned Rights or any revenues derived therefrom, (2) without limiting
the generality of Section 6(j) hereof or any other obligation of Grantor under
the Financing Documents, any agreement purported to be assigned pursuant to
clause (M) of Section 2(a)(i) hereof or any Applicable Permit, in each case the
assignment of which constitutes a breach or violation of the terms or conditions
of such agreement or Permit, (3) any of the Excluded Accounts, (4) the Steam
Plant and any improvements, accessions or additions thereto, (5) insurance
proceeds relating to the Steam Plant or (6) any turbine or associated equipment
leased by POA from General Electric Company or its affiliates pursuant to its
lease engine support program and neither the Agent nor its successors and
assigns will acquire or claim any right, title or interest in or lien on such
turbine or associated equipment by reason of its being installed at the Project.

     (b)  In order to effectuate the foregoing, POA has heretofore delivered or
concurrently with the delivery hereof is delivering to the Agent, a photocopy of
an executed counterpart of each of the Assigned Agreements. POA will likewise
deliver to Agent a photocopy of an executed counterpart of each future lease,
operation agreement, maintenance agreement and other agreement relating to the
Project, and amendments and supplements to the foregoing, included in the
Collateral, as they are entered into by Grantor promptly upon the execution
thereof. If delivery to the Agent of an executed counterpart of any agreement
leaves Grantor without an executed counterpart thereof, the Agent will release
its executed counterpart to Grantor upon Grantor's request, provided that no
Event of Default hereunder shall have occurred and be continuing, for Grantor's
temporary use in the enforcement of such agreement by judicial proceedings.
Nothing herein shall be construed as or shall constitute the consent or approval
of the Agent or any Holder to or of any such future lease, operation agreement,
maintenance agreement or other material agreement relating to the Project.

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     (c)  Anything herein contained to the contrary notwithstanding, Grantor
shall remain liable under each of the Assigned Agreements, to perform all of the
obligations assumed by it thereunder, all in accordance with and pursuant to the
terms and provisions thereof, and the Agent shall have no obligation or
liability under any of such Assigned Agreements by reason of or arising out of
this Agreement, nor shall the Agent be required or obligated in any manner to
perform or fulfill any obligations of Grantor thereunder or to make any payment,
or to make any inquiry as to the nature or sufficiency of any payment received
by it, or present or file any claim, or take any action to collect or enforce
the payment of any amounts which may have been assigned to it or to which it may
be entitled at any time or times.

     (d)  Grantor does hereby constitute the Agent, acting on behalf of and for
the benefit of the Secured Parties, the true and lawful attorney of Grantor,
irrevocably, with full power upon and during the continuance of an Event of
Default (in the name of Grantor or otherwise) to ask, require, demand, receive,
compound and give acquittance for any and all moneys and claims for moneys due
and to become due under or arising out of the Assigned Agreements or any of the
other Collateral, including, without limitation, any insurance policies with
respect to the Project, to elect remedies thereunder, to endorse any checks or
other instruments or orders in connection therewith and to file any claims or
take any action or institute any proceedings in connection therewith which the
Agent may deem to be necessary or advisable, provided, however, that the Agent
shall give Grantor notice of any action taken by the Agent as such attorney-in-
fact promptly after taking such action (provided that the Agent's failure to
promptly give any such notice shall in no way affect the Agent's rights
hereunder).

     (e)  Grantor agrees that, if any default by Grantor under any of the
Assigned Agreements shall occur, the Agent shall, at its option, be permitted
(but shall not be obligated) to remedy any such default by giving written notice
of such intent to Grantor and to the parties to each Assigned Agreement in
default. As between the Agent and the Grantor, the Agent shall have a reasonable
opportunity, but not fewer than sixty (60) days (or such other period as the
Agent and the Persons other than Grantor who are parties to the Assigned
Agreement may agree) after giving such notice, in which to cure such default and
upon the commencement thereof will proceed diligently to cure such default. Any
curing by the Agent of Grantor's default under any of the Assigned Agreements
shall not be construed as an assumption by the Agent of any obligations,
covenants or agreements of Grantor under such Assigned Agreements, and the Agent
shall not incur any liability to Grantor or any other Person as a result of any
actions undertaken by the Agent in curing or attempting to cure any such
default. This Agreement shall not be deemed to release or to affect in any way
the obligations of Grantor under the Assigned Agreements.

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     (f)  This Agreement secures the payment and performance of all obligations
of Grantor and the Issuers and the other Credit Parties, now existing or
hereafter arising, owing to the Secured Parties pursuant to the terms of the
Indenture, the Senior Secured Notes and the Collateral Documents including,
without limitation: (a) the principal, premium, if any, or interest on the
Senior Secured Notes (including any interest accruing after the commencement of
any bankruptcy or insolvency proceeding relating to the Issuers, whether or not
such interest is allowed or allowable as a claim in any such proceeding), and
all other obligations and liabilities of the Issuers including, without
limitation, indemnities, fees and interest incurred under, arising out of or in
connection with the Indenture, the Senior Secured Notes and the Collateral
Documents, (b) any and all sums advanced by or on behalf of the Issuers in order
to preserve the Collateral or preserve its interest in the Collateral, and (c)
in the event of any proceeding for collection or enforcement by or on behalf of
any Secured Party after an Event of Default shall have occurred and be
continuing and unwaived, the expenses of retaking, holding, preparing for sale
or lease, selling or otherwise disposing of or realizing on the Collateral, or
of any exercise by or on behalf of any Secured Party of its rights under the
Indenture, the Senior Secured Notes and the Collateral Documents, together with
attorneys' fees and court costs (all such obligations being herein called the
"Obligations").

     Section 3.  Events of Default.  The occurrence of an Event of Default under
the Financing Agreement (as such term is defined in the Financing Agreement),
whatever the reason for such Event of Default and whether it shall be voluntary
or involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body, shall constitute an Event of Default
hereunder.

     Section 4.  Remedies.  Subject to the terms of the Financing Agreement,

     (a)  if any Event of Default has occurred and is continuing, the Agent
may

            (i)   declare all amounts payable by the Issuers under the Financing
     Agreement and the Senior Secured Notes to be due and payable immediately,
     and thereupon the same shall become immediately due and payable;

            (ii)  proceed to protect and enforce the rights vested in it by this
     Agreement, including, but not limited to, the right to cause all revenues
     hereby pledged as security and all other moneys pledged hereunder to be
     paid directly to it, and to enforce its rights hereunder to such payments
     and all other rights hereunder by such appropriate judicial proceedings as
     it shall deem most

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     effective to protect and enforce any of such rights, either at law or in
     equity or otherwise, whether for specific enforcement of any covenant or
     agreement contained in any of the Assigned Agreements, or in aid of the
     exercise of any power therein or herein granted, or for any foreclosure
     hereunder and sale under a judgment or decree in any judicial proceeding,
     or to enforce any other legal or equitable right vested in it by this
     Agreement or by law;

          (iii)  cause any action at law or suit in equity or other proceeding
     to be instituted and prosecuted to collect or enforce any obligations or
     rights included in the Collateral, or to foreclose or enforce any other
     agreement or other instrument by or under or pursuant to which such
     obligations are issued or secured, subject in each case to the provisions
     and requirements thereof;

          (iv)   sell or otherwise dispose of any or all of the Collateral or
     cause the Collateral to be sold or otherwise disposed of in one or more
     sales or transactions, at such prices as the Agent may deem best, and for
     cash or on credit or for future delivery, without assumption of any credit
     risk, at any broker's board or at public or private sale, without demand of
     performance or notice of intention to sell or of time or place of sale
     (except such notice as is required by applicable law and cannot be waived
     or as is otherwise expressly agreed to by the parties herein or in any
     other Financing Document), it being agreed that the Agent may be a
     purchaser on behalf of the Secured Parties, or on its own behalf at any
     such sale and that the Agent or anyone else who may be the purchaser of any
     or all of the Collateral so sold shall thereafter hold the same absolutely,
     free from any claim or right of whatsoever kind, including any equity of
     redemption, of Grantor, any such demand, notice or right and equity being
     hereby expressly waived and released to the extent permitted by law;

          (v)    incur expenses, including attorneys' fees, consultants' fees,
     and other costs appropriate to the exercise of any right or power under
     this Agreement;

          (vi)   perform any obligation of Grantor hereunder or under any other
     Financing Document, and make payments, purchase, contest or compromise any
     encumbrance, charge, or lien, and pay taxes and expenses, without, however,
     any obligation so to do;

          (vii)  take possession of the Collateral and render it usable, and
     repair and renovate the same, without, however, any obligation so to do,
     and enter upon the Site or any other location where the same may be located
     for that purpose, control, manage, operate, rent and lease the Collateral,
     either

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     separately or in conjunction with the Project, collect all rents and income
     from the Collateral and apply the same to reimburse the Agent, or any agent
     acting on its behalf, for any cost or expenses incurred hereunder or under
     any of the Financing Documents and to the payment or performance of
     Grantor's obligations hereunder or under any of the Financing Documents,
     and apply any remaining excess balance to whomsoever is legally entitled
     thereto;

          (viii) secure the appointment of a receiver of the Project and/or the
     Collateral or any part thereof; or

          (ix)   exercise any other or additional rights or remedies granted to
     a secured party under the UCC. If, pursuant to applicable law, prior notice
     of any such action is required to be given to Grantor, Grantor hereby
     acknowledges that the minimum time required by such applicable law, or if
     no minimum is specified, five (5) Business Days, shall be deemed a
     reasonable notice period.

     (b)  All costs and expenses (including, but without being limited to,
reasonable attorneys, fees and expenses) incurred by the Agent in connection
with any such suit or proceeding, or in connection with the performance by the
Agent of any of Grantor's agreements contained in any exercise of its rights or
remedies hereunder, including, without limitation, any of the Assigned
Agreements pursuant to the terms of this Agreement, together with interest
thereon (to the extent permitted by law) computed at a rate per annum equal to
the Default Rate (as defined in the Financing Agreement) from the date on which
such costs or expenses are incurred to the date of payment thereof, shall
constitute additional indebtedness secured by this Agreement and shall be paid
by POA to the Agent on behalf of and for the benefit of the Secured Parties on
demand.

     (c)  Upon the occurrence and during the continuance of an Event of Default,
the proceeds of any sale of, or other realization upon, all or any part of the
Collateral shall be deposited in the Redemption Account to be held, applied and
released in accordance with the Depositary Agreement.

     Section 5.  Remedies Cumulative; Delay Not Waiver. (a) No right, power or
remedy herein conferred upon or reserved to the Agent is intended to be
exclusive of any other right, power or remedy, and every such right, power and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right, power and remedy given hereunder or now or hereafter existing
at law or in equity or otherwise. The assertion or employment of any right or
remedy hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or

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<PAGE>

remedy. Resort to any or all security now or hereafter held by the Agent, may be
taken concurrently or successively and in one or several consolidated or
independent judicial actions or lawfully taken nonjudicial proceedings, or both.

       (b)  No delay or omission of the Agent to exercise any right or power
accruing upon the occurrence and during the continuance of any Event of Default
as aforesaid shall impair any such right or power or shall be construed to be a
waiver of any such Event of Default or an acquiescence therein; and every power
and remedy given by this Agreement may be exercised from time to time, and as
often as shall be deemed expedient, by the Agent.

       Section 6.  Covenants.  Grantor covenants as follows:

       (a)  Grantor will perform and comply, in all material respects, with all
obligations and conditions on its part to be performed under each of the
Assigned Agreements.

       (b)  Grantor will not directly or indirectly create, incur, assume or
suffer to exist any liens (except for Permitted Liens) on or with respect to any
property or assets constituting a part of the Collateral and Grantor will at
POA's cost and expense promptly take such action as may be necessary to
discharge any such liens on or with respect to any properties or assets
constituting a part of the Collateral.

       (c)  Grantor will not make any other assignment of its rights under the
Assigned Agreements other than to the Issuers as contemplated by the Operative
Documents (as in effect on the Closing Date) and other than such assignments as
constitute Permitted Liens.

       (d)  Grantor agrees that any action or proceeding to enforce this
Agreement or any Assigned Agreement may be taken by the Agent either in
Grantor's name or in the Agent's name, as the Agent may deem necessary.

       (e)  Except as otherwise permitted under the Financing Agreement, Grantor
shall not without the prior written consent of the Agent, modify, amend,
terminate, waive or supplement any provision of any Assigned Agreement or any
other agreement, contract or instrument included in the Collateral.

       Section 7.  Notices.  Unless otherwise specifically herein provided, all
notices required or permitted under the terms and provisions hereof shall be in
writing and any such notice shall become effective upon delivery in accordance
with Section 9.02 of the Financing Agreement.

                                       10
<PAGE>

       Section 8.  Further Assurances. (a) Grantor agrees that from time to
time, at the expense of POA, Grantor will promptly execute and deliver all
further instruments and documents, and take all further action, that may be
reasonably necessary or that the Agent may reasonably request, in order to
perfect and protect the assignment and security interest granted or intended to
be granted hereby or to enable the Agent to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, Grantor will: (i) if any Collateral shall be
evidenced by a promissory note or other instrument, deliver and pledge to the
Agent for the benefit of the Secured Parties such note or instrument duly
endorsed (without recourse) and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to the Agent and
(ii execute and file such financing or continuation statements, or amendments
thereto, and such other instruments, endorsements or notices, as may be
reasonably necessary or desirable, and as the Agent may reasonably request, in
order to perfect and preserve the assignments and security interests granted or
purported to be granted hereby; provided, however, that this Section 8(a) shall
not apply to any component, subassembly or supply of materials (x) which is
located outside the State of New York and (y) which has a purchase price of less
than $1,000,000, in each case before delivery of such component, subassembly or
supply into the State of New York.

       (b)  Grantor hereby authorizes the Agent to file one or more financing or
continuation statements and amendments thereto, relative to all or any part of
the Collateral without the signature of Grantor where permitted by law. Copies
of any such statement or amendment thereto shall promptly be delivered to
Grantor.

       (c)  POA shall pay all filing, registration and recording fees or
refiling, re-registration and re-recording fees, and all expenses incident to
the execution and acknowledgment of this Agreement, any assurance, and all
Federal, state, county and municipal stamp taxes and other taxes, duties,
imposts, assessments and charges arising out of or in connection with the
execution and delivery of this Agreement, any agreement supplemental hereto and
any instruments of further assurance.

       Section 9.  Place of Perfection; Records. The location of Grantor's place
of business and chief executive office is 233 Washington Street, Syracuse, New
York 13202. Grantor shall give the Agent at least thirty (30) Business Days'
notice before it changes the location of its place of business and chief
executive office and shall at the expense of POA execute and deliver such
instruments and documents as required to maintain a prior perfected security
interest and as requested by the Agent. Grantor will hold and preserve such
records and will permit representatives of the Agent at any time during normal
business hours to inspect and make abstracts from such records.

                                       11
<PAGE>

     Section 10.  Covenants of Grantor. POA shall pay, before the imposition of
any fine, penalty, interest or cost attached thereto, all taxes, assessments and
other governmental or non-governmental charges or levies now or hereafter
assessed or levied against the Collateral or upon the security interest provided
for herein (except for liens for taxes and assessments not then delinquent or
which POA may, pursuant to the definition of "Permitted Liens" in the Financing
Agreement, permit to remain unpaid), as well as pay, or cause to be paid, all
claims for labor, materials or supplies which, if unpaid, might become a prior
Lien (other than a Permitted Lien) thereon, and will deliver receipts showing
payment of any of the foregoing to the Agent upon request.

     Section 11.  Continuing Assignment and Security Interest; Transfer of
Senior Secured Notes. This Agreement shall create a continuing assignment of and
security interest in the Collateral and shall (a) remain in full force and
effect until payment and performance in full of the Obligations (b) be binding
upon Grantor, its successors and assigns and (c) inure, together with the rights
and remedies of the Agent, to the benefit of the Agent and its respective
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (c), subject to the terms of the Financing Agreement, the
Holders may assign or otherwise transfer the Senior Secured Notes or other
evidences of indebtedness held by them to any other Person, and such other
Person shall thereupon become vested with all the benefits in respect thereof
granted to the Holders herein or otherwise. Upon the payment in full of the
Obligations, the security interest granted hereby shall terminate and all rights
to the Collateral shall revert to Grantor. Upon any such termination, the Agent
will, at POA's expense, execute and deliver to Grantor such documents as Grantor
shall reasonably request to evidence such termination.

     Section 12.  Severability.  Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

     Section 13.  Successors and Assigns.  All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the parties
and their respective successors and assigns; provided, however, that Grantor may
not assign or delegate its rights or obligations hereunder without the prior
written consent of the Agent.

                                       12
<PAGE>

     Section 14.  Headings. The headings of the various Sections herein are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.

     Section 15.  Governing Law. This Agreement, including all matters of
construction, validity and performance and matters relating to the creation,
validity, enforcement or priority of the lien of, and security interests created
by, this Agreement upon the Collateral shall be governed by the laws of the
State of New York.

     Section 16.  References to Other Documents. All defined terms used in this
Agreement which refer to other documents shall be deemed to refer to such other
documents as they may be amended, supplemented or replaced from time to time,
provided such documents were not amended in breach of a covenant contained in
any agreement to which Grantor or the Agent is a party.

     Section 17.  Agreement for Security Purposes. This agreement is for
security purposes only. Accordingly, the Agent shall not, have a right pursuant
to this Agreement, to enforce Grantor's rights with respect to the Collateral
until such time as an Event of Default shall have occurred and is continuing at
the time such enforcement is sought.

     Section 18.  Scope of Liability. This Agreement is one of the Financing
Documents referred to in the Financing Agreement, and the recourse of the Agent
and the other Secured Parties against the Grantor and any of its Affiliates,
stockholders, officers, directors, partners or employees, for any liability to
the Agent or the other Secured Parties arising under this Agreement shall be
limited to the extent provided in the Financing Agreement.

     Section 19.  Regarding the Agent. The Agent shall be afforded in respect of
this Agreement all of the rights, powers, protections, immunities and
indemnities set forth in Article 4 and Article 5 of the Depositary Agreement
which are applicable between the Agent and the Issuer thereunder, and the
provisions of Article 4 and Article 5 of the Depositary Agreement which are
applicable between the Agent and the Issuer thereunder shall inure to the
benefit of the Agent in respect to this Agreement and be binding upon POA in
such respect, in each case as if the same were specifically set forth herein,
mutatis mutandis. In furtherance and not in derogation of such rights, powers,
protections, immunities and indemnities set forth in Article 4 and Article 5 of
the Depositary Agreement:

     (a)  The Agent is authorized to take all such action as is provided to be
taken by it as the Agent hereunder and all other action incidental thereto. As
to any matters

                                       13
<PAGE>

not expressly provided for herein the Agent shall act or refrain from acting in
accordance with written instructions from the Required Holders or, in the
absence of such instructions, in accordance with its discretion.

       (b)  The Agent shall not be responsible for the existence, genuineness or
value of any of the Collateral or for the validity, perfection, priority or
enforceability of the Lien on any of the Collateral, whether impaired by
operation of law or by reason of any action or omission to act on its part
hereunder.  The Agent shall have no duty to ascertain or inquire as to the
performance or observance of any of the terms of this Agreement by the Grantor.

       (c)  At any time or times, in order to comply with any legal requirement
in any jurisdiction, the Agent may appoint another bank or trust company or one
or more other Persons, either to act as co-agents or co-agents, jointly with the
Agent, or to act as separate agent or agents on behalf of the Agent with such
power and authority of the Agent as may be necessary for the effectual operation
of the provisions hereof and may be specified in the instrument of appointment
(which may, in the discretion of the Agent, include extending to such co-agent
or separate agent the provisions for the protection of the Agent contained in
Article 4 and Article 5 of the Depositary Agreement).

       Section 20.  Limitation of the Grantor's Liability. (a) The obligations
and agreements of the Grantor contained herein and in any financing statement,
fixture filing or other instrument or document executed in connection herewith
or supplemental hereto shall be deemed the obligations and agreements of the
Grantor and not of any members, officers, agents (other than POA) or employee of
the Grantor in his or her individual capacity; and the members, officers, agents
(other than POA) and employees of the Grantor shall not be liable personally
herein or thereon or be subject to any personal liability or accountability
based upon or in respect hereof or thereof or of any transaction contemplated
hereby. The obligations and agreements of the Grantor contained herein or
therein shall not constitute or give rise to an obligation of the State of New
York or of the City of Syracuse, and neither the State of New York nor the City
of Syracuse shall be liable hereon or thereon. Further, such obligations and
agreements shall not constitute or give rise to a general obligation of the
Grantor, but rather shall constitute limited obligations of the Grantor,
enforceable solely against the Collateral and the revenues and proceeds derived
by the Grantor from the Collateral, except the Unassigned Rights and the
revenues and proceeds from the Unassigned Rights.

       (b)  No order or decree of specific performance with respect to any of
the obligations of the Grantor hereunder shall be sought or enforced unless:

                                       14
<PAGE>

          (i)    The party seeking such order or decree shall first have
     requested the Grantor in writing to take the action sought in such order or
     decree of specific performance, and ten (10) days shall have elapsed from
     the date of receipt of such request, and the Grantor shall have refused to
     comply with such request (or if compliance therewith would reasonably be
     expected to take longer than ten (10) days, shall have failed to institute
     and diligently pursue action to cause compliance with such request) or
     failed to respond within such notice period; and

          (ii)   If the Grantor refuses to comply with such request and the
     Grantor's refusal to comply is based on its reasonable expectation that it
     will incur fees and expenses, POA or the party seeking such order or decree
     shall have placed in an account with the Grantor an amount or undertaking
     sufficient to cover such reasonable fees and expenses; and

          (iii)  If the Grantor refuses to comply with such request and the
     Grantor's refusal to comply is based on its reasonable expectation that it
     or any of its members, officers, agents (other than POA) or employees shall
     be subject to potential liability, POA or the party seeking such order or
     decree shall (1) agree to indemnify and hold harmless the Grantor and its
     members, officers, agents (other than POA) and employees against any
     liability incurred as a result of its compliance with such demand; and (2)
     if requested by the Grantor, furnish to the Grantor satisfactory security
     to protect the Grantor and its members, officers, agents (other than POA)
     and employees against all liability expected to be incurred as a result of
     compliance with such request.

If the Grantor shall request any deposit, undertaking, indemnity or security
pursuant to this Section 20, (i) POA shall promptly after receipt of such
request furnish the same to the Grantor, (ii) the Grantor shall accept the same
from POA, and (iii) if POA shall fail to furnish the same, the Grantor shall
accept the same from the party seeking such order or decree.  Any failure to
provide any notice, deposit, indemnity or security to the Grantor pursuant to
this Section 20 shall not alter the force and effect of any Default or Event of
Default.

     Section 21.  POA Indemnification of the Grantor.  POA and the Grantor agree
that the provisions of Section 10.3 "Indemnification" of the Master Lease are
                                     ---------------
incorporated herein by reference and shall be applicable, mutatis mutandis, as
between POA and the Grantor under and with respect to this Agreement.

                                       15
<PAGE>

     IN WITNESS WHEREOF, Grantor and Agent have caused this Security Agreement
to be duly executed by their signatories thereunto duly authorized, as of the
day and year first above written.

                                          CITY OF SYRACUSE INDUSTRIAL
                                          DEVELOPMENT AGENCY

                                          By: /s/ Vito Sciscioli
                                             ___________________________________
                                             Name: Vito Sciscioli
                                             Title: Vice Chairman

                                          U.S. BANK TRUST NATIONAL ASSOCIATION,
                                            as Agent for the benefit of the
                                            Secured Parties

                                          By: /s/ Ward A. Spooner
                                             ___________________________________
                                             Name: Ward A. Spooner
                                             Title: Vice President

                                          Consented and Agreed to:

                                          PROJECT ORANGE FUNDING, L.P.,
                                          a Delaware limited partnership

                                          By:  G.A.S. Orange Associates, L.L.C.,
                                               a Delaware limited liability
                                               company, its general partner

                                               By: /s/ Douglas Corbett
                                                  ______________________________
                                                  Name: Douglas Corbett
                                                  Title: Vice President

                                       16<PAGE>

                                                                     EXHIBIT 4.7

                                                                  EXECUTION COPY

                         PLEDGE AND SECURITY AGREEMENT

                         Dated as of December 6, 1999

                                     Among

                         G.A.S. ORANGE PARTNERS, L.P.,
                        a Delaware limited partnership

                         PROJECT ORANGE FUNDING, L.P.,
                        a Delaware limited partnership,

                                      and

                     U.S. BANK TRUST NATIONAL ASSOCIATION,
                              as Collateral Agent
<PAGE>

                               TABLE OF CONTENTS

                                 _____________

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
PREFACE..................................................................    1
                                                                             -
Section 1.  Definition...................................................    2
                                                                             -
Section 2.  Assignment, Pledge and Grant of Security Interest............    2
                                                                             -
Section 3.  Documents....................................................    4
                                                                             -
Section 4.  Events of Default............................................    5
                                                                             -
Section 5.  Remedies.....................................................    6
                                                                             -
Section 6.  Remedies Cumulative; Delay Not Waiver........................    9
                                                                             -
Section 7.  Covenants and Representations of Assignor....................    9
                                                                             -
Section 8.  Certain Consents and Waivers.................................   12
                                                                            --
Section 9.  Orange L.P.'s Consent and Covenants..........................   13
                                                                            --
Section 10. Attorney-in-Fact.............................................   14
                                                                            --
Section 11. Place of Business; Location of Records.......................   14
                                                                            --
Section 12. Perfection; Further Assurances...............................   14
                                                                            --
Section 13. Continuing Assignment and Security Interest; Transfer of
            Senior Secured Notes.........................................   15
                                                                            --
Section 14. Liability....................................................   15
                                                                            --
Section 15. Regarding the Agent..........................................   16
                                                                            --
Section 16. Severability.................................................   16
                                                                            --
Section 17. Successors and Assigns.......................................   17
                                                                            --
Section 18. Headings.....................................................   17
                                                                            --
Section 19. Governing Law................................................   17
                                                                            --
Section 20. References to Other Documents................................   17
                                                                            --
</TABLE>
<PAGE>

                         PLEDGE AND SECURITY AGREEMENT

     This Pledge and Security Agreement ("Agreement") dated as of December 6,
1999, is entered into by and among G.A.S. ORANGE PARTNERS, L.P., a Delaware
limited partnership ("Assignor"), PROJECT ORANGE FUNDING, L.P., ("Funding L.P.")
a Delaware limited partnership (together with its successors, including Project
Orange Associates, L.P., ("Orange L.P.") a Delaware limited partnership, as the
survivor of the merger of Orange L.P. with and into Project Orange Associates,
L.P. concurrently with the issuance and sale of the Senior Secured Notes
referred to below, "POA"), and U.S. BANK TRUST NATIONAL ASSOCIATION, as
collateral agent ("Agent") for the benefit of the Secured Parties under the
Financing Agreement described below.

                                    PREFACE
                                    -------

     A.   Orange L.P. operates the Project (as defined in the Financing
Agreement described below) in Syracuse, Onondaga County, New York.

     B.   POA and Project Orange Capital Corp., a Delaware corporation,
("Capital Co." and together with POA, the "Issuers") will issue $68 million
aggregate principal amount of its 10.5% Senior Secured Notes due 2007 (the
"Series A Notes") pursuant to that certain Indenture dated as of December 6,
1999 ("Financing Agreement") among the Issuers and U.S. Bank Trust National
Association, as Trustee ("Trustee") for the benefit of the holders of the Senior
Secured Notes (the "Holders" and, together with the Trustee, the "Secured
Parties") and as Collateral Agent.

     C.   The Holders will have the registration rights set forth in the
Registration Rights Agreement dated as of December 6, 1999 between the  Issuers
and Donaldson Lufkin & Jenrette (the "Initial Purchaser") pursuant to which the
Issuers agree to file  with the Securities and Exchange Commission (i) a
registration statement relating to 10.5% Senior Secured Notes due 2007 (the
"Series B Notes") to be offered in exchange for the Series A Notes and (ii) a
shelf registration statement pursuant to Rule 415 under the Securities Act of
1933 relating to the resale by certain Holders of the Series A Notes.  The
Series A Notes and the Series B Notes are collectively referred to herein as the
"Senior Secured Notes".

     D.   Concurrently with the issuance and sale of the Series A Notes (the
"Offering"), Funding L.P. will merge (the "Merger") with and into Orange L.P.
(with Orange L.P. as the surviving partnership) pursuant to the Agreement and
Plan of Merger dated as of December 6, 1999 (the "Merger Agreement") between
Funding L.P. and Orange L.P.
<PAGE>

     E.   Assignor is a partner in Orange L.P. pursuant to that certain Second
Amended and Restated Agreement of Limited Partnership dated as of December 16,
1992 ("Partnership Agreement") among G.A.S. Orange Associates, LLC, a Delaware
limited liability company and Assignor (the "Partners").

     F.   As a condition precedent to the issuance of the Senior Secured Notes
contemplated by the Financing Agreement, the Secured Parties require that
Funding L.P. and Assignor shall have executed this Agreement.

                                   AGREEMENT
                                   ---------

     In consideration of the premises herein and in order to induce the Trustee,
for the benefit of the Holders, to enter into the Financing Agreement, and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Funding L.P. and Assignor hereby agree with the Agent for
the benefit of the Secured Parties as follows:

     Section 1.  Definition.

     Unless otherwise defined, all capitalized terms used herein which are
defined in the Financing Agreement shall have their respective meanings therein
defined.

     Section 2.  Assignment, Pledge and Grant of Security Interest. (a) To
secure the timely payment and performance of the Obligations (as defined below),
Assignor does hereby assign and pledge to the Agent for the benefit of the
Secured Parties and grant to the Agent for the benefit of the Secured Parties a
security interest in all the estate, right, title and interest of Assignor, now
owned or hereafter acquired, in, to and under any and all of the following
(subject to the proviso to this Section 2(a), the "Collateral"):

          (i)   Assignor's partnership interests in Orange L.P.;

          (ii)  subject to the rights of Kronish Lieb (as defined below) under
     the Stipulation (as defined below), all rights to receive all income, gain,
     profit, loss or other items allocated or distributed to Assignor under the
     Partnership Agreement;

          (iii) subject to the rights of Kronish Lieb under the Stipulation, all
     rights of Assignor to receive distributions of any nature whatsoever by
     Orange L.P. with respect to such partnership interests;

                                       2
<PAGE>

          (iv)   all of Assignor's capital or ownership interest, including
     capital accounts, in Orange L.P., and all accounts, deposits or credits of
     any kind with Orange L.P.;

          (v)    all of Assignor's voting rights in or rights to control or
     direct the affairs of Orange L.P.;

          (vi)   all of Assignor's right, title and interest, as a partner in
     Orange L.P., in or to any and all of Orange L.P.'s assets or properties;

          (vii)  subject to the rights of Kronish Lieb under the Stipulation,
     all other right, title and interest of Assignor in or to Orange L.P., and
     all rights to receive income, profits or other distributions from Orange
     L.P., of any nature whatsoever, in each case, as such rights are derived
     from Assignor's partnership interests in Orange L.P.;

          (viii) subject to the rights of Kronish Lieb under the Stipulation,
     all claims of the Assignor for damages arising out of or for breach of or
     default relating to the Collateral except for claims against the other
     Partner in its capacity as Partner;

          (ix)   all rights of Assignor to terminate, amend, supplement, modify
     or waive performance under the Partnership Agreement, to perform thereunder
     and to compel performance and otherwise exercise all remedies thereunder;
     and

          (x)    subject to the rights of Kronish Lieb under the Stipulation,
     all proceeds of any of the above.

provided that the Collateral shall not include anything described in clauses
(i), (iv), (v), (vi) or (ix) above (the "Excluded Collateral") unless and until
Kronish Lieb Weiner & Hellman LLP ("Kronish Lieb") ceases to have rights under
the Stipulation dated November 14, 1994 and Order of Bankruptcy Court dated
December 8, 1994 (the "Stipulation").

     (b)  This Agreement secures the payment and performance of all obligations
of POA and the other Credit Parties and SIDA, now existing or hereafter arising,
due or owing to the Secured Parties pursuant to the terms of the Indenture, the
Senior Secured Notes and the Collateral Documents including, without limitation:
(i) the principal, premium, if any, or interest on the Senior Secured Notes
(including any interest accruing after the commencement of any bankruptcy or
insolvency proceeding

                                       3
<PAGE>

relating to the Issuers, whether or not such interest is allowed or allowable as
a claim in any such proceeding), and all other obligations and liabilities of
the Issuers including, without limitation, indemnities, fees and interest
incurred under, arising out of or in connection with the Indenture, the Senior
Secured Notes and the Collateral Documents, (ii) any and all sums advanced by or
on behalf of the Issuers in order to preserve the Collateral or preserve its
interest in the Collateral, and (iii) in the event of any proceeding for
collection or enforcement by or on behalf of any Secured Party after an Event of
Default shall have occurred and be continuing and unwaived, the expenses of
retaking, holding, preparing for sale or lease, selling or otherwise disposing
of or realizing on the Collateral, or of any exercise by or on behalf of any
Secured Party of its rights under the Indenture, the Senior Secured Notes and
the Collateral Documents, together with attorneys' fees and court costs (all
such obligations being herein called the "Obligations").

     (c)  Upon the occurrence and during the continuation of an Event of
Default, Assignor hereby irrevocably appoints and constitutes the Agent and its
successors and assigns as Assignor's true and lawful attorney in fact, with full
power (in the name of Assignor or otherwise) to ask, require, demand, receive,
compound and give acquittance for any and all moneys and claims for money due
and to become due under or arising out of the Collateral, to elect remedies
thereunder, to endorse any checks or other instruments or orders in connection
therewith and to file any claims or take any action or institute any proceedings
in connection therewith which the Agent may deem to be necessary or advisable.

     Section 3.  Documents.  (a)  At any time and from time to time upon the
request of the Agent, Assignor will:

          (i)    deliver and pledge to the Agent endorsed and/or accompanied by
     such evidence of assignment and transfer, in such form and substance, as
     the Agent may request, any and all instruments, documents, chattel paper
     and/or general intangibles relating to the Collateral as the Agent may
     specify;

          (ii)   give, execute, deliver, file and/or record any notice,
     statement, instrument, document, agreement or other papers that may be
     reasonably necessary, and as the Agent may reasonably request, in order to
     create, preserve, perfect or validate the assignment and security interest
     granted pursuant hereto or to enable the Agent to exercise and enforce its
     rights hereunder or with respect to such assignment and security interest;
     and

                                       4
<PAGE>

          (iii)  keep and stamp or otherwise mark any and all documents and its
     individual books and records relating to Collateral in such manner as the
     Agent may require.

     (b)  The right is expressly granted to the Agent, at its discretion, to
file in those jurisdictions where the same is permitted one or more financing
statements under the Uniform Commercial Code (the "UCC") signed only by the
Agent, naming Assignor as debtor and the Agent as secured party, and indicating
therein the types or describing the items of Collateral herein specified.
Without the prior written consent of the Agent, the Assignor will not file or
authorize or permit to be filed in any jurisdiction any such financing or like
statement (other than for Permitted Liens) in which the Agent is not named as
the sole secured party. Nothing herein shall be construed as obligating the
Agent to file any financing statement.

     (c)  If any default by Assignor under the Partnership Agreement shall
occur, the Agent shall, at its option, be permitted (but shall not be obligated)
to remedy any such default by giving written notice of such intent to Orange
L.P. and Assignor. The Agent shall have a period of sixty (60) days after giving
such notice in which to cure such default. In the event that any such default
(except monetary defaults) shall not be reasonably curable within such 60-day
period, neither Orange L.P. nor any Person acting on behalf of Orange L.P.,
including, without limitation, a general partner of Orange L.P., shall exercise
any remedies thereunder if the Agent shall, within such 60-day period, initiate
action to cure such default and proceed diligently to the curing thereof. Any
cure by the Agent of Assignor's default under the Partnership Agreement shall
not be construed as an assumption by the Agent or any of the Secured Parties of
any obligations, covenants or agreements of Assignor under the Partnership
Agreement and neither the Agent nor the Secured Parties shall be liable for any
action taken pursuant to this Section 3(c) to cure any such default. In no event
shall the Agent be deemed to be a partner under such Partnership Agreement and
in no event shall the Agent have any liability thereunder. This Agreement shall
not be deemed to release or to affect in any way the obligations of Assignor
under the Partnership Agreement.

     Section 4.  Events of Default. The occurrence of any of the following
events ("Events of Default"), whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body, shall entitle the Agent
to exercise any and all of its rights and remedies hereunder or at law:

                                       5
<PAGE>

       (a)  the occurrence (whether as a result of acts or omissions by Orange
L.P. or any other Person) of an Event of Default under the Financing Agreement
or any of the other Financing Documents; or

       (b)  subject to such notice requirements and cure periods as may be
applicable thereto pursuant to the Financing Agreement, the failure on the part
of Assignor to observe or perform any material covenant, condition or agreement
on its part to be observed or performed, or the material breach of any
representation or warranty of Assignor, contained in this Agreement; or

       (c)  the impairment of the priority of the security interest in the
Collateral granted herein in any material respect.

       Section 5.  Remedies.  (a)  If any Event of Default has occurred and is
continuing, the Agent shall have the right, at its election, but not the
obligation, to do any of the following (subject to the terms of the Financing
Agreement and except to the extent such action or actions are prohibited
pursuant to applicable law):

            (i)    subject to Section 5(f) below but only after Kronish Lieb
       ceases to have rights under the Stipulation, vote or exercise any and all
       of Assignor's rights or powers under the Partnership Agreement, including
       any rights or powers to manage or control the Orange L.P.;

            (ii)   demand, sue for, collect or receive any money or property at
       any time payable to or receivable by Assignor on account of, or in
       exchange for, all or any part of the Collateral;

            (iii)  institute and prosecute any action at law or suit in equity
       or other proceeding to collect or enforce any obligations or rights
       hereunder or in the Collateral, including specific enforcement of any
       covenant or agreement contained herein or in the Partnership Agreement,
       or to foreclose or enforce the security interest in all or any part of
       the Collateral granted herein, or to enforce any other legal or equitable
       right vested in it by this Agreement or by law;

            (iv)   sell or otherwise dispose of any or all of the Collateral or
       cause all or any part of the Collateral to be sold or otherwise disposed
       of in one or more sales or transactions, after five (5) days prior
       written notice to the Assignor of its intent to take such action, at such
       prices as the Agent may deem appropriate or adequate, and for cash or on
       credit or for future delivery, without assumption of any credit risk, at
       any broker's board or at public or private sale, without demand of
       performance or notice of time or place of sale

                                       6
<PAGE>

     (except such notice which under applicable law cannot be waived), and any
     Secured Party or any other Person may be the purchaser of any or all of the
     Collateral so sold and thereafter hold the same absolutely free from any
     claim or right of whatsoever kind, including any equity of redemption, of
     Assignor or Orange L.P., any such demand, notice or right and equity being
     hereby expressly waived and released;

          (v)    incur expenses, including attorneys' fees, consultants' fees,
     and other costs appropriate to the exercise of any right or power under
     this Agreement;

          (vi)   perform any obligation of Assignor hereunder or under the
     Partnership Agreement;

          (vii)  secure the appointment of a receiver for Assignor without
     notice to Orange L.P. or Assignor; or

          (viii) exercise any other or additional rights or remedies granted to
     a secured party under the UCC.

     If, pursuant to applicable law, prior notice of any such action is required
to be given to Assignor or Orange L.P., Assignor and Orange L.P. hereby
acknowledge and agree that the minimum time required by such applicable law, or
if no minimum is specified, five (5) Banking Days, shall be deemed a reasonable
notice period.

     (b)  In addition to the foregoing remedies, the Agent may (subject to
Section 3(c) hereof), but shall not be obligated to, cure any Event of Default
and incur reasonable fees, costs and expenses in doing so, in which event Orange
L.P. or Assignor shall immediately reimburse the Agent on demand for all such
fees, costs and expenses, together with interest on the total amount at the
Default Rate from the date incurred until the date repaid in full. Subject to
the Assignor's rights described in Section 5(c) hereof, the Agent shall be the
sole judge of the validity of any adverse claims, taxes, assessments, charges or
encumbrances pertaining to the Collateral, and the amount to be paid in
satisfaction thereof, and of the necessity for, and of the time and manner of
doing, everything herein authorized to be done, provided that the Agent shall be
under no obligation to do any such acts or to make any such payments.

     (c)  Assignor may contest in good faith any taxes, assessments and other
governmental charges in connection with the Collateral and, in such event, may
permit the taxes, assessments or other charges so contested to remain unpaid
during any period, including appeals, when Assignor is in good faith contesting
the same, so long as

                                       7
<PAGE>

(i) reserves have been established in an amount sufficient to pay any such
taxes, assessments or other charges, accrued interest thereon and potential
penalties or other costs relating thereto, or other adequate provision for the
payment thereof shall have been made, (ii) enforcement of the contested tax,
assessment or other charge is effectively stayed for the entire duration of such
contest, and (ii) any tax, assessment or other charge determined to be due,
together with any interest or penalties thereon, is immediately paid after
resolution of such contest. Additionally, Assignor may contest in good faith
Liens for any tax, assessment or other governmental charge, by appropriate
proceedings, so long as in connection with such proceedings a bond or other
security has been posted or provided in such manner and amount as to assure that
any taxes, assessment or other charges determined to be due will be promptly
paid in full when such contest is determined.

       (d)  If the Agent shall decide to exercise its right to sell any or all
of the Collateral, and if it is necessary to have such Collateral, or that
portion thereof to be sold, registered under the provisions of the Securities
Act of 1933, as amended, or otherwise registered or qualified under any federal
or state securities laws or regulations (collectively, the "Securities Laws"),
Orange L.P. will execute and deliver, all at Orange L.P.'s expense, all such
instruments and documents which, in the opinion of the Agent, are necessary to
register or qualify such Collateral, or that portion thereof to be sold, under
the provisions of the Securities Laws and will use best efforts to cause any
registration statement relating thereto to become effective and to remain
effective for a period of not less than six (6) months from the date of the
first public offering of such Collateral, or that portion thereof to be sold,
and to make all amendments thereto and/or to any related prospectus or similar
document which are necessary, all in conformity with the Securities Laws
applicable thereto. Without limiting the generality of the foregoing, Orange
L.P. agrees to comply with the provisions of all applicable securities or "Blue
Sky" laws of any jurisdiction(s) and to make available to its security holders,
as soon as practicable, an earnings statement which will satisfy the provisions
of Section 11(a) of the Securities Act of 1933.

       (e)  All costs and expenses (including, without limitation, attorneys'
fees and expenses) incurred by the Agent or any Secured Party in connection with
exercising any remedy provided for herein or at law, curing any Event of Default
or performing any of Assignor's agreements contained herein or in the
Partnership Agreement or in respect of any part of the Collateral, together with
interest thereon computed at the Default Rate from the date on which such costs
or expenses are incurred to the date of payment thereof, shall constitute
indebtedness secured by this Agreement and shall be paid by Assignor or the
Orange L.P. to the Agent on demand for the account of the Agent or any such
Secured Party, as the case may be.

                                       8
<PAGE>

       (f)  So long as no Event of Default has occurred and is continuing,
Assignor reserves the right to exercise all of its rights under the Partnership
Agreement (except as limited by the Financing Documents) and to receive all
income and other distributions from the Collateral and such distributions shall
be free of any lien of Agent and/or the Secured Parties under the Financing
Documents (so long as such distributions do not violate any terms or provisions
of the Financing Documents).

       (g)  Upon the occurrence and during the continuance of an Event of
Default, the proceeds of any sale of, or other realization upon, all or any part
of the Collateral shall be deposited in the Redemption Account to be held,
applied and released in accordance with the Depositary Agreement.

       Section 6.  Remedies Cumulative; Delay Not Waiver.  No right, power or
remedy herein conferred upon or reserved to the Agent or the Secured Parties is
intended to be exclusive of any other right, power or remedy, and every such
right, power and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right, power and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or employment
of any right or remedy hereunder shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy. No delay or omission of the
Agent to exercise any right or power accruing upon the occurrence and during the
continuance of any Event of Default as aforesaid shall impair any such right or
power or shall be construed to be a waiver of any such Event of Default or an
acquiescence therein. Every power and remedy given by this Agreement may be
exercised from time to time, and as often as shall be deemed expedient, by the
Agent.

       Section 7.  Covenants and Representations of Assignor. Assignor
covenants, agrees and represents as follows:

       (a)  Assignor will perform and comply, in all material respects, with all
obligations and conditions on its part to be performed hereunder, under the
Partnership Agreement or with respect to the Collateral.

       (b)  The Partnership Agreement has been duly authorized, executed and
delivered by Assignor and, to the best of Assignor's knowledge, the other
parties thereto, has not been amended or otherwise modified, and is in full
force and effect and is binding upon and enforceable against Assignor and, to
the best of Assignor's knowledge, the other parties thereto, in accordance with
its terms. There exists no default under the Partnership Agreement by Assignor,
or to the best of Assignor's knowledge, by the other parties thereto.

                                       9
<PAGE>

       (c)  Assignor has not executed and is not aware of any effective
financing statement, security agreement or other instrument similar in effect
covering all or any part of the Collateral on file in any recording office,
except such as may have been filed pursuant to this Agreement or the other
Financing Documents or pursuant to the documents evidencing Permitted Liens.

       (d)  Assignor is the lawful owner of and has full right, title and
interest in and to, the Collateral, subject to no mortgages, liens, charges, or
encumbrances of any kind except Permitted Liens, and has full power and lawful
authority to pledge, assign and grant a security interest in the Collateral
hereunder. Assignor will, so long as any Obligations shall be outstanding,
warrant and defend its title to the Collateral against the claims and demands of
all persons whomsoever.

       (e)  Assignor will not directly or indirectly create, incur, assume or
suffer to exist any liens on or with respect to any part of the Collateral
except for the liens created by this Agreement or Permitted Liens or as
otherwise expressly permitted pursuant to the Financing Agreement. Assignor will
at its own cost and expense promptly take such action as may be necessary to
discharge any such liens.

       (f)  Except as provided in the Stipulation, Assignor has not assigned any
of its rights under the Partnership Agreement or any of the Collateral except as
provided in this Agreement.

       (g)  Any action or proceeding to enforce the rights granted or to protect
or preserve the Collateral under this Agreement may be taken by the Agent either
in Assignor's name or in the Agent's name as the Agent may deem necessary.

       (h)  Without the prior written consent of the Agent, or unless otherwise
expressly permitted by the Financing Agreement, Assignor shall not (i)
terminate, modify or amend the Partnership Agreement or (ii) fail to deliver to
the Agent a copy of each demand or notice received or given by it relating to
the Partnership Agreement and which could reasonably be expected to have a
material adverse effect upon the Collateral or the Agent's rights therein.

       (i)  Assignor shall give to the Agent prompt notice of any default, event
of default or event which with the giving of notice or the passage of time or
both might become an event of default (however "default" or "event of default"
may be defined) under the Partnership Agreement, whether by Orange L.P.,
Assignor or any other Person, of which Assignor has actual knowledge or has
received notice.

                                       10
<PAGE>

       (j)  If Assignor in its capacity as a partner of Orange L.P. (whether as
a general partner or a limited partner) receives any income or distribution of
money or property of any kind from Orange L.P. while an Event of Default (with
respect to which the Assignor has received written notice) has occurred and is
continuing, Assignor shall (except for income or distributions which the
Assignor is obligated to pay over to Kronish Lieb pursuant to the Stipulation)
hold such income or distribution as trustee for and shall deliver the same to
the Agent (unless all such Events of Default have been cured or waived or unless
Agent shall have provided written notice to Assignor to the effect that Agent
shall have determined, in its sole discretion, that the continuance of any such
Event(s) of Default could not have an adverse effect on Orange L.P. or the
Collateral) and that Assignor may retain such income, money or property.

       (k)  Assignor will, at all times, keep accurate and complete records of
the Collateral. Assignor shall, at all times on seven (7) days' notice, permit
representatives of the Agent at any time during normal business hours of
Assignor to inspect and make abstracts from the Assignor's books and records
pertaining to the Collateral.

       (l)  Assignor will give prompt notice in writing to the Agent of any
change in the location of the place of business where correspondence, notices or
proceeds in connection with the Collateral are received or located or of any
change in the location of the place of business where records concerning
Collateral are kept.

       (m)  Assignor is not, and will not as a result of becoming a general or
limited partner of Orange L.P. be or become, or cause Orange L.P. to be or
become, or be deemed by any Governmental Authority to be a "utility" or subject
to, or not exempt from, regulation under the FPA or the PUHCA or under state
laws and regulations respecting the rates or the financial or organizational
regulation of public or electric utilities, except as a "qualifying facility"
under PURPA.

       (n)  Assignor shall not do anything or cause, suffer or permit anything
to be done, including, without limitation, sale or other transfer of Assignor's
partnership interests in the Orange L.P. or of any stock, partnership interest
or other ownership interest in Assignor, which may cause the Project to lose its
status as a "qualifying facility" under PURPA.

       (o)  As a condition to any transfer of any Collateral the transferee must
agree that the security interest needed by this agreement shall continue
unimpaired following such transfer and shall sign all necessary agreements and
instruments and take all other action necessary to create a first priority
security in favor of the Agent on such Collateral that is the subject of such
transfer.  In connection with any such transfer, the Agent shall be entitled to
receive such information with respect to the identity of the

                                       11
<PAGE>

proposed transferee and the ultimate beneficial ownership and control of the
Orange L.P. as it may reasonably request in order to make an informed
determination as to whether the requested change in ownership of the Orange L.P.
would result in a Change of Control.

       (p)  Assignor shall perform and comply with all obligations and
conditions binding upon it under the Stipulation.

       Section 8.  Certain Consents and Waivers.  (a) Assignor hereby consents
to the execution, by the other Partners, of agreements similar to this Agreement
in favor of the Agent for the benefit of the Secured Parties. Assignor
specifically agrees that such other agreements may, among other things, assign
or delegate to the Agent rights to cure defaults under the Partnership
Agreement, to exercise voting rights and other rights to manage or control the
Orange L.P., and to act as such other Partner's attorney in fact in a manner
similar to the assignment and delegation of such rights provided herein and
that, to the extent permitted by applicable law, Assignor will recognize and
accept such assignment and delegation and the exercise of such rights by the
Agent in connection with any actions by or business of Orange L.P..

       (b)  Assignor hereby waives, to the maximum extent permitted by law:

            (i)    all rights under any law limiting remedies, including
       recovery of a deficiency, under an obligation secured by a deed of trust
       or mortgage on real property if the real property is sold under a power
       of sale contained in the mortgage, and all defenses based on any loss
       whether as a result of any such sale or otherwise, of Assignor's right to
       recover any amount from Orange L.P. or any other Credit Party or SIDA,
       whether by right of subrogation or otherwise;

            (ii)   all rights under any law to require the Agent to pursue
       Orange L.P. or any other Person, any security which the Agent may hold,
       or any other remedy before proceeding against Assignor;

            (iii)  all rights of reimbursement or subrogation, all rights to
       enforce any remedy that the Agent or the Secured Parties may have against
       Orange L.P., or any other Credit Party or SIDA and all rights to
       participate in any security held by the Agent until the Obligations have
       been paid and the covenants of the Financing Documents have been
       performed in full;

            (iv)   Except as otherwise provided herein, all rights to require
       the Agent to give any notices of any kind, including, without limitation,
       notices of

                                       12
<PAGE>

       nonpayment, nonperformance, protest, dishonor, default, delinquency or
       acceleration, or to make any presentments, demands or protests, except as
       expressly provided herein, in the Financing Agreement and the other
       Financing Documents;

            (v)    all rights to assert the bankruptcy or insolvency of Orange
       L.P. as a defense hereunder or as the basis for rescission hereof;

            (vi)   all rights under any law purporting to proportionally reduce
       Assignor's Obligations hereunder if Orange L.P.'s or any other Credit
       Party's or SIDA's Obligations are reduced;

            (vii)  all defenses based on the disability or lack of authority of
       Orange L.P. or any Person, the repudiation of the Financing Documents by
       Orange L.P. or any Person, the failure by Agent or the Secured Parties to
       enforce any claim against Orange L.P. or any other Credit Party or SIDA,
       or the unenforceability in whole or in part of any Financing Documents;
       and

            (viii) all suretyship and guarantor's defenses generally.

       Assignor further agrees that upon the occurrence of an Event of Default
under the Financing Agreement, the Agent may elect to nonjudicially or
judicially foreclose against any real or personal property security it holds for
the Obligations or any part thereof, or to exercise any other remedy against
Orange L.P. or any other Credit Party or SIDA, any security or any guarantor,
even if the effect of that action is to deprive Assignor of the right to collect
reimbursement from Orange L.P. or any other Credit Party or SIDA for any sums
paid by Assignor to the Agent or any Secured Party.

       Section 9.  Orange L.P.'s Consent and Covenants.  Orange L.P. hereby
consents to the assignment of and grant of a security interest in the Collateral
to the Agent and to the exercise by the Agent of all rights and powers assigned
or delegated to the Agent by Assignor hereunder, including without limitation
the rights upon and during an Event of Default and after Kronish Lieb ceases to
have rights under the Stipulation to exercise Assignor's voting rights and other
rights under the Partnership Agreement to manage or control Orange L.P..
Orange L.P. further agrees to perform all covenants and obligations herein
which, by their express or implied terms, are to be performed by Orange L.P.
Without limiting the generality of the foregoing, Orange L.P. agrees not to
permit the withdrawal of any present Partners or to admit any new Partners
except in compliance with Section 7(o) of this Agreement and to give the Agent
prompt notice of any (a) Change of Control or (b) default, event of default or
event which with the giving of notice or the passage of time or both might
become an

                                       13
<PAGE>

event of default (however "default" or "event of default", may be defined) by
Assignor or any other Partner under the Partnership Agreement.

       Section 10.  Attorney-in-Fact.  Upon the occurrence and during the
continuation of an Event of Default, Assignor hereby irrevocably constitutes and
appoints the Agent its true and lawful attorney-in-fact to enforce all rights of
Assignor with respect to the Collateral, including, without limitation, the
right to vote, demand, receive and enforce Assignor's rights with respect to the
Collateral, and to give appropriate receipts, releases and satisfactions for and
on behalf of and in the name of the Assignor or at the option of the Agent, in
the name of the Agent, with the same force and effect as Assignor could do if
this Agreement had not been made. This power of attorney is a power coupled with
an interest and shall be irrevocable.

       Section 11.  Place of Business; Location of Records.

       (a)  Unless the Agent is otherwise notified, the place of business and
chief executive office of Assignor is and all records of Assignor concerning the
Collateral are and will be located at, the following address:

            c/o Scolaro, Shulman, Cohen, Lawler & Burstein, P.C.
            90 Presidential Plaza
            Syracuse, New York 13202-2200
            Attn: Richard S. Scolaro

       (b)  All notices required or permitted under the terms and provisions
hereof shall be in writing and any such notice shall be effective if given in
accordance with the provisions of Section 9.02 of the Financing Agreement.
Notice to the Assignor may be given at the address set forth in clause (a)
above. Notices to the Agent may be given at the address set forth in Section
9.02 of the Financing Agreement.

       Section 12. Perfection; Further Assurances. (a) Assignor agrees that from
time to time, Assignor will promptly execute and deliver all instruments and
documents, and take all action, that may be reasonably necessary or that the
Agent may reasonably request, in order to perfect and protect the assignment and
security interest granted or intended to be granted hereby or to enable the
Agent to exercise and enforce its rights and remedies hereunder with respect to
any Collateral. Without limiting the generality of the foregoing, Assignor will
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments, endorsements or notices, as may be
reasonably necessary or as the Agent may reasonably request, in order to perfect
and preserve the assignments and security interests granted or purported to be
granted hereby.

                                       14
<PAGE>

       (b)  Orange L.P. shall pay all filing, registration and recording fees
and all refiling, re-registration and re-recording fees, and all reasonable
expenses incident to the execution and acknowledgment or performance of this
Agreement, and all Federal, state, county and municipal stamp taxes and other
taxes, duties, imports, assessments and charges arising out of or in connection
with the execution and delivery of this Agreement, any agreement supplemental
hereto, any financing statements and any instruments of further assurance.

       (c)  Assignor shall give the Agent at least thirty (30) days' notice
before it changes the location of its place of business and chief executive
office and shall at the expense of Orange L.P. execute and deliver such
instruments and documents as may be required by the Agent to maintain a prior
perfected security interest in the Collateral.

       Section 13.  Continuing Assignment and Security Interest; Transfer of
Senior Secured Notes.  This Agreement shall create a continuing pledge and
assignment of and security interest in the Collateral and shall (a) remain in
full force and effect until payment and performance in full of the Obligations,
(b) be binding upon Orange L.P., Assignor, and their respective successors and
assigns, and (c) inure, together with the rights and remedies provided herein,
to the benefit of the Agent, the Secured Parties and their respective
successors, transferees and assigns. Without limiting the generality of the
foregoing, any of the Secured Parties may assign or otherwise transfer all or
any part of or interest in the Senior Secured Notes or other evidence of
indebtedness held by them to any other Person to the extent permitted by and in
accordance with the Financing Agreement, and such other Person shall thereupon
become vested with all or an appropriate part of the benefits in respect thereof
granted to the Secured Parties herein or otherwise. The release of the security
interest in any or all of the Collateral, the taking or acceptance of additional
security, or the resort by the Agent to any security it may have in any order it
may deem appropriate, shall not affect the liability of any person on the
Obligations. Upon the payment and performance in full of the Obligations, the
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to Assignor. Upon any such termination, the Agent shall,
at Assignor's expense, execute and deliver to Assignor such documents as the
Orange L.P. or the Assignor shall reasonably request to evidence such
termination. If this Agreement shall be terminated or revoked by operation of
law, Assignor will indemnify and save the Agent harmless from any loss which may
be suffered or incurred by the Agent in acting hereunder prior to the receipt by
the Agent, its successors, transferees or assigns of notice of such termination
or revocation.

       Section 14.  Liability.  This Agreement is one of the Financing Documents
referred to in the Financing Agreement, and the recourse of the Agent and the
Secured

                                       15
<PAGE>

Parties against the Assignor, Orange L.P. or any of their respective Affiliates,
stockholders, officers, directors, partners or employees, for any liability to
the Agent or the Secured Parties arising under this Agreement shall be limited
to the extent provided in Section 9.07 of the Financing Agreement.

       Section 15.  Regarding the Agent. The Agent shall be afforded in respect
of this Agreement all of the rights, powers, protections, immunities and
indemnities set forth in Article 4 and Article 5 of the Depositary Agreement
which are applicable between the Agent and the Issuer thereunder, and the
provisions of Article 4 and Article 5 of the Depositary Agreement which are
applicable between the Agent and the Issuer thereunder shall inure to the
benefit of the Agent in respect to this Agreement and be binding upon POA in
such respect, in each case as if the same were specifically set forth herein,
mutatis mutandis. In furtherance and not in derogation of such rights, powers,
protections, immunities and indemnities set forth in Article 4 and Article 5 of
the Depositary Agreement:

       (a)  The Agent is authorized to take all such action as is provided to be
taken by it as the Agent hereunder and all other action incidental thereto.  As
to any matters not expressly provided for herein the Agent shall act or refrain
from acting in accordance with written instructions from the Required Holders
or, in the absence of such instructions, in accordance with its discretion.

       (b)  The Agent shall not be responsible for the existence, genuineness or
value of any of the Collateral or for the validity, perfection, priority or
enforceability of the Lien on any of the Collateral, whether impaired by
operation of law or by reason of any action or omission to act on its part
hereunder.  The Agent shall have no duty to ascertain or inquire as to the
performance or observance of any of the terms of this Agreement by each of POA
and the Assignor.

       (c)  At any time or times, in order to comply with any legal requirement
in any jurisdiction, the Agent may appoint another bank or trust company or one
or more other Persons, either to act as co-agents or co-agents, jointly with the
Agent, or to act as separate agent or agents on behalf of the Agent with such
power and authority of the Agent as may be necessary for the effectual operation
of the provisions hereof and may be specified in the instrument of appointment
(which may, in the discretion of the Agent, include extending to such co-agent
or separate agent the provisions for the protection of the Agent contained in
Article 4 and Article 5 of the Depositary Agreement).

       Section 16.  Severability.  Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the

                                       16
<PAGE>

remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

       Section 17. Successors and Assigns.   All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the parties
and their respective successors and assigns; provided, however, that neither
Assignor nor Orange L.P. may assign its rights or obligations hereunder without
the prior written consent of the Agent.

       Section 18. Headings.  The headings of the various Sections herein are
for convenience of reference only and shall not define or limit any of the terms
or provisions hereof.

       Section 19. Governing Law.  This Agreement, including all matters of
construction, validity, performance and the creation, validity, enforcement or
priority of the lien of, and security interests created by, this Agreement in or
upon the Collateral shall be governed by the laws of the State of New York.

       Section 20. References to Other Documents.  All defined terms used in
this Agreement which refer to other documents shall be deemed to refer to such
other documents as they may be amended, supplemented or replaced from time to
time, provided such documents were not amended in breach of a covenant contained
in any agreement to which Assignor, Orange L.P., the Agent or any of the Secured
Parties is a party.

                                       17
<PAGE>

       IN WITNESS WHEREOF, Assignor, Orange L.P. and Agent have caused this
Agreement to be duly executed by their duly authorized signatory as of the day
and year first above written.

                                   G.A.S. ORANGE PARTNERS, L.P.,
                                   a Delaware limited partnership

                                   By:  G.A.S. Orange Development, Inc.,
                                        its general partner

                                   By: /s/ Adam Victor
                                       __________________________
                                       Name: Adam Victor
                                       Its: President

Accepted and Agreed:

U.S. BANK TRUST NATIONAL
ASSOCIATION, as Agent

By: /s/ Ward A. Spooner
    _______________________
    Name: Ward A. Spooner
    Title: Vice President

PROJECT ORANGE FUNDING, L.P., a
Delaware limited partnership

By:  G.A.S. Orange Associates, L.L.C.,
     a Delaware limited liability
     company, its general partner

     By: /s/ Douglas Corbett
        __________________________
        Name: Douglas Corbett
        Title: Vice President

                                       18

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