Document:

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                                                                    EXHIBIT 4.10

                                                                  EXECUTION COPY

                         PLEDGE AND SECURITY AGREEMENT

                         Dated as of December 6, 1999

                                     Among

                       G.A.S. ORANGE DEVELOPMENT, INC.,
                            a New York corporation

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

                                      and

                     U.S. BANK TRUST NATIONAL ASSOCIATION,
                              as Collateral Agent
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                               TABLE OF CONTENTS

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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....................................................................     11
Section 9.  GAS LP's Consent and Covenants..................................................................     13
Section 10. Attorney-in-Fact................................................................................     13
Section 11. Place of Business; Location of Records..........................................................     13
Section 12. Perfection; Further Assurances..................................................................     14
Section 13. Continuing Assignment and Security Interest; Transfer of Senior Secured Notes...................     14
Section 14. Liability.......................................................................................     15
Section 15. Regarding the Agent.............................................................................     15
Section 16. Severability....................................................................................     16
Section 17. Successors and Assigns..........................................................................     16
Section 18. Headings........................................................................................     16
Section 19. Governing Law...................................................................................     16
Section 20. References to Other Documents...................................................................     17
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                         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 DEVELOPMENT, INC., a New York
corporation ("Assignor"), G.A.S. Orange Partners, L.P., a Delaware limited
partnership ("GAS LP"), 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.  Project Orange Associates, L.P. ("Orange L.P.") operates the Project
(as defined in the Financing Agreement described below) in Syracuse, Onondaga
County, New York.

     B.  Project Orange Funding, L.P., ("Funding L.P.") a Delaware limited
partnership (together with its successors, including Orange L.P., a Delaware
limited partnership, as the survivor of the merger of Project Orange Funding
L.P. with and into Orange L.P. concurrently with the issuance and sale of the
Senior Secured Notes, "POA"), 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
Issuer agrees 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
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Merger dated as of December 6, 1999 (the "Merger Agreement") between Funding
L.P. and Orange L.P.

     E.   Assignor is a partner in GAS LP pursuant to that certain Agreement of
Limited Partnership dated as of April 5, 1991 ("Partnership Agreement") between
A.V. Grantor Trust, a New York trust, and Assignor ("Partners").

     F.   As a condition precedent to the issuance of the Senior Secured Notes
contemplated by the Financing Agreement, the Secured Parties require that GAS LP
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, GAS LP 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 (the
"Collateral"):

          (i)   Assignor's partnership interests in GAS LP;

          (ii)  all rights to receive all income, gain, profit, loss or other
     items allocated or distributed to Assignor under the Partnership Agreement;

          (iii) all rights to receive all distributions of any nature whatsoever
     by GAS LP with respect to such partnership interests;

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          (iv)   all of Assignor's capital or ownership interest, including
     capital accounts, in GAS LP, and all accounts, deposits or credits of any
     kind with GAS LP;

          (v)    all of Assignor's voting rights in or rights to control or
     direct the affairs of GAS LP;

          (vi)   all of Assignor's right, title and interest, as a partner in
     GAS LP, in or to any and all of GAS LP's assets or properties;

          (vii)  all other right, title and interest in or to GAS LP, and all
     rights to receive income, profits or other distributions from GAS LP, of
     any nature whatsoever, in each case, as such rights are derived from
     Assignor's partnership interests in GAS LP;

          (viii) 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)    all proceeds of any of the above;

     provided, however, that to the extent that the Collateral described above
would otherwise include any direct partnership interest in Project Orange
Associates L.P., a Delaware limited partnership, then such partnership interest
and rights and interests relating thereto shall be excluded from the Collateral
to the same extent and for so long as they would be excluded from the
"Collateral" as defined in the Pledge and Security Agreement dated as of
December 6, 1999 among GAS LP, Funding, L.P. and the Agent.

     (b)  This Agreement secures the payment and performance of all
obligations of POA and of 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 relating to the Issuers, whether or not
such interest is allowed or allowable as a claim in

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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 (ii 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

          (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.

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     (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 GAS LP 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 GAS LP nor any Person acting on behalf of GAS LP, including, without
limitation, a general partner of GAS LP, 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:

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

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     (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, 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 GAS LP;

          (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 (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

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     GAS LP, 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 GAS LP 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 GAS LP, Assignor and GAS LP 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 GAS LP
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 (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

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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"), GAS
LP will execute and deliver, all at GAS LP'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 are necessary, all in conformity with the Securities Laws applicable
thereto. Without limiting the generality of the foregoing, GAS LP 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 GAS
LP to the Agent on demand for the account of the Agent or any such Secured
Party, as the case may be.

     (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

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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.

     (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

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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)  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 GAS LP, Assignor or
any other Person, of which Assignor has actual knowledge or has received notice.

     (j)  If Assignor in its capacity as a partner of GAS LP (whether as a
general partner or a limited partner) receives any income or distribution of
money or property of any kind from GAS LP 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 paid pursuant to
Excluded Rights which the Assignor is

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obligated to pay over to Kronish Lieb) 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 GAS LP 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 GAS LP be or become, or cause GAS LP 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 GAS LP 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 proposed transferee
and the ultimate beneficial ownership and control of the GAS LP as it may
reasonably request in order to make an informed determination as to whether the
requested change in ownership of the GAS LP would result in a Change of Control.

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     (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 GAS LP, 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 GAS LP.

     (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 GAS LP 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 GAS LP
     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
     GAS LP 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)  all rights to require the Agent to give any notices of any kind,
     including, without limitation, notices of 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 GAS LP as a
     defense hereunder or as the basis for rescission hereof;

                                       12
<PAGE>

          (vi)   all rights under any law purporting to proportionally reduce
     Assignor's Obligations hereunder if GAS LP'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
     GAS LP or any Person, the repudiation of the Financing Documents by GAS LP
     or any Person, the failure by Agent or the Secured Parties to enforce any
     claim against GAS LP 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 GAS
LP 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 GAS LP for any sums paid by Assignor to the Agent or any
Secured Party.

     Section 9.  GAS LP's Consent and Covenants.  GAS LP 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 to exercise Assignor's voting rights and other
rights under the Partnership Agreement to manage or control GAS LP. GAS LP
further agrees to perform all covenants and obligations herein which, by their
express or implied terms, are to be performed by GAS LP. Without limiting the
generality of the foregoing, GAS LP 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 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

                                       13
<PAGE>

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.

     (b)  GAS LP 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.

                                       14
<PAGE>

     (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 GAS LP 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 GAS LP, 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 GAS
LP 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 Parties against the Assignor, the GAS LP 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

                                       15
<PAGE>

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 GAS
LP 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 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 GAS

                                       16
<PAGE>

LP 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, GAS LP, the Agent or any of the Secured Parties
is a party.

                                       17
<PAGE>

     IN WITNESS WHEREOF, Assignor, GAS LP 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 DEVELOPMENT, INC.,
                                        a New York corporation

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

U.S. BANK TRUST NATIONAL
ASSOCIATION, as Agent

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

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

By: /s/ Adam Victor
    ______________________________
    Name: Adam Victor
    Title: President

                                       18<PAGE>

                             LETTER OF TRANSMITTAL

                               Offer to Exchange

         All Outstanding Senior Secured Notes, 10.5% Series A due 2007
                                      for
                 Senior Secured Notes, 10.5% Series B due 2007
                                       of
        Project Orange Associates L.P. and Project Orange Capital Corp.

--------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
____________, 2000 UNLESS EXTENDED (THE "EXPIRATION DATE").
--------------------------------------------------------------------------------

                                  Deliver To:
              U.S. Bank Trust National Association, Exchange Agent

                        By Registered or Certified Mail:

                              180 East 5th Street
                           St. Paul, Minnesota  55101
            Attention: Corporate Trust Services, Specialized Finance

                                 By Facsimile:
                      (651) 244-1537Confirm by Telephone:
                                 (651) 244-1215

                         By Hand or Overnight Courier:
                              180 East 5th Street
                           St. Paul, Minnesota  55101
            Attention: Corporate Trust Services, Specialized Finance

Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the one listed
above will not constitute a valid delivery.  The instructions accompanying this
Letter of Transmittal should be read carefully before this Letter of Transmittal
is completed.
<PAGE>

The undersigned acknowledges that he or she has received and reviewed the
Prospectus dated __________, 2000 (the "Prospectus") of Project Orange
Associates L.P. and Project Orange Capital Corp. (together, the "Issuer") and
this Letter of Transmittal (the "Letter of Transmittal"), which together
constitute (i) the Issuer's offer (the "Exchange Offer") to exchange its
outstanding Senior Secured Notes, 10.5% Series A due 2007 (the "Old Notes"), of
which an aggregate of $68,000,000 in principal amount is outstanding as of the
date hereof, for an equal principal amount of newly issued Senior Secured Notes,
10.5% Series B due 2007 (the "New Notes").  The New Notes have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
a Registration Statement of which the Prospectus is a part.  Old Notes may be
tendered only in integral multiples of $1,000.  Other capitalized terms used but
not defined herein have the meaning given to them in the Prospectus.

     This Letter of Transmittal is to be completed by a Holder of Old Notes
either if certificates are to be forwarded herewith or if a tender of
certificates for Old Notes, if available, is to be made by book-entry transfer
to the account maintained by the Exchange Agent at the Depository Trust Company
("DTC") pursuant to the procedures set forth in "The Exchange Offer--Procedures
for Tendering--Registered Holders and DTC Participants" section of the
Prospectus.  Holders of Old Notes whose certificates are not immediately
available, or who are unable to deliver their certificates or confirmation of
the book-entry tender of their Old Notes into the Exchange Agent's account at
DTC (a "Book-Entry Confirmation") and all other documents required by this
Letter of Transmittal to the Exchange Agent on or prior to the Expiration Date,
must tender their Old Notes according to the guaranteed delivery procedures set
forth in "The Exchange Offer--Procedures for Tendering--Registered Holders and
DTC Participants" section of the Prospectus.  See Instruction 1.  Delivery of
Documents to the DTC does not constitute delivery to the Exchange Agent.

     The term "Holder" with respect to the Exchange Offer means any person in
whose name Old Notes are registered on the books of the Issuer or any other
person who has obtained a properly completed Note power from the registered
Holder.  The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer.  Holders who wish to tender their Old Notes must complete
this letter in its entirety.

                 PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
                      CAREFULLY BEFORE COMPLETING THE BOX

                                      -2-
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                     DESCRIPTION OF OLD NOTES
--------------------------------------------------------------------------------------------------
<S>                                        <C>               <C>                    <C>
Names and address(es) of                    Certificate          Aggregate            Principal
Registered Holders                           Number(s)           Principal              Amount
(Please fill in, if blank)                                         Amount              Tendered
                                                               Represented by        (must be in
                                                               Certificate(s)          integral
                                                                                     multiples of
                                                                                         1000)*
--------------------------------------------------------------------------------------------------

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

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

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

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

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

                                               Total
--------------------------------------------------------------------------------------------------
*  Unless indicated in the column labeled "Principal Amount Tendered," any tendering Holder of
   Old Notes will be deemed to have tendered the entire aggregate principal amount represented by
   the column labeled "Aggregate Principal Amount Represented by Certificate(s)."

   If the space provided above is inadequate, list the certificate numbers and principal amounts on
   a separate signed schedule and affix the list to this Letter of Transmittal.

   The minimum permitted tender is $1,000 in principal amount of Old Notes.  All other tenders must
   be in integral multiples of $1,000.
--------------------------------------------------------------------------------------------------
</TABLE>

0  CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.

0  CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
   MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
   THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS HEREINAFTER DEFINED)
   ONLY):

   Name of Tendering Institution
                                ------------------------------------------------
   Account Number
                 ---------------------------------------------------------------
   Transaction Code Number
                          ------------------------------------------------------

0  CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
   GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING (FOR USE BY
   ELIGIBLE INSTITUTIONS ONLY):

   Name(s) of Tendering Institution(s)
                                      ------------------------------------------
   Date of Execution of Notice of Guaranteed Delivery
                                                     ---------------------------
      Window Ticket Number (if available)
                                         ---------------------------------------
      Name of Institution which Guaranteed Delivery
                                                   -----------------------------
      Account Number (if delivered by book-entry transfer)
                                                          ----------------------

                                      -3-
<PAGE>

<TABLE>
<S>                                                           <C>
------------------------------------------------------------------------------------------------------------------
          SPECIAL ISSUANCE INSTRUCTIONS                                  SPECIAL DELIVERY INSTRUCTIONS
          (See Instructions 4, 5 and 6)                                  (See Instructions 4, 5 and 6)

 To be completed ONLY (i) if certificates for Old             To be completed ONLY if certificates for Old Notes
 Notes not tendered, or New Notes issued in                   not tendered, or New Notes issued in exchange for
 exchange for Old Notes accepted for exchange, are            Old Notes accepted for exchange, are to be sent to
 to be issued in the name of someone other than the           someone other than the undersigned, or to the
 undersigned, or (ii) if Old Notes tendered by                undersigned at an address other than that shown
 book-entry transfer which are not exchanged are to           above.
 be returned by credit to an account maintained at
 DTC.                                                         Mail to:

                                                              Name
Issue certificate(s) to:                                          ----------------------------------------------
                                                                                 (Please Print)
Name
    -----------------------------------------------           Address
                       (Please Print)                                -------------------------------------------
                                                                               (Include Zip Code)
Address
       --------------------------------------------               (Tax Identification or Social Security No.)
                     (Include Zip Code)

(Tax Identification or Social Security No.)

Credit Old Notes not exchanged and delivered by
book-entry transfer to the DTC account set forth
below:

------------------
DTC Account Number

------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -4-
<PAGE>

Ladies and Gentlemen:

     Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Issuer the principal amount of Old Notes indicated above.
Subject to and effective upon the acceptance for exchange of the principal
amount of Old Notes tendered in accordance with this Letter of Transmittal, the
undersigned sells, assigns and transfers to, or upon the order of, the Issuer
all right, title and interest in and to the Old Notes tendered hereby.  The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent its
agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Issuer) with respect to the tendered Old Notes with
full power of substitution to (i) deliver certificates for such Old Notes, or
transfer ownership of such Old Notes on the account books maintained by DTC, to
the Issuer and deliver all accompanying evidences of transfer and authenticity
to, or upon the order of, the Issuer and (ii) present such Old Notes for
transfer on the books of the Issuer and receive all benefits and otherwise
exercise all rights of beneficial ownership of such Old Notes, all in accordance
with the terms of the Exchange Offer.  The power of attorney granted in this
paragraph shall be deemed to be irrevocable and coupled with an interest.

     The undersigned hereby represents and warrants that he or she has full
power and authority to tender, sell, assign and transfer the Old Notes tendered
hereby and that the Issuer will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim, when the same are acquired by the Issuer.  The
undersigned hereby further represents that (i) any New Notes acquired in
exchange for Old Notes tendered hereby will have been acquired in the ordinary
course of business of the person receiving such New Notes, whether or not the
undersigned, (ii) neither the undersigned nor any such other person is engaging
in or intends to engage in a distribution of the New Notes, (iii) neither the
Holder nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such New Notes and (iv) neither the
Holder nor any such other person is an "affiliate," as defined in Rule 405 under
the Securities Act, of the Issuer.

     The undersigned also acknowledges that this Exchange Offer is being made in
reliance upon interpretations contained in letters issued to third parties by
the staff of the Securities and Exchange Commission (the "SEC") that the New
Notes issued in exchange for the Old Notes pursuant to the Exchange Offer may be
offered for resale, resold and otherwise transferred by Holders thereof (other
than any such Holder that is an "affiliate" of the Issuer within the meaning of
Rule 405 under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holders' business and such
Holders are not engaging in and do not intend to engage in a distribution of the
New Notes and have no arrangement or understanding with any person to
participate in distribution of such New Notes.  If the undersigned is not a
broker-dealer, the undersigned represents that it is not engaged in, and does
not intend to engage in, a distribution of New Notes.  If the undersigned is a
broker-dealer that will receive New Notes for its own account in exchange for
Old Notes that were acquired as a result of market-making activities or other
trading activities, it acknowledges that it will deliver a prospectus in
connection with any resale of such New Notes; however, by so acknowledging and
by delivering a prospectus, the undersigned will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.

     The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Issuer to be necessary or
desirable to complete the assignment, transfer and purchase of the Old Notes
tendered hereby.

     For purposes of the Exchange Offer, the Issuer shall be deemed to have
accepted validly tendered Old Notes when, as and if the Issuer has given oral or
written notice thereof to the Exchange Agent.

     If any tendered Old Notes are not accepted for exchange pursuant to the
Exchange Offer for any reason, certificates for any such unaccepted Old Notes
will be returned, without expense, to the undersigned at the address shown below
or at a different address as may be indicated herein under "Special Delivery
Instructions" as promptly as practicable after the Expiration Date.

                                      -5-
<PAGE>

     All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.

     The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer--Procedures for
Tendering--Registered Holders and DTC Participants" in the Prospectus and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Issuer upon the terms and subject to the conditions of the Exchange
Offer.

     Unless otherwise indicated under "Special Issuance Instructions," please
issue the certificates representing the New Notes issued in exchange for the Old
Notes accepted for exchange and return any Old Notes not tendered or not
exchanged, in the name(s) of the undersigned. Similarly, unless otherwise
indicated under "Special Delivery Instructions," please send the certificates
representing the New Notes issued in exchange for the Old Notes accepted for
exchange and any certificates for Old Notes not tendered or not exchanged (and
accompanying documents, as appropriate) to the undersigned at the address shown
below the undersigned's signature(s).  In the event that both "Special Payment
Instructions" and "Special Delivery Instructions" are completed, please issue
the certificates representing the New Notes issued in exchange for the Old Notes
accepted for exchange in the name(s) of, and return any Old Notes not tendered
or not exchanged and send said certificates to, the person(s) so indicated.  The
undersigned recognizes that the Issuer has no obligation pursuant to the
"Special Payment Instructions" and "Special Delivery Instructions" to transfer
any Old Notes from the name of the registered Holder(s) thereof if the Issuer
does not accept for exchange any of the Old Notes so tendered.

     Holders of Old Notes who wish to tender their Old Notes and (i) whose Old
Notes are not immediately available, or (ii) who cannot deliver their Old Notes,
this Letter of Transmittal or any other documents required hereby to the
Exchange Agent prior to the Expiration Date (or who cannot comply with the book-
entry transfer procedure on a timely basis), may tender their Old Notes
according to the guaranteed delivery procedures set forth in the Prospectus
under the caption "The Exchange Offer-- Procedures for Tendering--Registered
Holders and DTC Participants."  See Instruction 1 regarding the completion of
this Letter of Transmittal, printed below.

                                      -6-
<PAGE>

                        PLEASE SIGN HERE WHETHER OR NOT
                 OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY

X
                                        --------------------

                                                                Date

X
                                        --------------------

  Signature(s) of Registered Holder(s)  Date
        or Authorized Signatory

Area Code and Telephone Number:
                               --------------------

     The above lines must be signed by the registered Holder(s) of Old Notes as
their name(s) appear(s) on the Old Notes or by person(s) authorized to become
registered Holder(s) by a properly completed note power from the registered
Holder(s), a copy of which must be transmitted with this Letter of Transmittal.
If Old Notes to which this Letter of Transmittal relate are held of record by
two or more joint Holders, then all such Holders must sign this Letter of
Transmittal.  If signature is by trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, then such person must (i) set forth his or her full
title below and (ii) unless waived by the Issuer, submit evidence satisfactory
to the Issuer of such person's authority so to act.  See Instruction 4 regarding
the completion of this Letter of Transmittal, printed below.

Name(s):

--------------------------------------------------------------------------------
                                 (Please Print)

Capacity:

Address:

--------------------------------------------------------------------------------
                               (Include Zip Code)

          Signature(s) Guaranteed by an Eligible Institution (as hereinafter
          defined):
          (If required by Instruction 4)

                ------------------------------------------------------
                             (Authorized Signature)

                ------------------------------------------------------
                                    (Title)

                ------------------------------------------------------
                                 (Name of Firm)

          Dated:                  , 1998
                 -----------------

                                      -7-
<PAGE>

                                  INSTRUCTIONS

         FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER

1.  Delivery of this Letter of Transmittal and Old Notes.  The tendered Old
Notes or any confirmation of a book-entry transfer (a "Book-Entry
Confirmation"), as well as a properly completed and duly executed copy of this
Letter of Transmittal or facsimile hereof and any other documents required by
this Letter of Transmittal must be received by the Exchange Agent at its address
set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date.
The method of delivery of the tendered Old Notes, this Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the Holder and, except as otherwise provided below, the delivery will be
deemed made only when actually received or confirmed by the Exchange Agent.
Instead of delivery by mail, it is recommended that the Holder use an overnight
or hand delivery service.  In all cases, sufficient time should be allowed to
assure delivery to the Exchange Agent before the Expiration Date.  No Letter of
Transmittal or Old Notes should be sent to the Issuer.

     Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, this Letter
of Transmittal or any other documents required hereby to the Exchange Agent
prior to the Expiration Date or (iii) who are unable to complete the procedure
for book-entry transfer on a timely basis, must tender their Old Notes according
to the guaranteed delivery procedures set forth in the Prospectus.  Pursuant to
such procedure:  (i) such tender must be made by or through an Eligible
Institution (as hereinafter defined); (ii) prior to the Expiration Date, the
Exchange Agent must have received from the Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
Holder of the Old Notes, the certificate number or numbers of such Old Notes and
the principal amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within five New York Stock Exchange trading
days after the Expiration Date, this Letter of Transmittal (or facsimile hereof)
together with the certificate(s) representing the Old Notes (or a Book-Entry
Confirmation) and any other required documents will be deposited by the Eligible
Institution with the Exchange Agent; and (iii) such properly completed and
executed Letter of Transmittal (or facsimile hereof), as well as all other
documents required by this Letter of Transmittal and the certificates(s)
representing all tendered Old Notes (or a Book-Entry Confirmation) in proper
form for transfer, must be received by the Exchange Agent within five New York
Stock Exchange trading days after the Expiration Date, all as provided in the
Prospectus under the caption "The Exchange Offer-- Procedures for Tendering--
Registered Holders and DTC Participants."  Any Holder of Old Notes who wishes to
tender his or her Old Notes pursuant to the guaranteed delivery procedures
described above must ensure that the Exchange Agent receives the Notice of
Guaranteed Delivery prior to 5:00 p.m., New York City time, on the Expiration
Date.  Upon request of the Exchange Agent, a Notice of Guaranteed Delivery will
be sent to Holders who wish to tender their Old Notes according to the
guaranteed delivery procedures set forth above.

     All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Issuer in its sole discretion, which determination
will be final and binding.  The Issuer reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Issuer's acceptance
of which would, in the opinion of counsel for the Issuer, be unlawful.  The
Issuer also reserves the right to waive any irregularities or conditions of
tender as to particular Old Notes.  The Issuer's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in this Letter of
Transmittal) shall be final and binding on all parties.  Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Issuer shall determine.  Neither the Issuer, the
Exchange Agent nor any other person shall be under any duty to give notification
of defects or irregularities with respect to tenders of Old Notes, nor shall any
of them incur any liability for failure to give such notification.  Tenders of
Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived.  Any Old Notes received by the
Exchange Agent that are not properly tendered and as to

                                      -8-
<PAGE>

which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering Holders of Old Notes, unless
otherwise provided in this Letter of Transmittal, as soon as practicable
following the Expiration Date.

     2.  Tender by Holder.  Only a Holder of Old Notes may tender such Old Notes
in the Exchange Offer.  Any beneficial Holder of Old Notes who is not the
registered Holder and who wishes to tender should arrange with the registered
Holder to execute and deliver this Letter of Transmittal on his behalf or must,
prior to completing and executing this Letter of Transmittal and delivering his
Old Notes, either make appropriate arrangements to register ownership of the Old
Notes in such Holder's name or obtain a properly completed note power from the
registered Holder.

     3.  Partial Tenders.  Tenders of Old Notes will be accepted only in
integral multiples of $1,000.  If less than the entire principal amount of any
Old Notes is tendered, the tendering Holder should fill in the principal amount
tendered in the third column of the box entitled "Description of Old Notes"
above.  The entire principal amount of Old Notes delivered to the Exchange Agent
will be deemed to have been tendered unless otherwise indicated.  If the entire
principal amount of all Old Notes is not tendered, then Old Notes for the
principal amount of Old Notes not tendered and a certificate or certificates
representing New Notes issued in exchange for any Old Notes accepted will be
sent to the Holder at his or her registered address, unless a different address
is provided in the appropriate box on this Letter of Transmittal, promptly after
the Old Notes are accepted for exchange.

     4.  Signatures on the Letter of Transmittal; Note Powers and Endorsements;
Guarantee of Signatures.  If this Letter of Transmittal (or facsimile hereof) is
signed by the registered Holder(s) of the Old Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the Old
Notes without alteration, enlargement or any change whatsoever.

     If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders of Old Notes tendered and the certificate or
certificates for New Notes issued in exchange therefor is to be issued (or any
untendered principal amount of Old Notes is to be reissued) to the registered
Holder, the said Holder need not and should not endorse any tendered Old Notes,
nor provide a separate note power.  In any other case, such Holder must either
properly endorse the Old Notes tendered or transmit a properly completed
separate note power with this Letter of Transmittal, with the signatures on the
endorsement or note power guaranteed by an Eligible Institution.

     If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder or Holders of any Old Notes listed, such Old
Notes must be endorsed or accompanied by appropriate note powers, in each case
signed as the name of the registered Holder or Holders appears on the Old Notes.

     If this Letter of Transmittal (or facsimile hereof) or any Old Notes or
note powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing, and,
unless waived by the Issuer, evidence satisfactory to the Issuer of their
authority so to act must be submitted with this Letter of Transmittal.

     Endorsements on Old Notes or signatures on note powers required by this
Instruction 4 must be guaranteed by an Eligible Institution.

     Except as otherwise provided below, all signatures on this Letter of
Transmittal must be guaranteed by a participant in a [Recognized Signature
Guarantee Medallion Program] (an "Eligible Institution").  Signatures on this
Letter of Transmittal need not be guaranteed if (a) this Letter of Transmittal
is signed by the registered Holder(s) of the Old Notes tendered herewith and
such Holder(s) have not completed the box set forth herein entitled "Special
Payment Instructions" or the box entitled "Special Delivery Instructions," or
(b) if such Old Notes are tendered for the account of an Eligible Institution.

                                      -9-
<PAGE>

     5.  Special Payment and Delivery Instructions.  Tendering Holders should
indicate, in the applicable box or boxes, the name and address to which New
Notes or substitute Old Notes for principal amounts not tendered or not accepted
for exchange are to be issued or sent, if different from the name and address of
the person signing this Letter of Transmittal.  In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.

     6.  Transfer Taxes.  The Issuer will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer.  If,
however, certificates representing New Notes or Old Notes for principal amounts
not tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered Holder
of the Old Notes tendered hereby, or if tendered Old Notes are registered in the
name of any person other than the person signing this Letter of Transmittal, or
if a transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered Holder or on any other persons) will be
payable by the tendering Holder.  If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with this Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
Holder.

     Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.

     7.  Waiver of Conditions.  The Issuer reserves the absolute right to amend,
waive or modify specified conditions in the Exchange Offer in the case of any
Old Notes tendered.

     8.  Mutilated, Lost, Stolen or Destroyed Old Notes.  Any tendering Holder
whose Old Notes have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at the address indicated herein for further instructions.

     9.  Requests for Assistance or Additional Copies.  Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at (651) 244-1215.
Holders may also contact their broker, dealer, commercial bank, trust company or
other nominee for assistance concerning the Exchange Offer.

                         (DO NOT WRITE IN SPACE BELOW)

                 ------------------------------------------------
                  Certificate       Old Notes         Old Notes
                  Surrendered       Tendered          Accepted
                 ------------------------------------------------
                 ------------------------------------------------
                 ------------------------------------------------

  Delivery Prepared by           Checked By             Date

                                      -10-
<PAGE>

                       NOTICE OF GUARANTEED DELIVERY FOR

        PROJECT ORANGE ASSOCIATES L.P. AND PROJECT ORANGE CAPITAL CORP.

     This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Project Orange Associates L.P. and Project Orange Capital
Corp. (together, the "Issuer") made pursuant to the Prospectus, dated
______________, 2000 (the "Prospectus"), if certificates for Old Notes of the
Issuer are not immediately available or if the procedure for book-entry transfer
cannot be completed on a timely basis or time will not permit all required
documents to reach the Exchange Agent prior to 5:00 p.m., New York City time, on
the Expiration Date of the Exchange Offer.  Such form may be delivered or
transmitted by telegram, telex, facsimile transmission, mail or hand delivery to
U.S. Bank Trust National Association (the "Exchange Agent") as set forth below.
In addition, in order to utilize the guaranteed delivery procedure to tender Old
Notes pursuant to the Exchange Offer, a completed, signed and dated Letter of
Transmittal (or facsimile thereof) must also be received by the Exchange Agent
prior to 5:00 p.m., New York City time, on the Expiration Date.  Capitalized
terms not defined herein are defined in the Prospectus.

                                  Deliver To:
              U.S. Bank Trust National Association, Exchange Agent

                        By Registered or Certified Mail:
                              180 East 5th Street
                           St. Paul, Minnesota  55101
            Attention: Corporate Trust Services, Specialized Finance

                                 By Facsimile:
                                 (651) 244-1537
                             Confirm by Telephone:
                                 (651) 244-1215

                         By Hand or Overnight Courier:
                              180 East 5th Street
                           St. Paul, Minnesota  55101
            Attention: Corporate Trust Services, Specialized Finance

     Delivery of this instrument to an address other than as set forth above, or
transmission of instructions via facsimile other than as set forth above, will
not constitute a valid delivery.

                                     -11-
<PAGE>

Ladies and Gentlemen:

     Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the Issuer
the principal amount at maturity of Old Notes set forth below, pursuant to the
guaranteed delivery procedure described in "The Exchange Offer--Procedures for
Tendering-Registered Holders and DTC Participants" section of the Prospectus.
By so tendering, the undersigned hereby does make, at and as of the date hereof,
the representations and warranties of a tendering Holder of Old Notes set forth
in the Letter of Transmittal.

<TABLE>
<S>                                                        <C>
Principal Amount of Old Notes Tendered:                    If Old Notes will be delivered by book-entry transfer to
$                                                          Depository Trust Company, provide account number.
 -------------------------------

Certificate Nos. (if available):

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

Total Principal Amount Represented by Old Notes
 Certificate(s):
$
 -------------------------------
                                                           Account Number
                                                                         -------------------------------

</TABLE>

     All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.

                                PLEASE SIGN HERE

X
  -------------------  --------
X
  -------------------  --------
 Signatures of Owner(s)     Date
 or Authorized Signatory

Area Code and Telephone
Number:
         ----------

     Must be signed by the Holder(s) of Old Notes as their name(s) appear(s) on
certificates for Old Notes or on a security position listing, or by person(s)
authorized to become registered Holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery.  If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below.

                                      -12-
<PAGE>

                      Please print name(s) and address(es)

Name(s):
          ----------------------------------------------------------------------
          ----------------------------------------------------------------------
Capacity:
          ----------------------------------------------------------------------
          ----------------------------------------------------------------------
Address(es):
            --------------------------------------------------------------------
            --------------------------------------------------------------------

                                   GUARANTEE

     The undersigned, a member of a registered national securities exchange, or
a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an officer or correspondent in the
United States, hereby guarantees that the certificates representing the
principal amount of Old Notes tendered hereby in proper form or transfer, or
timely confirmation of the book-entry transfer of such Old Notes into the
Exchange Agent's account at Depository Trust Company pursuant to the procedures
set forth in "The Exchange Offer--Procedures for Tendering--Registered Holders
and DTC Participants" section of the Prospectus, together with a properly
completed and duly executed Letter of Transmittal (or a manually signed
facsimile thereof) with any required signature guarantee and any other documents
required by the Letter of Transmittal, will be received by the Exchange Agent at
the address set forth above, no later than five New York Stock Exchange trading
days after the date of execution hereof.

<TABLE>
<S>                                             <C>
----------------------------------------------  --------------------------------------------------
                 Name of Firm                                  Authorized Signature

----------------------------------------------  --------------------------------------------------
                   Address                                            Title

                                                Name:
----------------------------------------------       ---------------------------------------------
                   Zip Code                                   (Please Type or Print)

Area Code and Tel. No.                          Dated:
                      ------------------------        -------------------------------------------
</TABLE>

NOTE:  DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM.  CERTIFICATES FOR
OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.

                                      -13-

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