Document:

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                                                                    Exhibit 10.5

                              ASSET SALES AGREEMENT

                                 BY AND BETWEEN

                      NIAGARA MOHAWK POWER CORPORATION AND

                         ERIE BOULEVARD HYDROPOWER, L.P.

                          Dated as of December 2, 1998
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                                TABLE OF CONTENTS

                                    ARTICLE I

                                   DEFINITIONS

1.1.    Definitions .......................................................  -1-

                                   ARTICLE II

                                PURCHASE AND SALE
2.1.    The Sale .......................................................... -11-
2.2.    Excluded Assets ................................................... -11-
2.3.    Assumed Obligations ............................................... -12-
2.4.    Excluded Liabilities .............................................. -14-

                                   ARTICLE III

                                 PURCHASE PRICE

3.1.    Purchase Price .................................................... -18-
3.2.    Purchase Price Adjustment ......................................... -18-
3.3.    Allocation of Purchase Price ...................................... -20-
3.4.    Proration ......................................................... -20-

                                   ARTICLE IV

                                   THE CLOSING

4.1.    Time and Place of Closing ......................................... -21-
4.2.    Payment of Purchase Price ......................................... -22-
4.3.    Deliveries by the Seller .......................................... -22-
4.4.    Deliveries by the Buyer ........................................... -23-

                                    ARTICLE V

                  REPRESENTATIONS AND WARRANTIES OF THE SELLER

5.1.    Organization; Qualification ....................................... -24-
5.2.    Authority Relative to this Agreement .............................. -24-
5.3.    Consents and Approvals; No Violation .............................. -25-
5.4.    Reports ........................................................... -26-
5.5.    Company Reports; Financial Statements ............................. -26-
5.6.    Undisclosed Liabilities ........................................... -27-
5.7.    Absence of Certain Changes or Events .............................. -27-

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5.8.    Title and Related Matters ......................................... -28-
5.9.    Leases ............................................................ -28-
5.10.   Insurance ......................................................... -28-
5.11.   Environmental Matters ............................................. -28-
5.12.   Labor Matters ..................................................... -30-
5.13.   ERISA; Employee Benefit Plans ..................................... -30-
5.14.   Real Estate ....................................................... -31-
5.15.   Condemnation ...................................................... -31-
5.16.   Certain Contracts and Arrangements ................................ -32-
5.17.   Legal Proceedings, etc. ........................................... -32-
5.18.   Permits ........................................................... -32-
5.19.   Regulation as a Utility ........................................... -33-
5.20.   Tax Matters ....................................................... -33-

                                   ARTICLE VI

                   REPRESENTATIONS AND WARRANTIES OF THE BUYER

6.1.    Organization ...................................................... -34-
6.2.    Authority Relative to this Agreement .............................. -34-
6.3.    Consents and Approvals; No Violation .............................. -34-
6.4.    Availability of Funds ............................................. -35-

                                   ARTICLE VII

                            COVENANTS OF THE PARTIES

7.1.    Conduct of Business Relating to the Purchased
        Asset ............................................................. -36-
7.2.    Access to Information ............................................. -38-
7.3.    Expenses .......................................................... -41-
7.4.    Further Assurances ................................................ -41-
7.5.    Public Statements ................................................. -42-
7.6.    Consents and Approvals ............................................ -43-
7.7.    Fees and Commissions .............................................. -44-
7.8.    Tax Matters ....................................................... -44-
7.9.    Supplements to Schedules .......................................... -46-
7.10.   Employees ......................................................... -46-
7.11.   Risk of Loss ...................................................... -51-
7.12.   Tax Clearance Certificates ........................................ -52-
7.13.   NYSERDA Compliance ................................................ -52-
7.14.   Remote Terminal Units ............................................. -52-
7.15.   Access to Sites ................................................... -52-

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                                  ARTICLE VIII

                                   CONDITIONS

8.1.   Conditions to Each Party's Obligations to Effect the
       Transaction ........................................................ -55-
8.2.   Conditions to Obligations of the Buyer ............................. -56-
8.3.   Conditions to Obligations of the Seller ............................ -58-

                                   ARTICLE IX

                                 INDEMNIFICATION

9.1.    Indemnification ................................................... -60-
9.2.    Defense of Claims ................................................. -62-
9.3.    Tax Contest ....................................................... -64-

                                    ARTICLE X

                           TERMINATION AND ABANDONMENT

10.1.   Termination ....................................................... -65-
10.2.   Procedure and Effect of Termination ............................... -67-

                                   ARTICLE XI

                            MISCELLANEOUS PROVISIONS

11.1.   Amendment and Modification ........................................ -67-
11.2.   Waiver of Compliance; Consents .................................... -67-
11.3.   No Survival ....................................................... -68-
11.4.   Notices ........................................................... -68-
11.5.   Assignment ........................................................ -69-
11.6.   Governing Law ..................................................... -70-
11.7.   Counterparts ...................................................... -70-
11.8.   Interpretation .................................................... -70-
11.9.   Schedules and Exhibits ............................................ -70-
11.10.  Entire Agreement .................................................. -70-
11.11.  Bulk Sales or Transfer Laws ....................................... -71-

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                              ASSET SALES AGREEMENT

            ASSET SALES AGREEMENT, dated as of December 2, 1998, (this
"Agreement") by and between Niagara Mohawk Power Corporation, a New York
corporation (the "Seller"), and Erie Boulevard Hydropower, L.P., a Delaware
limited partnership (the "Buyer").

            WHEREAS, the Buyer desires to purchase, and the Seller desires to
sell, the Hydroelectric Assets (as defined herein, the "Purchased Assets") upon
the terms and conditions hereinafter set forth in this Agreement;

            NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements hereinafter set forth, the parties
hereto agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

            1.1. Definitions. (a) As used in this Agreement, the following terms
have the meanings specified in this Section 1.1(a). For capitalized terms used
in this subsection (a) but not defined herein, see subsection (b).

            (1) "Affiliate" has the meaning set forth in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act.

            (2) "Ancillary Agreements" means the Site Agreement, the Transition
Power Agreement, the Interconnection Agreement, the Bennetts Bridge Agreement,
the Niagara Mohawk Service Classification Tariff and the Transition Operation
Services Agreement.

            (3) [Intentionally left blank].

            (4) "Bennetts Bridge Agreement" means the Nine Mile Point One
Emergency Power Supply Agreement, to be dated as of the Closing Date, between
the Buyer and the Seller, substantially in the form of Exhibit A hereto.

            (5) "Bill of Sale" means the Bill of Sale to be delivered at the
Closing with respect to the Purchased
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Assets which constitute personal property and which are to be transferred at
such Closing, substantially in the form of Exhibit B hereto.

            (6) "Business Day" shall mean any day other than Saturday, Sunday
and any day which is a legal holiday or a day on which banking institutions in
New York City are authorized by law or other governmental action to close.

            (7) "Buyer Representatives" means the Buyer's accountants,
employees, counsel, environmental consultants, financial advisors and other
authorized representatives.

            (8) "Capital Expenditures" means (i) those capital expenditures
which are identified on Schedule 7.1 and (ii) those anticipated environmental
remediation costs identified on Schedule 7.1.

            (9) "Casualty" means any damage to or destruction of all or any
portion of the Purchased Assets occurring for any reason, including as a result
of fire (including fire caused by lightning), wind, hail, ice, snow, hurricane,
tornado, freezing, earthquake, earth movement or flood.

            (10) "CERCLA" means the Federal Comprehensive Environmental
Response, Compensation and Liability Act and any amendment thereto.

            (11) "COBRA" means the Consolidated Omnibus Reconciliation Act of
1985, as amended.

            (12) "Code" means the Internal Revenue Code of 1986, as amended.

            (13) "Collective Bargaining Agreement" means the Collective
Bargaining Agreement, dated as of April 15, 1996, between the Seller and Local
97 of the International Brotherhood of Electrical Workers ("IBEW").

            (14) "Confidentiality Agreement" means the Confidentiality
Agreement, dated March 23, 1998, between the Seller and Orion Power Holdings,
Inc.

            (15) "Easements" means, with respect to the Real Estate, the
reservations of easements to be included in the deeds of conveyance with respect
to such assets and easements for the benefit of third parties.

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            (16) "Encumbrances" means any mortgages, pledges, liens, security
interests, conditional and installment sale agreements, easements, licenses,
title imperfections, encumbrances or restrictions.

            (17) "Environmental Laws" means all Federal, state, local and
foreign laws, regulations, rules, ordinances, codes, decrees, judgments,
directives, or judicial or administrative orders, and all common law, which
relate to pollution or protection of the environment, natural resources
(including, without limitation, ambient air, surface water, groundwater, land,
surface and subsurface strata) or human health and safety, including, without
limitation, laws which relate to Releases or threatened Releases of Hazardous
Substances or otherwise relate to the manufacture, processing, distribution,
use, treatment, storage, Release, transport or handling of Hazardous Substances.

            (18) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.

            (19) "Estimated Adjustment Amount" means the Seller's good faith
reasonable estimate of an Adjustment Amount for the Closing, which estimate
shall be provided to the Buyer no later than five Business Days before the
Closing.

            (20) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

            (21) "Federal Power Act" means the Federal Power Act of 1935.

            (22) "FERC" means the Federal Energy Regulatory Commission.

            (23) "FIRPTA Affidavit" means the Foreign Investment in Real
Property Tax Act Certification and Affidavit substantially in the form of
Exhibit C hereto.

            (24) "Good Industry Practice" shall mean any of the practices,
methods and acts engaged in or approved by a significant portion of the electric
utility industry during the relevant time period, or any of the practices,
methods and acts which, in the exercise of reasonable judgment in light of the
facts known at the time the decision was made,

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could have been expected to accomplish the desired result at the lowest
reasonable cost consistent with good business practices, reliability, safety and
expedition. Good Industry Practice is not intended to be limited to the optimum
practice, method, or act, to the exclusion of all others, but rather to be
acceptable practices, methods, or acts generally accepted in the region and
consistently adhered to by the Seller. Good Industry Practice shall include, but
not limited to North American Electric Reliability Council Criteria &
Guidelines, Northeast Power Coordinating Council Criteria & Guidelines, New York
State Reliability Council if any, and New York Power Pool criteria, rules and
standards, as they may be amended from time to time including the rules,
guidelines and criteria of any successor organization to the foregoing entities.

            (25) "Governmental Entity" means any governmental or regulatory
authority, agency, commission, body or other governmental entity, other than the
Internal Revenue Service or the New York Department of Taxation and Finance.

            (26) "Hazardous Substances" means any chemicals, materials or
substances defined as or included in the definition of "hazardous substances,"
"hazardous wastes," "hazardous materials," "restricted hazardous materials,"
"extremely hazardous substances," "toxic substances," "contaminants,"
"petroleum" or "pollutants" or words of similar meaning or substance found in
any Environmental Law, exposure to which is prohibited, limited, regulated or
otherwise governed by such Environmental Law.

            (27) "Holding Company Act" means the Public Utility Holding Company
Act of 1935, as amended.

            (28) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.

            (29) "Hydroelectric Assets" means, subject to the Easements and
Section 2.2, all of the right, title and interest in, to and under the real and
personal property, tangible and intangible, of the Seller and constituting the
hydroelectric sites and associated dams and reservoirs listed on Schedule
1.1(a)(26) as part of the Hydroelectric Assets or used principally for
generation purposes in connection with such dams and reservoirs and which are
located within or beyond the applicable FERC project license

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boundary, including, but not limited to, the following assets owned by the
Seller:

            (i) the real estate (including all buildings, structures and other
      improvements thereon) described on Schedule 5.14 as associated with the
      Hydroelectric Assets (the "Hydroelectric Real Property");

            (ii) all inventories of supplies, materials and critical spares
      located on or in transit to the Hydroelectric Real Property on the Closing
      Date, and all warranties against manufacturers or vendors relating
      thereto, to the extent that such warranties are freely transferable;

            (iii) the machinery, equipment, vehicles, furniture and other
      personal property located on the Hydroelectric Real Property on the
      Closing Date, including, without limitation, the items of personal
      property included in Schedule 1.1(a)(26) as being associated with the
      Hydroelectric Assets, and all warranties against manufacturers or vendors
      relating thereto, to the extent that such warranties are freely
      transferable;

            (iv) the contracts, leases and other agreements of the Seller, the
      liabilities under which are being assumed by the Buyer pursuant to Section
      2.3;

            (v) the Transferring Employee Records;

            (vi) all books, operating records, operating, safety and maintenance
      manuals, engineering design plans, blueprints and as-built plans,
      specifications, procedures and similar items in the Seller's possession
      relating specifically to the aforementioned assets other than books of
      account; and

            (vii) those vehicles which are leased and not owned by the Seller as
      to which the Buyer elects to pay the Vehicle Amount pursuant to Section
      3.1(b).

            (30) "Income Tax" means any federal, state, local or foreign Tax (a)
based upon, measured by or calculated with respect to net income, profits or
receipts (including, without limitation, capital gains Taxes and minimum Taxes)
or (b) based upon, measured by or calculated with respect to

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multiple bases (including, without limitation, corporate franchise taxes) if one
or more of the bases on which such Tax may be based, measured by or calculated
with respect to, is described in clause (a), in each case together with any
interest, penalties, or additions to such Tax.

            (31) "Indenture" means the Mortgage Trust Indenture, dated as of
October 1, 1937 between Central New York Power Corporation and The Marine
Midland Trust Company of New York, as amended, modified and supplemented from
time to time.

            (32) "Independent Accounting Firm" means an independent accounting
firm of national reputation mutually appointed by the Seller and the Buyer.

            (33) "Instrument of Assumption" means the Instrument of Assumption
substantially in the form of Exhibit D hereto relating to the assumption by the
Buyer of the liabilities and obligations of the Seller.

            (34) "Interconnection Agreement" means the Interconnection
Agreement, to be dated as of the Closing Date, between the Seller and the Buyer
substantially in the form of Exhibit E hereto.

            (35) "IRS" means the United States Internal Revenue Service.

            (36) "Laws" means any federal, state, local or foreign law, statute,
ordinance, rule, regulation, judgment, order, injunction, decree, arbitration
award, agency requirement, license or permit of any Governmental Entity.

            (37) "Maintenance Expenditures" means those maintenance expenditures
which are identified on Schedule 7.1.

            (38) "Maintenance and Capital Expenditures Amount" means the
aggregate amount of all funds actually expended (net of insurance recoveries)
on, or for which liabilities were accrued in accordance with generally accepted
accounting principles applied on a consistent basis (provided the Seller
actually pays such accrued liabilities) with respect to Maintenance Expenditures
and Capital Expenditures by the Seller, if any, during the period beginning
January 1, 1999 and ending on the Closing Date

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(other than the Schaghticoke Pipeline Expenditures), but only to the extent that
such amounts do not exceed the amounts scheduled therefor on Schedule 7.1.

            (39) "Material Adverse Effect" means any change or changes in, or
effect on, the Purchased Assets that is, or in the aggregate are, materially
adverse to the business, assets, operations or conditions (financial or
otherwise) of the Purchased Assets, taken as a whole, other than (i) any change
or effect resulting from changes in the international, national, regional or
local wholesale or retail markets for electric power, (ii) any change or effect
resulting from changes in the international, national, regional or local markets
for any fuel used at the Purchased Assets, (iii) any change in waterflow caused
by drought or other acts of God with respect to the Hydroelectric Assets, (iv)
any change or effect resulting from changes in the North American, national,
regional or local electric transmission systems, (v) any materially adverse
change in or effect on the Purchased Assets which is cured (including by the
payment of money) by the Seller before the Termination Date, and (vi) any
materially adverse change resulting from employees related to the Purchased
Assets electing not to continue such employment.

            (40) "Permitted Encumbrances" means (i) the Easements, (ii) those
exceptions to title to the Purchased Assets listed in Schedule 5.8, (iii) all
exceptions, restrictions, easements, charges, rights of way and monetary
encumbrances which are set forth in an applicable FERC project license, except
for such encumbrances which secure indebtedness, (iv) with respect to any date
before the Closing Date, Encumbrances created by the Indenture which are
released at or prior to the Closing, (v) statutory liens for current Taxes or
assessments not yet due or delinquent or the validity of which is being
contested in good faith by appropriate proceedings, (vi) mechanics', carriers',
workers', repairers' and other similar liens arising or incurred in the ordinary
course of business relating to obligations as to which there is no default on
the part of the Seller or the validity of which are being contested in good
faith by appropriate proceedings which do not, individually or in the aggregate,
materially and adversely affect the normal use and operation of any material
portion of the Purchased Assets, (vii) zoning, entitlement, conservation
restriction and other land use and environmental regulations by governmental
authorities, and

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(viii) such other liens, imperfections in or failure of title, charges,
easements, leases, licenses, restrictions, encumbrances, encroachments and
defects which do not materially interfere with the present use of the Purchased
Assets and neither secure indebtedness, nor individually or in the aggregate,
materially and adversely affect the normal use and operation of the
hydroelectric generating facilities located at any of the sites included in the
Purchased Assets.

            (41) "Person" means an individual, a partnership, a limited
liability company, a joint venture, a corporation, a trust, an unincorporated
organization and a governmental entity or a department or agency thereof.

            (42) "PSC" means the New York Public Service Commission.

            (43) "Release" means a release, spill, leak, discharge, disposal of,
pumping, pouring, emitting, emptying, injecting, leaching, dumping or otherwise
allowing to escape into or through the environment.

            (44) "Schaghticoke Pipeline Expenditures" means the aggregate amount
of all funds actually expended by the Seller on, or for which liabilities were
accrued by the Seller in accordance with generally accepted accounting
principles applied on a consistent basis (provided the Seller actually pays such
accrued liabilities) with respect to, the Schaghticoke Pipeline replacement or
repair from and after the date of this Agreement and prior to the Closing Date.

            (45) "SEC" means the Securities and Exchange Commission.

            (46) "Securities Act" means the Securities Act of 1933, as amended.

            (47) "Site Agreement" means the Site Agreement, to be dated as of
the Closing Date, between the Seller and the Buyer, substantially in the form of
Exhibit F.

            (48) "Subsidiary" when used in reference to any other Person means
any entity of which outstanding securities having ordinary voting power to elect
a majority of the Board of Directors or other Persons performing similar

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functions of such entity are owned directly or indirectly by such other Person.

            (49) "Taxes" means all taxes, charges, fees, levies, penalties or
other assessments imposed by any United States federal, state or local or
foreign taxing authority, including, but not limited to, income, excise,
property, sales, transfer, franchise, payroll, withholding, social security or
other taxes, including any interest, penalties or additions attributable
thereto.

            (50) "Tax Return" means any return, report, information return or
other document (including any related or supporting information) required to be
filed with any authority with respect to Taxes.

            (51) "Transferring Employee Records" means all personnel files
related to the Seller's personnel who will become employees of the Buyer to the
extent such files pertain to (i) skill and development training and resumes,
(ii) seniority histories, (iii) salary and benefit information, (iv)
Occupational Safety and Health Administration medical reports, (v) active
medical restriction forms, (vi) results of background checks and (vii) records
of disciplinary action taken, provided that no files shall be delivered in
violation of the Collective Bargaining Agreement.

            (52) "Transition Operation Services Agreement" means the Transition
Operation Services Agreement between Buyer and Seller to be entered into as of
the Closing Date, in form to be agreed upon by Buyer and Seller in good faith
prior to the Closing Date, with a term coextensive with that of the Transition
Power Agreement, which shall be terminable by the Buyer at any time upon thirty
days' written notice, and providing for the Seller to provide energy management
services, which shall not include financial or accounting services, for a fee of
$50,000 a month.

            (53) "Transition Power Agreement" means the Power Purchase
Agreement, to be dated on the Closing Date, between the Buyer and the Seller,
substantially in the form attached as Exhibit G.

            (54) "WARN Act" means the Federal Worker Adjustment Retraining and
Notification Act of 1988.

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            (b) Each of the following terms has the meaning specified in the
Section set forth opposite such term:

Term                                               Section
----                                               -------
Adjustment Amount                                  3.2(a)
Adjustment Statement                               3.2(a)
Assumed Obligations                                2.3(b)
Audit Date                                         5.5
Benefit Plans                                      5.13(a)
Buyer Employee                                     7.10(a)
Buyer Required Regulatory Approvals                6.3(b)
Closing                                            4.1
Closing Date                                       4.1
Contracts                                          5.16(a)
Direct Claim                                       9.2(c)
Environmental Permits                              5.11(a)
ERISA Affiliate                                    5.13(a)
Estimated Purchase Price                           4.2
Excluded Assets                                    2.2
Excluded Liabilities                               2.4
Final Order                                        8.1(c)
Indemnifiable Loss                                 9.1(a)
Indemnifying Party                                 9.1(d)
Indemnitee                                         9.1(c)
Independent Appraiser                              3.3
Inventory Adjustment Amount                        3.2(a)
Non-Union Employee                                 7.10(c)
Observers                                          7.1(c)
Permits                                            5.18
Purchased Assets                                   Recitals
Purchase Price                                     3.1
Replacement Welfare Plans                          7.10(d)
Seller Required Regulatory Approvals               5.3(b)
Seller's Agreement                                 7.4(c)
SPE Amount                                         3.1
Tax Audit                                          9.3(a)
Termination Date                                  10.1(b)
Third Party Claim                                  9.2(a)
Transfer Taxes                                     7.8(a)
Vehicle Amount                                     3.1

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                                   ARTICLE II

                                PURCHASE AND SALE

            2.1. The Sale. Upon the terms and subject to the satisfaction of the
conditions contained in this Agreement, at the Closing the Seller will sell,
assign, convey, transfer and deliver to the Buyer, and the Buyer will purchase
and acquire from the Seller, free and clear of all Encumbrances (except for
Permitted Encumbrances) the Purchased Assets.

            2.2. Excluded Assets. Notwithstanding any provision herein to the
contrary, the Purchased Assets shall not include the following assets of the
Seller (herein referred to as the "Excluded Assets"):

            (a) all cash, cash equivalents, bank deposits, accounts receivable,
and any income, sales, payroll or other tax receivables;

            (b) certificates of deposit, shares of stock, securities, bonds,
debentures, evidences of indebtedness, interests in joint ventures,
partnerships, limited liability companies and other entities;

            (c) the name "Niagara Mohawk" and any related or similar trade
names, trademarks, service marks or logos;

            (d) the transmission, distribution, substation and communication
facilities and related support equipment described or referred to in Schedule
2.2(d) or described or referred to as an "Excluded Asset" or an asset of
"Seller" in the "Separation Document" (as defined in the Site Agreement) or any
document or exhibit referred to or incorporated by reference in the Separation
Document or which are otherwise indicated in any such document as remaining with
the Seller or any of its Affiliates after the Closing;

            (e) any refund or credit (provided, however, with respect to real
estate Taxes only to the extent provided in Section 7.16) (i) of Taxes paid or
required to be reimbursed by the Seller prior to the Closing Date in respect of
the Purchased Assets, whether such refund is received as a payment or as a
credit against Taxes payable or (ii) arising under any power purchase agreement
that is subject to cost

                                      -11-
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of service regulation and relating to a period before the Closing Date; and

            (f) all personnel records, other than Transferring Employee Records,
or other records (other than those described in the definition of Hydroelectric
Assets).

            2.3. Assumed Obligations. (a) On the Closing Date, the Buyer shall
deliver to the Seller the Instruments of Assumption pursuant to which the Buyer
shall assume and agree to discharge all of the liabilities and obligations of
the Seller, direct or indirect, known or unknown, absolute or contingent, which
relate to the Purchased Assets, other than Excluded Liabilities, in accordance
with the respective terms and subject to the respective conditions thereof,
including, without limitation, the following liabilities and obligations:

            (i) all liabilities and obligations of the Seller under (a)
      contractual obligations of the Seller relating to the Purchased Assets
      which survive following the Closing, which are transferable, which were
      entered into in the ordinary course of business and which are not,
      individually or in the aggregate, material to the Purchased Assets and
      which do not provide for annual payments of more than $100,000
      individually or $500,000 in the aggregate or which are listed on Schedule
      5.16(a), (b) the contracts, leases and other agreements entered into by
      the Seller with respect to the Purchased Assets after the date hereof
      consistent with the terms of this Agreement and (c) liabilities for fuel
      and stores in transit; except in each case, to the extent such liabilities
      and obligations, but for a breach thereunder by the Seller, would have
      been paid, performed or otherwise discharged on or prior to the Closing
      Date or to the extent the same arise out of any such breach;

            (ii) all liabilities and obligations associated with the Purchased
      Assets in respect of Taxes for which the Buyer is liable pursuant to
      Sections 3.4 or 7.8;

            (iii) all liabilities and obligations with respect to the employees
      of Buyer employed at the Purchased Assets after the Closing Date for which
      the Buyer is responsible pursuant to Section 7.10 and the terms of the
      Collective Bargaining Agreement;

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            (iv) any liability, obligation or responsibility under or related to
      former, current or future Environmental Laws, whether such liability or
      obligation or responsibility is known or unknown, contingent or accrued,
      arising as a result of or in connection with (a) any violation or alleged
      violation of Environmental Law on or after the Closing Date, with respect
      to the ownership or operation of the Purchased Assets; (b) loss of life,
      injury to persons or property or damage to natural resources, caused (or
      allegedly caused) by the presence or Release of Hazardous Substances at,
      on, in, under, adjacent to or migrating from the Purchased Assets on or
      after the Closing Date, including, but not limited to, Hazardous
      Substances contained in building materials at the Purchased Assets or in
      the soil, surface, water, sediments, groundwater, landfill cells, or in
      other environmental media at or adjacent to the Purchased Assets; (c) loss
      of life, injury to persons or property or damage to natural resources
      caused (or allegedly caused) by the off-site disposal, storage,
      transportation, discharge, Release, recycling, or the arrangement for such
      activities, of Hazardous Substances on or after the Closing Date, in
      connection with the ownership or operation of the Purchased Assets; (d)
      the investigation, monitoring, containment and/or remediation (whether or
      not such investigation or remediation commenced before the Closing Date or
      commences after the Closing Date) of Hazardous Substances that are present
      or have been Released either prior to or on or after the Closing Date at,
      on, in, under, adjacent to or migrating from the Purchased Assets,
      including, but not limited to, Hazardous Substances contained in building
      materials at the Purchased Assets or in the soil, surface water,
      sediments, groundwater, landfill cells, or in other environmental media at
      or adjacent to the Purchased Assets and (e) the investigation and/or
      remediation of Hazardous Substances that are disposed, stored,
      transported, discharged, Released, recycled, or the arrangement of such
      activities, on or after the Closing Date, in connection with the ownership
      or operation of the Purchased Assets, at any off-site location; provided,
      as to all of the above, that nothing set forth in this subsection 2.3(a)
      shall require the Buyer to assume any liabilities that are expressly
      excluded in Section 2.4;

                                      -13-
<PAGE>   18

            (v) all liabilities incurred by the Seller with respect to
      Maintenance Expenditures and Capital Expenditures associated with the
      Purchased Assets but only to the extent such liabilities were included in
      the Maintenance and Capital Expenditures Amount;

            (vi) any Taxes on the ownership, sale, operation or use of the
      Purchased Assets on or after the Closing Date; except for any Income Taxes
      attributable to income or gain (including proceeds representing the
      Purchase Price or proceeds of other asset sales) of the Seller; and

            (vii) all obligations of the Seller with respect to the operation
      and ownership of the Purchased Assets pursuant to the agreements described
      in Section 7.13.

            (b) All of the foregoing liabilities and obligations to be assumed
by the Buyer under Section 2.3(a) (excluding any Excluded Liabilities) are
referred to herein as the "Assumed Obligations." It is understood and agreed
that nothing in this Section 2.3 shall constitute a waiver or release of any
claims arising out of the contractual relationships between the Seller and the
Buyer.

            2.4. Excluded Liabilities. The Buyer shall not assume or be
obligated to pay, perform or otherwise discharge the following liabilities or
obligations:

            (i) any liabilities or obligations of the Seller in respect of any
      Excluded Assets or other assets which are not Purchased Assets;

            (ii) any liabilities or obligations in respect of Taxes attributable
      to purchased Assets for taxable periods ending on or before the Closing
      Date, except for Taxes for which the Buyer is liable pursuant to Section
      3.4 or Section 7.8;

            (iii) any liabilities, obligations, or responsibilities under or
      related to former, current or future Environmental Laws or the common law,
      whether such liability or obligation is known or unknown, contingent or
      accrued, arising as a result of or in connection with (a) any violation or
      alleged violation of Environmental Law prior to the Closing Date with
      respect to the ownership or operation of the Purchased

                                      -14-
<PAGE>   19

      Assets (other than liabilities, obligations and responsibilities assumed
      by Buyer pursuant to clause (d) of Section 2.3(a)(iv) of this Agreement,
      which the parties agreed do not include any fines or penalties imposed by
      a Governmental Entity with respect to a violation or alleged violation
      which occurred prior to the Closing Date); (b) loss of life, injury to
      persons or property or damage to natural resources (whether or not such
      loss, injury or damage arose or was made manifest before the Closing Date
      or arises or becomes manifest after the Closing Date), caused (or
      allegedly caused) by the presence or Release of Hazardous Substances at,
      on, in, under, adjacent to or migrating from the Purchased Assets prior to
      the Closing Date, including, but not limited to, Hazardous Substances
      contained in building materials at the Purchased Assets or in the soil,
      surface, water, sediments, groundwater, landfill cells, or in other
      environmental media at or adjacent to the Purchased Assets; (c) the
      matters described in Schedule 5.11 (Environmental Matters); or (d) the
      disposal, storage, transportation, discharge, Release, recycling, or the
      arrangement for such activities, by the Seller, of Hazardous Substances
      that were generated at the Purchased Assets, at any off-site location,
      where the disposal, storage, transportation, discharge, Release, recycling
      or the arrangement for such activities at said off-site location occurred
      prior to the Closing Date, provided that for purposes of this Section 2.4,
      "off-site location" does not include any location to which Hazardous
      Substances disposed of or Released at the Purchased Assets have migrated;

            (iv) except as provided in Section 16.3 of the Site Agreement, any
      liabilities, obligations or responsibilities relating to (a) the property,
      equipment or machinery within the switchyards for which the Seller will
      retain either a fee interest or an Easement, (b) the transmission lines
      delineated in the Easements, (c) any Seller's operations on, or usage of,
      the Easements, including, without limitation, liabilities, obligations or
      responsibilities arising as a result of or in connection with (1) any
      Environmental Law and (2) loss of life, injury to persons or property or
      damage to natural resources, except to the extent caused by Buyer, or (d)
      obligations under Consent Order #A5-0334-95-08 for the Queensbury
      Hazardous Waste Site.

                                      -15-
<PAGE>   20

            (v) any liabilities or obligations relating to any personal injury,
      discrimination, wrongful discharge, unfair labor practice or similar claim
      or cause of action filed against the Seller or pending before any court or
      administrative agency on the Closing Date, with respect to liabilities
      principally relating to the purchased Assets (including, without
      limitation, all claims and cases of action set forth in Schedule 2.4);

            (vi) any payment obligations of the Seller for goods delivered or
      services rendered prior to the Closing;

            (vii) any liabilities or obligations imposed upon, assumed or
      retained by the Seller pursuant to the Site Agreement or any other
      Ancillary Agreement;

            (viii) any liabilities, obligations or responsibilities relating to
      any Benefit Plan or any "employee pension benefit plan" (as defined in
      Section 3(2) of ERISA) maintained by the Seller or any trade or business
      (whether or not incorporated) which is under common control as a single
      employer, with the Seller under Section 414(b), (c), (m) or (o) of the
      Code ("ERISA Affiliate"), including any multiemployer plan, maintained by
      or contributed to by the Seller or any ERISA Affiliate, or as to which the
      Seller or any ERISA Affiliate is obligated to contribute to, at any time,
      including any such liability (A) to the Pension Benefit Guaranty
      Corporation under Title IV of ERISA; (B) relating to a multiemployer plan;
      (C) with respect to non-compliance with the notice and benefit
      continuation requirements of COBRA; (D) with respect to any noncompliance
      with ERISA or any other applicable laws; or (E) with respect to any suit,
      proceeding or claim which is brought against the Buyer, any Benefit Plan,
      ERISA Affiliate Plan, any fiduciary or former fiduciary of any such
      Benefit Plan or ERISA Affiliate Plan; and

            (ix) any liabilities or obligations resulting from the Seller's
      gross negligence or wilful misconduct, other than any liability assumed by
      the Buyer under Section 2.3(a)(v) (provided that the exclusion of
      liabilities and obligations resulting from Seller's gross negligence under
      this Section 2.4(ix) shall not be deemed to impose any responsibility upon
      Seller for the condition of the Purchased Assets at Closing);

                                      -16-
<PAGE>   21

            (x) any fines or penalties imposed by a governmental agency
      resulting from (A) an investigation or proceeding pending on or prior to
      the Closing Date or (B) illegal acts, willful misconduct or gross
      negligence of the Seller prior to the Closing Date;

            (xi) any liabilities, obligations or responsibilities relating to
      the employment or termination of employment, including a constructive
      termination, by the Seller of any individual (including, but not limited
      to, any employee of the Seller) attributable to any actions or inactions
      by the Seller prior to the Closing Date other than such actions or
      inactions taken at the direction of the Buyer;

            (xii) any liabilities relating to the litigation with respect to the
      Mechanicville facility listed on Schedule 5.17 hereto; and

            (xii) all liabilities or obligations of the Seller for (A)
      maintenance expenditures and capital expenditures associated with the
      Purchased Assets to the extent that such liabilities are not included in
      the Maintenance and Capital Expenditures Amount, and (B) Schaghticoke
      Pipeline Expenditures.

            All such liabilities and obligations not being assumed pursuant to
Section 2.4 are herein called the "Excluded Liabilities." Buyer shall use best
reasonable efforts to provide Seller with prompt written notice of any
correspondence, communications, claims or information that it receives which, to
its knowledge, relates directly or indirectly to the Excluded Liabilities. Such
notice shall be provided to the following, consistent with Section 11.4 of this
Agreement:

                        Manager, Risk Management
                        Niagara Mohawk Power Corporation
                        300 Erie Boulevard West
                        Syracuse, New York 13202

                                      -17-
<PAGE>   22

                                   ARTICLE III

                                 PURCHASE PRICE

            3.1. Purchase Price. The purchase price for the Purchased Assets
(the "Purchase Price") shall be an amount equal to the sum of (a) $425,000,000,
(b) the Vehicle Amount (as hereinafter defined) and (c) the Adjustment Amount
less, if the Schaghticoke Pipeline has not been restored to the operational
capability described in Schedule 1.1(a)(26) as of the Closing Date, the
difference of $7 million less the Schaghticoke Pipeline Expenditures (but only
if the difference is a positive number) (the "SPE Amount"). The Vehicle Amount
shall be the cost required to buy out the leases of all vehicles which the Buyer
elects to purchase which are presently leased by the Company for use with the
Purchased Assets, which shall be determined as set forth on Schedule 3.1(c) (as
appropriately completed prior to the Closing).

            3.2. Purchase Price Adjustment. (a) Within 60 days after the
Closing, the Seller shall prepare and deliver to the Buyer statements (each, an
"Adjustment Statement") which reflects (i) the amount (whether positive or
negative) equal to the difference of (A) the net book value, as reflected on the
books of the Seller as of the Closing Date of all fuel inventory (FERC account
no. 151) and stores inventory (FERC account no. 154) and owned vehicles used at
or in connection with the Purchased Assets minus (B) $1,300,000 (the "Inventory
Adjustment Amount"), (ii) the Maintenance and Capital Expenditures Amount
applicable to the Purchased Assets and (iii) the employee transition credit for
any employees who did not become employees of the Buyer as calculated pursuant
to Schedule 3.2, which amount shall not exceed $2,800,000 (the "ETC
Adjustment"). The sum of the Inventory Adjustment Amount, the Maintenance and
Capital Expenditures Amount and the ETC Adjustment is referred to as the
"Adjustment Amount." Each Adjustment Statement shall be prepared using the same
generally accepted accounting principles, policies and methods as the Seller has
historically used in connection with the calculation of the items reflected on
such Adjustment. The Buyer agrees to cooperate with the Seller in connection
with the preparation of each Adjustment Statement and related information, and
shall provide to the Seller such books, records and information as may be
reasonably requested from time to time.

                                      -18-
<PAGE>   23

            (b) The Buyer may dispute an Inventory Adjustment Amount, a
Maintenance and Capital Expenditures Amount or the ETC Adjustment; provided,
however, that the Buyer shall notify the Seller in writing of the disputed
amount, and the basis of such dispute, within ten (10) Business Days of the
Buyer's receipt of the applicable Adjustment Statement. In the event of a
dispute with respect to any part of any Adjustment Amount, the Buyer and the
Seller shall attempt to reconcile their differences. If the Buyer and the Seller
are unable to reach a resolution of such differences within 30 days of receipt
of the Buyer's written notice of dispute to the Seller, the Buyer and the Seller
shall submit the amounts remaining in dispute for determination and resolution
to the Independent Accounting Firm, which shall be instructed to determine and
report to the parties, within 30 days after such submission, upon such remaining
disputed amounts, and such report shall be final, binding and conclusive on the
parties hereto with respect to the amounts disputed. The fees and disbursements
of the Independent Accounting Firm shall be allocated between the Buyer and the
Seller so that the Buyer's share of such fees and disbursements shall be in the
same proportion that the aggregate amount of such remaining disputed amounts so
submitted by the Buyer to the Independent Accounting Firm that is unsuccessfully
disputed by the Buyer (as finally determined by the Independent Accounting Firm)
bears to the total amount of such remaining disputed amounts so submitted by the
Buyer to the Independent Accounting Firm.

            (c) Within ten (10) Business Days after the Buyer's receipt of an
Adjustment Statement, the Buyer shall pay all undisputed amounts, and if there
is a dispute with respect to any amount on such Adjustment Statement, within
five (5) Business Days after the final determination of any amounts on such
Adjustment Statement, the Buyer shall pay to the Seller an amount equal to the
disputed Adjustment Amount as finally determined pursuant to subsection (b) to
be payable with respect to such Adjustment Statement. All Adjustment Statement
payments shall be less the Estimated Adjustment Amount; provided, however, that
if such amount shall be less than zero then the Seller will pay to the Buyer the
amount by which such amount is less than zero. Any amount paid under this
Section 3.2(c) shall be paid with interest for the period commencing on the
Closing Date through the date of payment, calculated at the base rate of
Citibank N.A. in effect on the Closing Date, and in cash by

                                      -19-
<PAGE>   24

federal or other wire transfer of immediately available funds.

            3.3. Allocation of Purchase Price. The Buyer and the Seller shall
use their good faith best efforts to agree upon an allocation among the
Purchased Assets of the sum of the portion of the Purchase Price set forth in
subsection 3.1(a) consistent with Section 1060 of the Code and the Treasury
Regulations thereunder within 180 days of the date of this Agreement but in no
event less than 30 days prior to the Closing. Any post closing adjustments with
respect to the Purchase Price for purchase price allocation purposes, including,
but not limited to, the final determination of the amount of the Assumed
Obligations, the Vehicle Amount and the Adjustment Amount shall be jointly made
and agreed to within sixty (60) days following the Closing in a manner
consistent with the allocation determined pursuant to this Section 3.3. Each of
the Buyer and the Seller agree to file Internal Revenue Service Form 8594, and
all federal, state, local and foreign Tax Returns, in accordance with such
agreed allocation. Each of the Buyer and the Seller shall report the
transactions contemplated by the Agreement for Tax purposes in a manner
consistent with the allocation determined pursuant to this Section 3.3. Each of
the Buyer and the Seller agrees to provide the other promptly with any other
information reasonably required to complete Form 8594. Each of the Buyer and the
Seller shall notify the other in the event of an examination, audit or other
proceeding regarding the agreed upon allocation of the Purchase Price.

            3.4. Proration. (a) The Buyer and the Seller agree that all of the
items normally prorated, including those listed below, relating to the business
and operation of the Purchased Assets will be prorated as of the Closing Date,
with the Seller liable to the extent such items relate to any time period
through the Closing Date, and the Buyer liable to the extent such items relate
to periods subsequent to the Closing Date:

            (i) except as provided in Section 7.8(a) or 7.16, personal property,
      real property, occupancy, severage, and water Taxes, assessments and other
      similar charges, if any, on or with respect to the business and operation
      of the Purchased Assets and with respect to a taxable period that begins
      before but does not end on the Closing Date shall be (1) prorated to the
      extent such Tax is measured by time to the Seller based on the

                                      -20-
<PAGE>   25

      number of days in such taxable period, up to and including the Closing
      Date, and to the Buyer based on the number of days in such taxable period
      after the Closing Date, and (2) to the extent such Tax is measured by
      income, receipts or pertains to the business and operation of the
      Purchased Assets, allocated between Buyer and Seller based on a closing of
      the books on the Closing Date with respect to the business and operation
      of the Purchased Assets.

            (ii) sewer rents and charges for water, telephone, electricity and
      other utilities; and

            (iii) rent under any leases of real or personal property included in
      the Purchased Assets, including the leases described in Schedule 5.9.

            (b) In connection with the prorations referred to in (a) above, in
the event that actual figures are not available at the Closing Date, the
proration shall be based upon the actual Taxes or fees for the preceding year
(or appropriate period) for which actual Taxes or fees are available and such
Taxes or fees shall be reprorated upon request of either the Seller, on the one
hand, or the Buyer, on the other hand, made within sixty (60) days of the date
that the actual amounts become available. Recoveries from tax certiorari
proceedings shall be reduced by all costs and expenses, including attorneys'
fees, prior to proration. The Buyer shall cooperate with the Seller in the
prosecution of tax certiorari proceedings which have not been completed by the
Closing Date. The Seller and the Buyer agree to furnish each other with such
documents and other records as may be reasonably requested in order to confirm
all adjustment and proration calculations made pursuant to this Section 3.4.

                                   ARTICLE IV

                                   THE CLOSING

            4.1. Time and Place of Closing. Upon the terms and subject to the
satisfaction of the conditions contained in Article VIII of this Agreement, the
closing of the sale of the Purchased Assets contemplated by this Agreement (the
"Closing") will take place at the offices of Sullivan & Cromwell, 125 Broad
Street, New York, New York 10004, at

                                      -21-
<PAGE>   26

10:00 A.M. (local time) on such date as the parties may agree which date is not
later than the later to occur of (i) June 30, 1999 and (ii) thirty (30) Business
Days following the date on which all of the conditions contained in Article VIII
have been satisfied or waived; or at such other place or time as the parties may
agree. The date and time at which the Closing actually occurs is hereinafter
referred to as the "Closing Date."

            4.2. Payment of Purchase Price. Upon the terms and subject to the
satisfaction of the conditions contained in this Agreement, in consideration of
the aforesaid sale, assignment, conveyance, transfer and delivery of the
Purchased Assets, the Buyer will assume the Assumed Obligations and will pay or
cause to be paid to the Seller at the Closing an amount in the aggregate (the
"Estimated Purchase Price") in United States dollars equal to the sum of (i)
$425,000,000, (ii) the Vehicle Amount, (iii) the Estimated Adjustment Amount for
the Closing less the SPE Amount (if any), by wire transfer of immediately
available funds or by such other means as are agreed upon by the Seller and the
Buyer.

            4.3. Deliveries by the Seller. At the Closing, the Seller will
deliver the following to the Buyer:

            (a) The Bill of Sale, duly executed by the Seller;

            (b) All consents, waivers or approvals obtained by the Seller with
respect to the purchased Assets, the transfer of any Transferable Permit related
to the Purchased Assets, or the consummation of the transactions connected to
the sale of the Purchased Assets, contemplated by this Agreement, to the extent
specifically required hereunder;

            (c) An opinion of counsel and certificate (as contemplated by
Section 8.2) with respect to the Purchased Assets;

            (d) One or more bargain and sale deeds with lien covenants conveying
the Real Estate related to the Purchased Assets, subject to the applicable
Easements and Exceptions, duly executed and acknowledged by the Seller and in
recordable form along with TP-584 Forms and Equalization and Transfer Reports,
in the form attached hereto as Exhibit 4.3(d);

                                      -22-
<PAGE>   27

            (e) A FIRPTA Affidavit executed by the Seller;

            (f) All such other instruments of assignment or conveyance as shall,
in the reasonable opinion of the Buyer and its counsel, be necessary to transfer
to the Buyer the Purchased Assets, in accordance with this Agreement and where
necessary or desirable, in recordable form; and

            (g) The Ancillary Agreements, duly executed by Seller, and such
other agreements, documents, instruments and writings as are required to be
delivered by the Seller at or prior to the Closing Date pursuant to this
Agreement or otherwise required in connection herewith.

            4.4. Deliveries by the Buyer. At the Closing, the Buyer will deliver
the following to the Seller:

            (a) The Estimated Purchase Price and any amounts payable under
Section 3.4 by wire transfer of immediately available funds or such other means
as are agreed upon by the Seller and the Buyer;

            (b) Opinions of counsel and certificates (as contemplated by Section
8.3) with respect to the Purchased Assets;

            (c) The Instruments of Assumption with respect to the Assumed
Obligations, duly executed by the Buyer;

            (d) All such other instruments of assumption as shall, in the
reasonable opinion of the Seller and its counsel, be necessary for the Buyer to
assume the Assumed Obligations related to the Purchased Assets in accordance
with this Agreement;

            (e) All tax certificates applicable to the transfers contemplated by
this Agreement, including, without limitation, direct pay permits and tax
exemption certificates; and

            (f) The Ancillary Agreements, duly executed by Buyer, and such other
agreements, documents, instruments and writings as are required to be delivered
by the Buyer at or prior to the Closing Date pursuant to this Agreement or
otherwise required in connection herewith.

                                      -23-
<PAGE>   28

                                    ARTICLE V

                  REPRESENTATIONS AND WARRANTIES OF THE SELLER

            The Seller represents and warrants to the Buyer as follows (all such
representations and warranties, other than in Sections 5.1, 5.2, 5.3, 5.4 and
5.5, being made to the best knowledge of the Seller after reasonable inquiry or
investigation).

            5.1. Organization: Qualification. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York and has all requisite corporate power and authority to own, lease, and
operate its properties and to carry on its business as is now being conducted.
The Seller has heretofore delivered to the Buyer complete and correct copies of
its Certificate of Incorporation and Bylaws as currently in effect.

            5.2. Authority Relative to this Agreement. The Seller has full
corporate power and authority to execute and deliver this Agreement and the
Ancillary Agreements and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the Ancillary
Agreements and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by the Board of Directors of the
Seller and no other corporate proceedings on the part of the Seller are
necessary to authorize this Agreement or the Ancillary Agreements or to
consummate the transactions contemplated hereby and thereby. This Agreement and
the Ancillary Agreements have been duly and validly executed and delivered by
the Seller, and, assuming that this Agreement and the Ancillary Agreements
constitute valid and binding agreements of the Buyer, subject to the receipt of
the Seller Required Regulatory Approvals (as defined in Section 5.3) and the
Buyer Required Regulatory Approvals, constitute valid and binding agreements of
the Seller, enforceable against the Seller in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles (the "Bankruptcy and Equity
Exception").

                                      -24-
<PAGE>   29

            5.3. Consents and Approvals; No Violation. (a) Other than obtaining
the Seller Required Regulatory Approvals and the Buyer Required Regulatory
Approvals, neither the execution and delivery of this Agreement and the
Ancillary Agreements by the Seller nor the sale by the Seller of the Purchased
Assets pursuant to this Agreement or performance under the Ancillary Agreements
will (i) conflict with or result in any breach of any provision of the
Certificate of Incorporation or Bylaws of the Seller, (ii) require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, except (x) where the failure to obtain
such consent, approval, authorization or permit, or to make such filing or
notification, would not, individually or in the aggregate, create a Material
Adverse Effect or (y) for those requirements which become applicable to the
Seller as a result of the specific regulatory status of the Buyer (or any of its
Affiliates) or as a result of any other facts that specifically relate to the
business or activities in which the Buyer (or any of its Affiliates) is or
proposes to be engaged; (iii) result in a default (or give rise to any right of
termination, cancellation or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which the Seller is a party or by which the Seller,
or any of the Purchased Assets may be bound, except for such defaults (or rights
of termination, cancellation or acceleration) as to which requisite waivers or
consents have been obtained or which, in the aggregate, would not, individually
or in the aggregate, create a Material Adverse Effect; or (iv) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to the
Seller, or any of its assets, which violation, individually or in the aggregate,
would create a Material Adverse Effect.

            (b) Except for (i) any required approvals under the Federal Power
Act, (ii) any required approvals from the PSC, (iii) the approval, if required,
of the SEC pursuant to the Holding Company Act and (iv) the filings by the
Seller and the Buyer required by the HSR Act and the expiration or earlier
termination of all waiting periods under the HSR Act, and (v) the approval, if
required, of the Nuclear Regulatory Commission (the "NRC") (the filings and
approvals referred to in clauses (i) through (v) are collectively referred to as
the "Seller Required Regulatory Approvals"), no declaration, filing or
registration with, or notice to,

                                      -25-
<PAGE>   30

or authorization, consent or approval of any governmental or regulatory body or
authority is necessary for the consummation by the Seller of the transactions
contemplated hereby or by the Ancillary Agreements, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not obtained or made, will not, individually or in the
aggregate, create a Material Adverse Effect.

            5.4. Reports. Since January 1, 1994, the Seller has filed or caused
to be filed with the SEC, the PSC and the FERC, as the case may be, all material
forms, statements, reports and documents (including all exhibits, amendments and
supplements thereto) required to be filed by them with respect to the business
and operations of the Seller as it relates to the Purchased Assets under each of
the Securities Act, the Exchange Act, New York public utility laws, the Federal
Power Act, the Holding Company Act and the respective rules and regulations
thereunder, all of which complied in all material respects with all applicable
requirements of the appropriate act and the rules and regulations thereunder in
effect on the date each such report was filed, and there are no material
misstatements or omissions in respect of such reports.

            5.5. Company Reports; Financial Statements. The Seller has delivered
to the Buyer each registration statement, report, proxy statement or information
statement prepared by it since December 31, 1997 (the "Audit Date"), including
(i) the Company's Annual Report on Form 10-K for the year ended December 31,
1997, (ii) the Company's Quarterly Reports on Form 1O-Q for the periods ended
March 31, 1998 and June 30, 1998 and (iii) the Company's Reports on Form 8-K
dated February 18, 1998, June 30, 1998, July 2, 1998 and September 30, 1998,
each in the form (including exhibits, annexes and any amendments thereto) filed
with the SEC (collectively, including any such reports filed subsequent to the
date hereof and any amended reports, the "Company Reports"). As of their
respective dates (or, if amended, as of the date of such amendment), insofar as
the Company Reports relate to the Purchased Assets, the Company Reports did not,
and any Company Reports filed with the SEC subsequent to the date hereof will
not, contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not misleading.
With

                                      -26-
<PAGE>   31

respect to the financial information relating to the Purchased Assets, each of
the consolidated balance sheets included in or incorporated by reference into
the Company Reports (including any related notes and schedules) fairly presents,
or will fairly present, the consolidated financial position of the Company and
its subsidiaries as of its date and each of the consolidated statements of
income and of changes in financial position included in or incorporated by
reference into the Company Reports (including any related notes and schedules)
fairly presents, or will fairly present, the results of operations, retained
earnings and changes in financial position, as the case may be, of the Company
and its subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to notes and normal year-end audit adjustments that will
not be material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods involved,
except as may be noted therein.

            5.6. Undisclosed Liabilities. Except as set forth in the Company
Reports, the Seller has no liability or obligation relating to the business or
operations of the Purchased Assets, secured or unsecured (whether absolute,
accrued, contingent or otherwise, and whether due or to become due), of a nature
required by generally accepted accounting principles as they have been
consistently applied by the Seller to be reflected in a corporate balance sheet
or disclosed in the notes thereto, which are not accrued or reserved against in
the Company Reports or disclosed in the notes thereto in accordance with
generally accepted accounting principles, except those which were incurred after
the date of the Company Reports.

            5.7. Absence of Certain Changes or Events. Except (i) as set forth
in Schedule 5.7, or in the Company Reports, and (ii) as otherwise contemplated
by this Agreement, since June 30, 1998 there has not been: (a) any Material
Adverse Effect; (b) any damage, destruction or casualty loss, whether covered by
insurance or not, which, individually or in the aggregate, created a Material
Adverse Effect; (c) any entry into any agreement, commitment or transaction
(including, without limitation, any borrowing, capital expenditure or capital
financing) by the Seller, which is material to the business or operations of the
Purchased Assets; or (d) any change by the Seller, with respect to the Purchased
Assets, in accounting methods,

                                      -27-
<PAGE>   32

principles or practices except as required or permitted by generally accepted
accounting principles.

            5.8. Title and Related Matters. Except as set forth in Schedule 5.8
and except for Permitted Encumbrances, Seller holds an insurable fee simple
title to the Hydroelectric Real Property, free and clear of all Encumbrances.
Insurable fee simple title is that which is insurable under an ALTA Owner's
Policy (10-17-92) with New York Endorsement Modifications. Except as set forth
in Schedule 5.8 and except for Permitted Encumbrances, the Seller has good and
valid title to the other Purchased Assets which it purports to own that are
reflected in the Company Reports (other than those which have been disposed of
since the date thereof in the ordinary course of business), free and clear of
all Encumbrances.

            5.9. Leases. There are no real property leases under which the
Seller is a lessee or lessor and which (x) are to be transferred and assigned to
the Buyer on the Closing Date and (y) (i) provide for annual payments of more
than $500,000 in the aggregate or $100,000 individually or (ii) are material to
the business, operations or financial condition of the Purchased Assets.

            5.10. Insurance. Except as set forth in Schedule 5.10, all material
policies of fire, liability, worker's compensation and other forms of insurance
owned or held by the Seller and insuring the Purchased Assets are in full force
and effect, subject to the terms of each policy, all premiums with respect
thereto covering all periods up to and including the date as of which this
representation is being made have been paid (other than retroactive premiums
which may be payable with respect to comprehensive general liability and
worker's compensation insurance policies), and no notice of cancellation or
termination has been received with respect to any such policy which was not
replaced on substantially similar terms prior to the date of such cancellation.
Except as described in Schedule 5.10, as of the date of this Agreement, the
Seller has not been refused any insurance with respect to the Purchased Assets
nor has such coverage been limited by any insurance carrier to which the Seller
has applied for any such insurance or with which it has carried insurance during
the last twelve months.

            5.11. Environmental Matters. Except as disclosed in Schedule 5.11 or
in the Company Reports:

                                      -28-
<PAGE>   33

            (a) The Seller holds and has held, has complied with and is in
compliance with, all permits, license and governmental authorizations
("Environmental Permits") required for the Seller to conduct the business and
operations of the Purchased Assets under applicable Environmental Laws, and the
Seller otherwise has complied and is in compliance with applicable Environmental
Laws with respect to the business and operations of the Purchased Assets, except
for such failures to hold or comply with required Environmental Permits, or such
failures to be in compliance with applicable Environmental Laws, which,
individually or in the aggregate, are not reasonably likely to create a Material
Adverse Effect;

            (b) The Seller has not received any written request for information,
or been notified that it is a potentially responsible party, under or that it
may have incurred liability under, or is allegedly in violation of, any
Environmental Law with respect to any on-site location, except for such
liability under such laws as would not be reasonably likely to, individually or
in the aggregate, create a Material Adverse Effect;

            (c) The Seller has not entered into or agreed to any consent decree
or order, and is not subject to any outstanding judgment, decree, or judicial
order relating to compliance with any Environmental Law or to investigation or
cleanup of Hazardous Substances under any Environmental Law, except for such
consent decree or order, judgment, decree or judicial order that would not be
reasonably likely to, individually or in the aggregate, create a Material
Adverse Effect; and

            (d) Except as set forth on Schedule 5.11, there has been no Release
of Hazardous Substances at, on, in, under, adjacent to or migrating from the
Purchased Assets that has given or would be reasonably likely to give rise to
any liabilities under Environmental Law, except for such liability under such
laws as would not be reasonably likely to, individually or in the aggregate,
create a Material Adverse Effect.

            The representations and warranties made in this Section 5.11 and in
Section 5.18(b) are the Seller's exclusive representations and warranties
relating to environmental matters.

                                      -29-
<PAGE>   34

            5.12. Labor Matters. The Seller has previously delivered to the
Buyer a copy of the Collective Bargaining Agreement which is the only collective
bargaining agreement which relates to the business or operations of the
Purchased Assets. With respect to the business or operations of the Purchased
Assets, except to the extent set forth in Schedule 5.12 and except for such
matters as will not, individually or in the aggregate, create a Material Adverse
Effect (a) the Seller is in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours; (b) the Seller has not received written notice of any unfair
labor practice complaint against the Seller pending before the National Labor
Relations Board; (c) there is no labor strike, slowdown or stoppage actually
pending or threatened against or affecting the Seller; (d) the Seller has not
received notice that any representation petition respecting the employees of the
Seller has been filed with the National Labor Relations Board; (e) no
arbitration proceeding arising out of or under the Collective Bargaining
Agreement is pending against the Seller and (f) the Seller has not experienced
any primary work stoppage in the past five years.

            5.13. ERISA; Employee Benefit Plans. (a) All "employee benefit
plans", within the meaning of Section 3(3) of ERISA, covering employees employed
at the Purchased Assets ("Employees") (collectively, the "Benefit Plans") are
listed on Schedule 5.13. True and complete copies of all Benefit Plans and all
amendments thereto have been provided or made available to Buyer.

            (b) All Benefit Plans are in substantial compliance with ERISA.
Seller has not engaged in a transaction with respect to any Benefit Plan that,
assuming the taxable period of such transaction expired as of the date hereof,
could subject Seller to a tax or penalty imposed by either Section 4975 of the
Code or Section 502(i) of ERISA in an amount which would be material.

            (c) No liability under Subtitle C or D of Title IV of ERISA has been
or is expected to be incurred by Seller with respect to any ongoing, frozen or
terminated "single-employer plan", within the meaning of Section 4001(a)(15) of
ERISA, currently or formerly maintained by it, or the single-employer plan of
any entity which is considered one employer with Seller under Section 4001 of

                                      -30-
<PAGE>   35

ERISA or Section 414 of the Code (an "ERISA Affiliate"). Seller has not incurred
and does not expect to incur any withdrawal liability with respect to a
multiemployer plan under Subtitle E of Title IV of ERISA. No notice of a
"reportable event", within the meaning of Section 4043 of ERISA, for which the
30-day reporting requirement has not been waived, has been required to be filed
for any Benefit Plan subject to Title IV of ERISA or by any ERISA Affiliate
within the 12-month period ending on the date hereof.

            (d) Neither any Benefit Plan nor any single-employer plan of an
ERISA Affiliate has an "accumulated funding deficiency", within the meaning of
Section 412 of the Code or Section 302 of ERISA (whether or not waived), and no
ERISA Affiliate has an outstanding funding waiver. Seller has not provided, nor
is it required to provide, security to any Benefit Plan or to any
single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the
Code.

            5.14. Real Estate. Schedule 5.14 contains a schedule of title
documents identifying the Hydroelectric Real Property. The Hydroelectric Real
Property is encumbered by the lien of a mortgage held by Bankers Trust Company,
as successor trustee under the Indenture which will be released or discharged at
the Closing. Schedule 5.14 also reflects that the Seller will be EXCEPTING AND
RESERVING to Seller fee simple title and/or a permanent easement over parcels of
land on which the transmission, distribution, substation and communication
facilities and related support equipment described or referred to in Section
2.2(d) are located, together with access to those facilities, and those fee
simple titles and easements identified as being reserved to Seller in the deed
or in Exhibit "A" to be annexed to the deed, together with access to those
parcels.

            5.15. Condemnation. Except for the action with respect to the
Mechanicville facility, neither the whole nor any part of the Real Estate or any
other real property or rights leased, used or occupied by the Seller in
connection with the ownership or operation of the Purchased Assets is subject to
any pending suit for condemnation or other taking by any public authority or any
other Person, and no such condemnation or other taking has been threatened.

                                      -31-
<PAGE>   36

            5.16. Certain Contracts and Arrangements. (a) Except for (i)
contracts, agreements, personal property leases, commitments, understandings or
instruments which will expire prior to the Closing Date, and (ii) the Collective
Bargaining Agreement and (iii) the contracts or agreements listed in Schedule
5.16(a), the Seller is not a party to any contract, agreement, personal property
lease, commitment, understanding or instrument which (x) provides for annual
payments of more than $100,000 individually (or, together with all other such
contracts, agreements, personal property leases, commitments, understandings and
instruments, $500,000) or (y) is material to the business or operations of the
Purchased Assets.

            (b) If the Site Agreement and Interconnection Agreement were in full
force and effect between Seller's generation business and the Seller's
transmission business on the date of this Agreement, (i) the Seller's generation
business would be in material compliance with the terms thereof, and (ii) except
as provided in the Interconnection Agreement, there is no event or condition
that would enable or require the Seller's transmission business to (x) notify
the Seller's generation business of the necessity of an addition to or
modification of the Interconnection Facilities, as defined in Section 1.10 of
the Interconnection Agreement, (y) operate and/or purchase from the Seller's
generation business any of the equipment or facilities specified in Section 20.0
of the Site Agreement, or (z) discontinue Interconnection Service as provided
for in the Interconnection Agreement.

            5.17. Legal Proceedings, etc. Except as set forth in Schedule 5.17
or in the Company Reports, there are no claims, actions, proceedings or
investigations pending or threatened against or relating to the Seller before
any court, governmental or regulatory authority or body acting in an
adjudicative capacity, which, if adversely determined, individually or in the
aggregate, would create a Material Adverse Effect. Except as set forth in
Schedule 5.17 or in the Company Reports, the Seller is not subject to any
outstanding judgment, rule, order, writ, injunction or decree of any court,
governmental or regulatory authority which, individually or in the aggregate,
would create a Material Adverse Effect.

            5.18. Permits. (a) The Seller has or will have by the Closing Date
all permits, subdivision approvals,

                                      -32-
<PAGE>   37

variances, licenses, franchises and other governmental authorizations, consents
and approvals, other than with respect to Environmental Laws, necessary to
operate the business of the Purchased Assets as presently conducted
(collectively, "Permits"), except where the failure to have such Permits would
not, individually or in the aggregate, create a Material Adverse Effect. The
Seller has not received any written notification that it is in violation of any
of such Permits, or any law, statute, order, rule, regulation, ordinance or
judgment of any governmental or regulatory body or authority applicable to it,
except for notifications of violations which would not, individually or in the
aggregate, create a Material Adverse Effect. The Seller is in compliance with
all Permits, laws, statutes, orders, rules, regulations, ordinances, or
judgments of any governmental or regulatory body or authority applicable to it,
except for violations which, individually or in the aggregate, do not create a
Material Adverse Effect.

            (b) Schedule 5.18(b) sets forth all material Permits and
Environmental Permits.

            5.19. Regulation as a Utility. The Seller is a public utility
company within the meaning of the Holding Company Act. The Seller is not subject
to regulation as a public utility or public service company (or similar
designation) by the United States, any state of the United States, any foreign
country or any municipality or any political subdivision of the foregoing.

            5.20. Tax Matters. With respect to the Purchased Assets and trades
or businesses associated with the Purchased Assets (i) all Tax Returns required
to be filed, other than those Tax Returns the failure of which to file would not
create a Material Adverse Effect, have been filed, and (ii) all material Taxes
shown to be due on such Tax Returns have been paid in full.

            EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN
THIS ARTICLE V, THE PURCHASED ASSETS ARE BEING SOLD AND TRANSFERRED "AS IS,
WHERE IS," AND THE SELLER IS NOT MAKING ANY OTHER REPRESENTATIONS OR WARRANTIES,
WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, CONCERNING SUCH PURCHASED
ASSETS, INCLUDING, IN PARTICULAR, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR

                                      -33-
<PAGE>   38

PURPOSE, ALL OF WHICH ARE HEREBY EXPRESSLY EXCLUDED AND DISCLAIMED.

                                   ARTICLE VI

                   REPRESENTATIONS AND WARRANTIES OF THE BUYER

            The Buyer represents and warrants to the Seller as follows (all such
representations and warranties, except those regarding the Buyer, being made to
the best knowledge of the Buyer after reasonable inquiry or investigation)

            6.1. Organization. The Buyer is a limited partnership duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite partnership power and authority to own, lease and
operate its properties and to carry on its business as is now being conducted.
The Buyer has heretofore delivered to the Seller complete and correct copies of
its Certificate of Limited Partnership and Limited partnership Agreement (or
other similar governing documents), as currently in effect.

            6.2. Authority Relative to this Agreement. The Buyer has full
partnership power and authority to execute and deliver this Agreement and the
Ancillary Agreements and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the Ancillary
Agreements and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary partnership
action and no other partnership proceedings on the part of the Buyer are
necessary to authorize this Agreement and the Ancillary Agreements or to
consummate the transaction contemplated hereby or thereby. This Agreement and
the Ancillary Agreements have been duly and validly executed and delivered by
the Buyer, and assuming that this Agreement and the Ancillary Agreements
constitute valid and binding agreements of the Seller, this Agreement and the
Ancillary Agreements, subject to the receipt of the Buyer Required Regulatory
Approvals and the Seller Required Regulatory Approvals, constitute valid and
binding agreements of the Buyer, enforceable against the Buyer in accordance
with their terms, subject to the Bankruptcy and Equity Exception.

            6.3. Consents and Approvals; No Violation. (a) Other than obtaining
the Buyer Required Regulatory

                                      -34-
<PAGE>   39

Approvals and the Seller Required Regulatory Approvals, neither the execution
and delivery of this Agreement and the Ancillary Agreements by the Buyer nor
the purchase by the Buyer of the Purchased Assets pursuant to this Agreement or
performance under the Ancillary Agreements will (i) conflict with or result in
any breach of any provision of the Certificate of Limited Partnership or Limited
Partnership Agreement (or other similar governing documents) of the Buyer, (ii)
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, (iii) result in a
default (or give rise to any right of termination, cancellation or acceleration)
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, agreement, lease or other instrument or obligation to which the Buyer
or any of its subsidiaries is a party or by which any of their respective assets
may be bound, except for such defaults (or rights of termination, cancellation
or acceleration) as to which requisite waivers or consents have been obtained.

            (b) Except for (i) qualification of the Buyer as an exempt wholesale
generator under the Energy Policy Act of 1992, without restriction, including no
restriction on sales to Affiliates, (ii) authorization to sell power under
Section 205 of the FPA, including (Al authorizations required to implement sales
under the Ancillary Agreements, and (B) market-based rate approval, (iii)
approval under Section 203 of the FPA to transfer contracts and other
jurisdictional assets, (iv) approval by FERC under Part I of the FPA of the
transfer of FERC project licenses related to, and necessary to operate, the
Hydroelectric Assets as currently operated, (v) any necessary PSC approvals,
(vi) the filings by the Buyer and the Seller required by the HSR Act and (vii)
approval by FERC of the Interconnection Agreement and the Transition Power
Agreement and other Ancillary Agreements filed with the FERC (the filings and
approvals referred to in clauses (i) through (vii) are collectively referred to
as the "Buyer Required Regulatory Approvals"), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of any
governmental or regulatory body or authority is necessary for the consummation
by the Buyer of the transactions contemplated hereby or by the Ancillary
Agreements.

            6.4. Availability of Funds. At the Closing the Buyer will have
sufficient funds to pay the Purchase Price.

                                      -35-
<PAGE>   40

                                   ARTICLE VII

                            COVENANTS OF THE PARTIES

            7.1. Conduct of Business Relating to the Purchased Assets. (a)
Except as described in Schedule 7.1, during the period from the date of this
Agreement to the Closing Date, the Seller will operate the Purchased Assets and
related businesses in the usual, regular and ordinary course consistent with
Good Industry Practice and shall use all commercially reasonable efforts to
preserve intact the purchased Assets and the businesses related thereto, and
endeavor to preserve the goodwill and relationships with customers, suppliers
and others having business dealings with them. Without limiting the generality
of the foregoing, and, except as contemplated in this Agreement or as described
in Schedule 7.1, prior to the Closing Date, without the prior written consent of
the Buyer, the Seller will not with respect to the Purchased Assets:

            (i) (x) except for (1) Permitted Encumbrances and (2) indebtedness
      constituting Excluded Liabilities that does not create an Encumbrance on
      the purchased Assets, create, incur, assume or suffer to exist any
      indebtedness for borrowed money (including obligations in respect of
      capital leases); or (y) assume, guarantee, endorse or otherwise become
      directly liable or responsible (whether directly or indirectly,
      contingently or otherwise) for the obligations of any Person;

            (ii) make any material change in the levels of fuel inventory and
      stores inventory or the numbers of owned or leased vehicles customarily
      maintained by the Seller with respect to the Purchased Assets, other than
      consistent with Good Industry Practice;

            (iii) sell, lease (as lessor), transfer or otherwise dispose of, any
      of the Purchased Assets, other than assets used, consumed or replaced in
      the ordinary course of business consistent with Good Industry Practice,
      including the practice of harvesting timber;

            (iv) terminate, extend or otherwise amend any real property lease to
      the extent any such extension or amendment would require the lease to be
      disclosed pursuant to Section 5.9;

                                      -36-
<PAGE>   41

            (v) execute, enter into, terminate or otherwise amend (x) any of the
      Permits, other than routine renewals or non-material modifications or
      amendments or (y) any other agreement, order, decree or judgment relating
      to the current or any new permit;

            (vi) enter into any power sales commitments having a term that
      extends beyond June 30, 1999 or such other date that the parties mutually
      agree to be the date on which the Closing is expected to occur;

            (vii) with respect to the Purchased Assets and related businesses,
      (x) amend or cancel any liability or casualty insurance policies related
      thereto, (y) compromise, settle, withdraw, release or abate any claims
      made or accruing thereunder or (z) fail to maintain by self insurance or
      with financially responsible insurance companies insurance in such amounts
      and against such risks and losses as was in place as of the date of this
      Agreement for such assets and businesses;

            (viii) enter into any commitment or contract for goods or services
      not addressed in clauses (i) through (vii) above that will be delivered or
      provided after June 30, 1999 or such other date that the parties mutually
      agree to be the date on which the Closing is expected to occur, in an
      amount greater than $100,000 individually or $500,000 in the aggregate for
      all such commitments and contracts:

            (ix) enter into any written or oral contract, agreement, commitment
      or arrangement with respect to any of the transactions set forth in the
      foregoing paragraphs (i) through (viii).

            (b) Notwithstanding anything in Section 7.1(a) to the contrary, the
Seller may, in its sole discretion, make (i) Maintenance Expenditures and
Capital Expenditures consistent with the timing (as to the year incurred) and
amount of such expenditures as set forth in Schedule 7.1, (ii) at the Seller's
expense, such other maintenance and capital expenditures as the Seller deems
necessary and (iii) Schaghticoke Pipeline Expenditures, provided that all such
expenditures, and the work related thereto, shall be effected in accordance with
Good Industry Practice.

                                      -37-
<PAGE>   42

            (c) Between the date of this Agreement and the Closing Date, at the
sole responsibility and expense of the Buyer, the Seller will permit designated
employees or representatives ("Observers") of the Buyer to observe all
operations of the Seller that relate to the Purchased Assets and related
businesses, and such observation shall be permitted on a cooperative basis in
the presence of personnel of the Seller during normal business hours of the
Seller; provided, however, that such Observers and their actions shall not
unreasonably interfere with the operation of the Seller's business. The Buyer's
Observers may recommend or suggest actions be taken or not be taken by the
Seller; provided, however, that the Seller will be under no obligation to follow
any such recommendations or suggestions and the Seller shall be entitled,
subject to this Agreement, to conduct its business in accordance with its own
judgment and discretion. The Buyer's Observers shall have no power to bind or
make agreements on behalf of the Seller, to conduct discussions with or make
representations to third parties on behalf of the Seller, or to issue
instructions to or direct or exercise authority over the Seller or any of the
Seller's officers, employees, advisors or agents.

            7.2. Access to Information. (a) Between the date of this Agreement
and the Closing Date, the Seller will, during ordinary business hours and upon
reasonable notice (i) give the Buyer and the Buyer Representatives reasonable
access to all books, records, plants, offices and other facilities and
properties constituting the Purchased Assets to which the Buyer is not denied
access by law; (ii) permit the Buyer to make such reasonable inspections thereof
as the Buyer may reasonably request; (iii) furnish the Buyer with such financial
and operating data and other information with respect to the Purchased Assets as
the Buyer may from time to time reasonably request, provided, however, that the
Seller will not be required to create special reports or perform any studies;
(iv) furnish the Buyer a copy of each material report, schedule or other
document filed or received by it with respect to the Purchased Assets with or
from the SEC, PSC or FERC; provided, however, that (A) any such investigation
shall be conducted in such manner as not to interfere with the operation of the
Purchased Assets, (B) the Seller shall not be required to take any action which
would constitute a waiver of the attorney-client privilege and (C) the Seller
need not supply the Buyer with any information which the Seller is under a legal
obligation not to supply. Notwithstanding anything in this Section 7.2 to

                                      -38-
<PAGE>   43

the contrary, (i) the Seller will only furnish or provide such access to
Transferring Employee Records and personnel and medical records as is required
by law, legal process or subpoena and (ii) the Buyer shall not have the right to
perform or conduct any environmental sampling or testing at, in, on, or
underneath the Purchased Assets.

            (b) All information furnished to or obtained by the Buyer and the
Buyer Representatives pursuant to this Section 7.2 or the Ancillary Agreements
shall be subject to the provisions of the Confidentiality Agreement and shall be
treated as "Proprietary Information" (as defined in the Confidentiality
Agreement).

            (c) For a period of six years after the Closing Date, each party and
their representatives shall have reasonable access to all of the books and
records of the Purchased Assets, including all Transferring Employee Records, in
the possession of the other party to the extent that such access may reasonably
be required by such party. Such access shall be afforded by the party or parties
in possession of such books and records upon receipt of reasonable advance
notice and during normal business hours. The party or parties exercising this
right of access shall be solely responsible for any costs or expenses incurred
by it or them pursuant to this Section 7.2(c). If the party or parties in
possession of such books and records shall desire to dispose of any such books
and records upon or prior to the expiration of such six-year period, such party
or parties shall, prior to such disposition, give the other party or parties a
reasonable opportunity at such other party's or parties' expense, to segregate
and remove such books and records as such other party or parties may select.
During such six-year period, the Seller and its representatives and the
respondent parties and their representatives in the real property tax litigation
listed on Schedule 2.2(h) shall have physical access during normal business
hours to the Purchased Assets to the extent such access may reasonably be
required in connection with that litigation.

            (d) The Seller agrees not to release any Person (other than the
Buyer) from any confidentiality agreement now existing with respect to the
Purchased Assets, or waive or amend any provision thereof.

                                      -39-
<PAGE>   44

            (e) Notwithstanding the terms of the Confidentiality Agreement and
Section 7.2(b) above, the parties agree that prior to the Closing the Buyer may,
if reasonably necessary, reveal or disclose Proprietary Information to any other
Persons in order to obtain financing, and for purposes of risk management of or
with respect to the Purchased Assets, and to such Persons with whom the Buyer
expects it may have business dealings regarding the Purchased Assets from and
after the Closing Date, and, to the extent that Seller consents, which consent
shall not be unreasonably withheld, existing and potential customers and
suppliers.

            (f) Except as required by law, unless otherwise agreed to in writing
by the Buyer, for a period commencing on the Closing Date and terminating three
years after such date the Seller shall keep all Proprietary Information
confidential and (i) shall not disclose or reveal any Proprietary Information to
any Person other than "Seller's Representatives" (as defined below) who are
actively and directly participating in the transactions contemplated hereby or
who otherwise need to know the Proprietary Information for such purpose and
shall cause those Persons to observe the terms of this Section 7.2(f) and (ii)
shall not use Proprietary Information for any purpose other than consistent with
the terms of this Agreement. The Seller shall continue to hold all Proprietary
Information according to the same internal procedures and with the same degree
of care regarding its secrecy and confidentiality as currently applicable
thereto. The Seller shall notify the Buyer of any unauthorized disclosure to
third parties that it discovers, and shall endeavor to prevent any further such
disclosures. The Seller shall be responsible for any breach of the terms of this
Section 7.2(f) by the Seller or the Seller's Representatives.

            After the Closing Date, in the event that the Seller is requested
pursuant to, or required by, applicable law or regulation or by legal process to
disclose any Proprietary Information, or any other information concerning the
Purchased Assets, or the transactions contemplated hereby, the Seller shall
provide the Buyer with prompt notice of such request or requirement in order to
enable the Buyer to seek an appropriate protective order or other remedy, to
consult with the Seller with respect to taking steps to resist or narrow the
scope of such request or legal process, or to waive compliance, in whole or in
part, with the terms of this Section 7.2(f). The Seller agrees not to

                                      -40-
<PAGE>   45

oppose any action by the Buyer to obtain a protective order or other appropriate
remedy after the Closing Date. In the event that no such protective order or
other remedy is obtained, or that the Buyer waives compliance with the terms of
this Section 7.2(f), the Seller shall furnish only that portion of the
Proprietary Information which the Seller is advised by counsel is legally
required. In any such event the Seller shall use its reasonable best efforts to
ensure that all Proprietary Information and other information that is so
disclosed will be accorded confidential treatment.

            7.3. Expenses. Except to the extent specifically provided herein,
whether or not the transactions contemplated hereby are consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be borne by the party incurring such costs and
expenses. Any title insurance obtained by the Buyer shall be at the Buyer's sole
expense.

            7.4. Further Assurances. (a) Subject to the terms and conditions of
this Agreement, each of the parties hereto will use its best efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the sale of the Purchased Assets pursuant to this
Agreement, including without limitation using its best efforts to ensure
satisfaction of the conditions precedent to each party's obligations hereunder.
Notwithstanding anything in the previous sentence to the contrary, the Seller
and the Buyer shall use commercially reasonable efforts to obtain all Permits
and Environmental Permits necessary for the Buyer to operate the Purchased
Assets. Neither of the parties hereto will, without prior written consent of the
other party, take or fail to take any action, which would reasonably be expected
to prevent or materially impede, interfere with or delay the transactions
contemplated by this Agreement. From time to time after the date hereof, without
further consideration, the Seller will, at its own expense, execute and deliver
such documents to the Buyer as the Buyer may reasonably request in order to vest
more effectively in the Buyer the Seller's title to the Purchased Assets subject
to Permitted Encumbrances and Schedule 5.8. From time to time after the date
hereof, the Buyer will, at its own expense, execute and deliver such documents
to the Seller as the Seller may reasonably request in order to consummate more

                                      -41-
<PAGE>   46

effectively the sale of the Purchased Assets pursuant to this Agreement.

            (b) In the event that any Purchased Asset shall not have been
conveyed to the Buyer at the Closing, the Seller shall use its best efforts to
convey such asset to the Buyer as promptly as is practicable after the Closing.
In the event that any Easement necessary or desirable for the Seller's ongoing
operations shall not have been retained by the Seller after the Closing, the
Buyer shall use its best efforts to grant such Easement to the Seller as
promptly as is practicable after the Closing; provided that the same does not
materially interfere with Buyer's use of the property or materially adversely
affect the value of such property.

            (c) To the extent that the Seller's rights under any contract,
agreement, lease or license included in the Purchased Assets (each, a "Seller's
Agreement") may not be assigned without the consent of another Person and such
consent has not been obtained, this Agreement shall not constitute an agreement
to assign the same if an attempted assignment would constitute a breach thereof
or be unlawful, and the Seller, at its expense, shall use all commercially
reasonable efforts to obtain any such required consent(s) as promptly as
possible. The Seller and the Buyer agree that if any consent to an assignment of
any Seller's Agreement shall not be obtained or if any attempted assignment
would be ineffective or would impair the Buyer's rights and obligations under
the Seller's Agreement in question so that the Buyer would not in effect acquire
the benefit of all such rights and obligations, the Seller, to the maximum
extent permitted by law and such Seller's Agreement, shall after the Closing,
appoint the Buyer to be the Seller's representative and agent with respect to
such Seller's Agreement, and the Seller shall, to the maximum extent permitted
by law and such Seller's Agreement, enter into such reasonable arrangements with
the Buyer as are necessary to provide the Buyer with the benefits and
obligations of such Seller's Agreement. The Seller and the Buyer shall cooperate
and shall each use their commercially reasonable efforts after the Closing to
obtain an assignment of such Seller's Agreement to the Buyer.

            7.5. Public Statements. The parties shall consult with each other
prior to issuing any public announcement, statement or other disclosure with
respect to

                                      -42-
<PAGE>   47

this Agreement or the transactions contemplated hereby and shall not issue any
such public announcement, statement or other disclosure prior to such
consultation, except as may be required by law and except that the parties may
make public announcements, statements or other disclosures with respect to this
Agreement and the transactions contemplated hereby to the extent and under the
circumstances in which the parties are expressly permitted by the
Confidentiality Agreement to make disclosures of "Proprietary Information" (as
defined in the Confidentiality Agreement).

            7.6. Consents and Approvals. (a) The Seller and the Buyer shall each
file or cause to be filed with the Federal Trade Commission and the United
States Department of Justice any notifications required to be filed under the
HSR Act and the rules and regulations promulgated thereunder with respect to the
transactions contemplated hereby. The parties shall consult with each other as
to the appropriate time of filing such notifications and shall use their best
efforts to make such filings at the agreed upon time, to respond promptly to any
requests for additional information made by either of such agencies, and to
cause the waiting periods under the HSR Act to terminate or expire at the
earliest possible date after the date of filing.

            (b) The Seller and the Buyer shall cooperate with each other and (i)
promptly prepare and file all necessary documentation, (ii) effect all necessary
applications, notices, petitions and filings and execute all agreements and
documents, (iii) use all commercially reasonable efforts to obtain all necessary
consents, approvals and authorizations of all governmental bodies and (iv) use
all commercially reasonable efforts to obtain all necessary consents, approvals
and authorizations of all other parties, in the case of each of the foregoing
clauses (i), (ii), (iii) and (iv), necessary or advisable to consummate the
transactions contemplated by this Agreement (including, without limitation, the
Seller Required Regulatory Approvals and the Buyer Required Regulatory
Approvals) or required by the terms of any note, bond, mortgage, indenture, deed
of trust, license, franchise, permit, concession, contract, lease or other
instrument to which the Seller or the Buyer is a party or by which either of
them is bound. Each of the Seller and the Buyer shall have the right to review
in advance all characterizations of the information relating to the transactions
contemplated by this Agreement which appear

                                      -43-
<PAGE>   48

in any filing made in connection with the transactions contemplated hereby.

            (c) The Seller and the Buyer shall cooperate with each other and
promptly prepare and file notifications with, and request tax clearances from,
state and local taxing authorities in jurisdictions in which a portion of the
Purchase Price may be required to be withheld or in which the Buyer would
otherwise be liable for any Tax liabilities of the Seller pursuant to such state
and local Tax law.

            7.7. Fees and Commissions. The Seller and the Buyer each represent
and warrant to the other that, except for Merrill Lynch & Co. and Donaldson
Lufkin & Jenrette Securities Corporation, which are acting for and at the
expense of the Seller, no broker, finder or other Person is entitled to any
brokerage fees, commissions or finder's fees in connection with the transaction
contemplated hereby by reason of any action taken by the party making such
representation.

            7.8. Tax Matters. (a) Other than the New York Real Estate Transfer
Tax (the "New York Tax"), which is the Seller's obligation, the Buyer shall be
solely liable for and shall pay all applicable sales, transfer, use, stamp,
conveyance, value added, recording, excise, New York Petroleum Business Tax and
other similar Taxes, if any, together with all recording or filing fees,
notarial fees and other similar costs of Closing, that may be imposed upon, or
payable, collectible or incurred in connection with the transfer of the
Purchased Assets to the Buyer or otherwise as a result of the transfer of the
Purchased Assets ("Transfer Taxes"). The Buyer shall release, indemnify and hold
harmless Seller with respect to all Transfer Taxes, other than the New York Tax.
The Buyer, at its own expense, will file, to the extent required by applicable
law, all necessary Tax Returns and other documentation with respect to all such
Transfer Taxes, and if required by applicable law, the Seller will join in the
execution of any such Tax Returns or other documentation.

            (b) With respect to Taxes to be prorated in accordance with Section
3.4 of this Agreement only, the Buyer shall prepare and timely file all Tax
Returns required to be filed after the Closing with respect to the Purchased
Assets, if any, and shall duly and timely pay all such Taxes shown to be due on
such Tax Returns. The Buyer's prepara-

                                      -44-
<PAGE>   49

tion of any such Tax Returns shall be subject to the Seller's approval, which
approval shall not be unreasonably withheld. The Buyer shall make such Tax
Returns available for the Seller's review and approval not later than fifteen
(15) Business Days prior to the due date for filing such Tax Return. Within ten
(10) Business Days after receipt of such Tax Return, the Seller shall pay to the
Buyer its proportionate share of the amount shown as due on such Tax Return
determined in accordance with Section 3.4 of this Agreement.

            (c) Each of the Buyer and the Seller shall provide the other with
such assistance as may reasonably be requested by the other party in connection
with the preparation of any Tax Return, any audit or other examination by any
taxing authority, or any judicial or administrative proceedings relating to
liability for Taxes, and each will retain and provide the requesting party with
any records or information that may be relevant to such return, audit, or
examination, proceedings or determination. Any information obtained pursuant to
this Section 7.8(c) or pursuant to any other Section hereof providing for the
sharing of information or review of any Tax Return or other schedule relating to
Taxes shall be kept confidential by the parties hereto.

            (d) The Buyer shall remit to the Seller any refund or credit of
Taxes with respect to the Purchased Assets to the extent such Taxes are
attributable to any taxable period, or portion thereof, ending on or before the
Closing Date.

            (e) The Buyer shall pay to the Seller at Closing the portion of any
Taxes previously paid by the Seller with respect to the Purchased Assets to the
extent such Taxes are, pursuant to Section 3.4, properly allocable to a taxable
period, or portion thereof, beginning after the Closing Date.

            (f) The Buyer shall prepare and timely file all real property tax
administrative and judicial proceedings which must be filed pursuant to any
existing settlement agreements or those which are negotiated with respect to the
litigation on Schedule 2.2(h). The Seller will provide all reasonable and
necessary assistance in preparing such filings.

                                      -45-
<PAGE>   50

            (g) The provisions of this Section 7.8 are subject to Section 7.16
with respect to real property Taxes.

            7.9. Supplements to Schedules. Prior to the Closing Date, the Seller
and the Buyer shall supplement or amend the Schedules required by Section 2.4,
Article V and Article VI, as the case may be, with respect to any matter
relating to the Purchased Assets, hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or described in such Schedules. No supplement or amendment of any Schedule
made pursuant to this Section shall be deemed to cure any breach of any
representation or warranty made in this Agreement unless the parties agree
thereto in writing.

            7.10. Employees. (a) The Buyer and the Seller agree that the Buyer
shall be a successor within the meaning of the Collective Bargaining Agreement.
The Buyer agrees to offer employment to employees of the Seller's workforce
employed at, or whose work responsibilities involve principally the operation
of, the Purchased Assets (approximately 54 management and 145 bargaining unit
employees). Each person who becomes employed by the Buyer pursuant to this
Section 7.10 shall be referred to herein as a "Buyer Employee." The employment
of employees who are represented by Local No. 97 of the IBEW shall continue in
accordance with the Collective Bargaining Agreement.

            (b) The Seller has made available to the Buyer the Collective
Bargaining Agreement. With respect to Buyer Employees who are included in the
collective bargaining unit covered by the Collective Bargaining Agreement ("IBEW
Employees"), on the Closing Date, the Buyer will assume the Collective
Bargaining Agreement as it relates to such Buyer Employees employed at the
purchased Assets and shall agree and become party to and bound by the terms and
conditions of the Collective Bargaining Agreement.

            (c) For the period commencing on the Closing Date and ending 12
months thereafter, and except as otherwise provided in Section 7.10(i) or as the
Buyer and any Buyer Employee may otherwise agree, the Buyer shall provide all
Buyer Employees who are not IBEW Employees ("Non-Union Employees") with total
compensation (including, without limitation, base pay, authorized overtime,
bonuses, and benefits contained in the employee benefit plans, programs and
fringe benefit arrangements (excluding education

                                      -46-
<PAGE>   51

reimbursement)) which is, in the aggregate, at least equivalent in value to the
Non-Union Employee's total compensation, which shall be based upon (x) such
employee's existing individual base pay, (y) authorized overtime, if applicable,
and (z) an average bonus and benefit component for such employee's salary plan
level, as consistently applied by the Seller, apportioned according to such
employee's base pay. The Buyer shall also pay reasonable relocation costs with
respect to any Non-Union Employees who shall relocate at the Buyer's request.

            (d) As of the Closing Date, all Non-Union Employees shall cease to
participate in the employee welfare benefit plans (as such term is defined in
ERISA) maintained or sponsored by the Seller or its Affiliates (the "Prior
Welfare Plans") and shall, if applicable, commence to participate in welfare
benefit plans of the Buyer or its Affiliates (the "Replacement Welfare Plans").
The Buyer shall (i) waive all limitations as to pre-existing condition
exclusions and waiting periods with respect to Non-Union Employees under the
Replacement Welfare Plans, other than, but only to the extent of, limitations or
waiting periods that were in effect with respect to such employees under the
Prior Welfare Plans and that have not been satisfied as of the Closing Date, and
(ii) provide each Non-Union Employee with credit for any co-payments and
deductibles paid prior to the Closing Date in satisfying any deductible or
out-of-pocket requirements under the Replacement Welfare Plans (on a pro-rata
basis in the event of a difference in plan years).

            (e) Non-Union Employees shall be given credit for all service with
the Seller and its Affiliates under all employee benefit plans, programs, and
fringe benefit plans, programs, and fringe benefit arrangements of the Buyer
("Buyer Benefit Plans") in which they become participants. The service credit
given is for purposes of eligibility, vesting and service related level of
benefits, but not benefit accrual (except as provided in the following
sentence). Except as otherwise provided in Section 7.10(i), for purposes of
benefit accrual, Non-Union Employees shall be given credit for all service with
the Seller and its Affiliates under all Buyer Benefit Plans, but the ultimate
benefits provided under the Buyer Benefit Plans may be offset by the
corresponding benefits previously provided by the Seller or benefit plans of the
Seller, or by the corresponding benefits accrued under the benefit plans of

                                      -47-
<PAGE>   52

the Seller or otherwise committed to be provided by the Seller in the future.

            (f) To the extent allowable by law, the Buyer shall take any and all
necessary action to cause the trustee of a defined contribution plan of the
Buyer or one of its Affiliates, if requested to do so by a Non-Union Employee,
to accept a direct "rollover" of all or a portion of said employee's
distribution (excluding securities) from the Seller's Represented and
Non-Represented Employees Savings Fund Plans or the defined benefit Pension
Plan.

            (g) In addition to the Buyer's obligations with respect to the
Employee Transition Cost set forth in Section 4.2, the Buyer shall pay to each
Non-Union Employee whose employment is terminated by the Buyer or one of its
Affiliates within eighteen months of the Closing Date a severance benefit
package equivalent to that which would have been provided to such individual
upon such termination by the Seller under the Niagara Mohawk Power Corporation
Involuntary Severance Plan as in effect on the Closing Date had such individual
remained continuously employed by the Seller or its Affiliates and had been
eligible for, and entitled to benefits under, such plan on the date of such
termination.

            (h) The Buyer and the Seller do not anticipate the issuance of any
notices pursuant to the WARN Act. Notwithstanding the foregoing, the Seller
agrees to timely perform and discharge all requirements under the WARN Act and
under applicable state and local laws and regulations for the notification of
its employees arising from the sale of the purchased Assets to the Buyer up to
and including the Closing Date for those employees who will become Buyer
Employees effective as of the Closing Date. After the Closing Date, the Buyer
shall be responsible for performing and discharging all requirements under the
WARN Act and under applicable state and local laws and regulations for the
notification of its employees with respect to the Purchased Assets.

            (i) Effective as of the Closing Date, the Buyer shall cause to be
established a defined benefit pension plan for the benefit of the Buyer
Employees (the "Buyer's Defined Benefit Plan"). The Buyer's Defined Benefit Plan
shall have the same terms as the Niagara Mohawk Pension Plan as of the Closing
Date, and the Buyer agrees to maintain such terms

                                      -48-
<PAGE>   53

for Non-Union Employees for a period of at least seven (7) years after the
Closing Date (provided, however, that if changes in the law require any such
terms to be modified, the Buyer may change such terms to the extent necessary to
comply with such laws). The Buyer Employees shall be given credit in the Buyer's
Defined Benefit Plan for all service with and compensation from the Seller and
its Affiliates as if it were service with and compensation from the Buyer for
purposes of determining eligibility for benefits, the amount of any benefits or
benefit accruals, vesting, and service related levels of benefits under the
Buyer's Defined Benefit Plan.

            In connection with the foregoing, the following actions shall be
taken as of the Closing Date:

            (i) At the time specified in subparagraph (iv) below, the Seller
      shall cause to be transferred to the Buyer's Defined Benefit Plan assets
      equal to the Projected Benefit Obligation ("PBO"), as determined in
      accordance with the 1999 actuarial assumptions as set forth in the 1998
      year-end disclosure of the Seller under Financial Accounting Standards
      Board Statement 87 (the "Assumptions"), attributable to the Buyer
      Employees as of the Closing Date, together with interest at an annual rate
      that is equivalent to the discount rate set forth in the Assumptions for
      the period from the Closing Date to the date of the actual transfer of
      assets and adjusted for benefit payments under the Niagara Mohawk Pension
      Plan made pursuant to subparagraph (v) below; provided, however, that if
      the Seller is unable to transfer an amount equal to the PBO, then: (A) the
      Seller shall transfer an amount equal to the accumulated benefit
      obligation ("ABO"), whether or not vested, as determined in accordance
      with the Assumptions, and which is attributable to the Buyer Employees as
      of the Closing Date; and (B) the Seller shall pay to the Buyer in cash the
      amount of the difference between the PBO and the ABO. The transfer of
      either the PBO or ABO amount under this subparagraph (i) shall be made in
      accordance with Section 414(l) of the Code and Treasury Regulation
      Section 1.414(1)-i.

            (ii) The PBO and the ABO shall be calculated in accordance with
      Assumptions, and using an annual interest rate credit of 5.2%.

                                      -49-
<PAGE>   54

            (iii) All assets transferred under subparagraph (i) shall be
      transferred in cash, or in marketable securities that are reasonably
      acceptable to the Buyer.

            (iv) Within 45 days after the Closing Date, the Seller shall file or
      cause to be filed any Forms 5310-A that may be required to be submitted to
      the IRS in connection with the transfer described in subparagraph (i). The
      transfer described in subparagraph (i) shall be made as soon as
      practicable following the determination of the amount described in
      subparagraph (i), but in no event prior to the thirtieth (30th) day
      following the filing of such Forms 5310-A with the IRS or, in the event
      that the IRS, the Pension Benefit Guaranty Corporation ("PBGC") or any
      other Governmental Entity raises any objections to the transfer, the date
      as of which the IRS, the PBGC or other Governmental Entity withdraws such
      objections or is satisfied that the terms of the transfer have been
      modified to the extent necessary to meet such objections.

            (v) Upon completion of the transfer under subparagraph (i), all
      benefit payments from the Buyer's Defined Benefit Plan shall be the
      responsibility of the Buyer. Pending completion of the transfer under
      subparagraph (i), any benefits that are payable to the Buyer Employees
      under the Buyer's Defined Benefit Plan shall be paid or continue to be
      paid out of the Niagara Mohawk Pension Plan, and the amount to be
      transferred under subparagraph (i) shall be reduced by the amount of such
      payments. Pending the completion of such transfer, the Seller will
      cooperate with the Buyer with respect to plan administration, including
      the disbursement of benefits.

            The Seller agrees that it shall use its reasonable best efforts to
accomplish the transfer of assets described in subparagraph (i) of this Section
7.10(i); provided, however, that if the Seller determines in good faith that it
is unable to make such a transfer, then, notwithstanding the language in this
Section 7.10(i), the Seller and the Buyer agree to negotiate a mutually
agreeable resolution of the defined benefits issues in this Section 7.10(i) that
provides the Buyer and the Seller the economic equivalent of Section 7.10(i)
above.

                                      -50-
<PAGE>   55

            7.11. Risk of Loss. (a) Except with respect to those contracts and
commitments entered into pursuant to Section 7.1(d) (iii), from the date hereof
through the Closing Date, all risk of loss or damage to the property included in
the Purchased Assets shall be borne by the Seller.

            (b) If, before the Closing Date, all or any portion of the Purchased
Assets is taken by eminent domain or is the subject of a pending or (to the
knowledge of the Seller) contemplated taking which has not been consummated, the
Seller shall notify the Buyer promptly in writing of such fact. If the fair
market value of the Purchased Assets that are the subject of, or are adversely
affected by, such taking exceeds $1,000,000, (as estimated in good faith by the
Buyer based on the parties' allocation (or proposed allocation) of the Purchase
Price under Section 3.3) but such taking shall not result in a Material Adverse
Effect, the Buyer and the Seller shall agree on an appropriate adjustment to the
Purchase Price. If such taking would create a Material Adverse Effect, the Buyer
and the Seller shall negotiate in good faith to settle the loss resulting from
such taking (including, without limitation, by making a fair and equitable
adjustment to the Purchase Price) and, upon such settlement, consummate the
transaction contemplated by this Agreement pursuant to the terms of this
Agreement. If no such settlement is reached within sixty (60) days after the
Seller has notified the Buyer of such taking, the Buyer or the Seller may
terminate this Agreement pursuant to Section 10.1(f).

            (c) If, before the Closing Date, all or any material portion of the
Purchased Assets is damaged or destroyed by fire or other Casualty, the Seller
shall notify the Buyer promptly in writing of such fact. If such damage or
destruction is reasonably estimated by Buyer to cost in excess of $1,000,000 to
repair or replace the Purchased Assets that are the subject of such Casualty but
such damage or destruction shall not result in a Material Adverse Effect, the
Buyer and the Seller shall agree on an appropriate adjustment to the Purchase
Price. If such damage or destruction would create a Material Adverse Effect and
the Seller has not notified the Buyer of its intention to cure such damage or
destruction within fifteen (15) days after its occurrence, the Buyer and the
Seller shall negotiate in good faith to settle the loss resulting from such
Casualty (including, without limitation, by making a

                                      -51-
<PAGE>   56

fair and equitable adjustment to the Purchase Price) and, upon such settlement,
consummate the transactions contemplated by this Agreement pursuant to the terms
of this Agreement. If no such settlement is reached within sixty (60) days after
the Seller has notified the Buyer of such casualty, the Buyer or the Seller may
terminate this Agreement pursuant to Section 10.1(f).

            7.12. Tax Clearance Certificates. The Buyer shall use reasonable
efforts to provide or obtain from any taxing authority any certificate, permit,
license, or other document necessary to mitigate, reduce or eliminate any Taxes
(including additions thereto or interest and penalties thereon) that otherwise
would be imposed with respect to the transactions contemplated in this
Agreement.

            7.13. NYSERDA Compliance. Following the Closing, the Buyer agrees to
comply with the Seller's obligations with respect to the ownership and operation
of the Purchased Assets set forth in the participation agreements and tax
regulatory agreements listed on Schedule 7.13.

            7.14. Remote Terminal Units. With respect to the remote terminal
units listed on Schedule 7.14 (the "RTUs"), the Seller shall continue to lease
such RTUs for the benefit of the Buyer for the life of the leases and the Buyer
shall promptly, but no later than 10 days after receipt of a statement from the
Seller, reimburse the Seller for all such lease payments. Upon the expiration of
such leases, all of the Seller's rights in such RTUs shall, without any further
payment, vest in the Buyer.

            7.15. Access to Sites. The Seller's agents and representatives shall
be granted access to any property which contains any environmental Excluded
Liability during regular business hours upon prior notice, for purposes of
remediation and/or monitoring and inspection of such Excluded Liability,
provided that such access shall be limited to reasonable access upon reasonable
advance notice and shall be limited to such access as will not materially
interfere with the Buyer's conduct of its operations at such site.

            7.16 Real Property Taxes. (a) Prior to Closing, Seller shall have
the right to control all real property tax litigation and administrative
proceedings

                                      -52-
<PAGE>   57

relating to the Hydroelectric Real Property, including the matters listed on
Schedule 7.16. Buyer shall have the right (i) to require Seller to commence
litigation or administrative proceedings relating to real property Taxes for the
Hydroelectric Real Property at requested values determined by Buyer, (ii) to
receive reasonable advance notice of all proceedings and conferences relating
thereto and, to the extent not prohibited by the relevant taxing authority, to
observe all such conferences and proceedings, (iii) to receive copies of all
notices, determinations, and filings received by Seller in connection therewith
promptly after Seller's receipt thereof, (iv) to receive copies of pleadings,
filings and other submissions to be made by Seller not later than 5 Business
Days in advance of Seller's submission thereof, and (v) to consent to all
settlements or consent orders entered into by Seller with respect to real
property tax litigation and administrative proceedings relating to the
Hydroelectric Real Property, such consent not to be unreasonably withheld.

            (b) From and after the Closing, Buyer shall have the right to assume
control of all real property tax litigation and administrative proceedings
relating to the Hydroelectric Real Property pending as of the Closing Date
(other than the Trenton Hydro litigation (Trenton, County of Oneida) and the
Moshier Hydro litigation (Webb, County of Herkiner), the control of which will
remain subject to Section 7.16(a) after the Closing Date), including the matters
listed on Schedule 7.16. With respect to any such litigation and administrative
proceedings, Seller shall have the right (i) to receive reasonable advance
notice of all proceedings and conferences relating thereto and, to the extent
not prohibited by the relevant taxing authority, to observe all such conferences
and proceedings, (ii) to receive copies of all notices, determinations, and
filings received by Buyer in connection therewith promptly after Buyer's receipt
thereof, (iii) to receive copies of pleadings, filings and other submissions to
be made by Buyer not later than five (5) Business Days in advance of Buyer's
submission thereof, and (iv) to consent to all settlements or consent orders
entered into by Buyer with respect to real property tax litigation and
administrative proceedings relating to the Hydroelectric Real Property, such
consent not to be unreasonably withheld.

            (c) Seller shall cooperate with, and provide reasonable assistance
to, Buyer in connection with the

                                      -53-
<PAGE>   58

conduct of all real property tax litigation and administrative proceedings
conducted after the Closing Date, including the right to use and consult with
personnel of Seller principally responsible for management of Seller's
relationships with the relevant real property taxing authorities and negotiation
and litigation and administrative proceedings with such authorities regarding
real property tax assessments.

            (d) Seller shall have the right to retain all cash real property Tax
refunds and any interest thereon (collectively, "Tax Refunds") received prior to
the Closing Date (or, in the case of the Spier Falls Hydro litigation (Moreau,
County of Saratoga), Tax Refunds received in respect of any initial judgment
obtained prior to the Closing Date) in respect of real property Taxes paid with
respect to the Hydroelectric Real Property.

            (e) Subject to Section 7.16(f) below, Buyer shall have the right to
receive and retain all cash Tax Refunds received after the Closing Date (whether
received by Buyer or Seller) in respect of, and all real property Tax savings
(including savings realized under pilot agreements or similar agreements)
realized after the Closing Date as a result of assessment reductions achieved
after the date of this Agreement in respect of real property Taxes paid or
assessed with respect to the Hydroelectric Real Property prior to the Closing
Date.

            (f) Buyer will pay to Seller no less frequently than annually
twenty-five percent (25%) of (i) the amount of all cash Tax Refunds received
after the Closing Date and (ii) the amount of all real property Tax savings
realized by the Buyer after the Closing Date as a result of assessment
reductions achieved in respect of real property Taxes paid or assessed with
respect to the Hydroelectric Real Property prior to, at or after the Closing
Date (in each case, net of the reasonable expenses incurred by Buyer and Seller
in connection with the related litigation and settlement negotiations), but only
to the extent that the aggregate payments made by Buyer to Seller under this
Section 7.16(f) do not exceed $20,000,000.

            7.17 Ownership Interest in Certain Facilities. The parties agree
that if on the Closing Date Seller is unable to convey a 100% ownership interest
in each of the Black River/Beebee Island facility (project no. 2538) and

                                      -54-
<PAGE>   59

the Hudson River/Feeder Dan facility (project no. 2554) to Buyer, the parties
will in good faith negotiate an appropriate reduction to the Purchase Price.

                                  ARTICLE VIII

                                   CONDITIONS

            8.1. Conditions to Each Party's Obligations to Effect the
Transaction. The respective obligations of each party to effect the sale of the
Purchased Assets shall be subject to the fulfillment at or prior to the Closing
Date of the following conditions:

            (a) The waiting period under the HSR Act applicable to the
consummation of the sale of the Purchased Assets contemplated hereby shall have
expired or been terminated;

            (b) No preliminary or permanent injunction or other order or decree
by any federal or state court which prevents the consummation of the sale of the
Purchased Assets contemplated hereby shall have been issued and remain in effect
(each party agreeing to use reasonable best efforts to have any such injunction,
order or decree lifted) and no statute, rule or regulation shall have been
enacted by any State or Federal government or governmental agency in the United
States which prohibits the consummation of the sale of the Purchased Assets;

            (c) All Federal, State and local government consents and approvals
required for the consummation of the sale of the Purchased Assets and the Seller
Required Regulatory Approvals and the Buyer Required Regulatory Approvals, shall
have been obtained or become Final Orders (a "Final Order" for all purposes of
this Agreement means a final order after all opportunities for rehearing are
exhausted (whether or not any appeal thereof is pending) that has not been
revised, stayed, enjoined, set aside, annulled or suspended, with respect to
which any required waiting period has expired; and as to which all conditions to
effectiveness prescribed therein or otherwise by law, regulation or order have
been satisfied) and such Final Orders shall not impose materially adverse terms
or conditions on either the Seller or the Buyer, provided that either such party
may only invoke the foregoing condition if

                                      -55-
<PAGE>   60

the terms or conditions have such a material adverse effect on the benefits
expected to be derived from the consummation of the transactions contemplated
hereby that such party reasonably would not have been expected to enter into
this Agreement on the terms hereof if such terms or conditions had been known as
of the date hereof; and

            (d) All consents and approvals for the consummation of the sale of
the Purchased Assets contemplated hereby required under the terms of any note,
bond, mortgage, indenture, contract or other agreement to which the Seller or
the Buyer, or any of their subsidiaries, is a party shall have been obtained,
other than those (i) which if not obtained, would not, in the aggregate, create
a Material Adverse Effect, or (ii) which are governed by Section 7.4(c).

            8.2. Conditions to Obligations of the Buyer. The obligation of the
Buyer to effect the purchase of the Purchased Assets contemplated by this
Agreement shall be subject to the fulfillment at or prior to the Closing Date of
the following additional conditions:

            (a) There shall not have occurred and be continuing a Material
Adverse Effect;

            (b) The Seller shall have performed and complied with in all
material respects the covenants and agreements contained in this Agreement that
are required to be performed and complied with by the Seller on or prior to the
Closing Date, and the representations and warranties of the Seller set forth in
this Agreement shall be true and correct as of the date of this Agreement and as
of the Closing Date as though made at and as of the Closing Date;

            (c) There shall be no Encumbrances on the Purchased Assets by virtue
of the Indenture;

            (d) The Buyer shall have received certificates from authorized
officers of the Seller, dated the Closing Date, to the effect that, to the best
of such officers' knowledge, the conditions set forth in Sections 8.2(a), (b)
and (c) have been satisfied;

            (e) The Buyer shall have received opinions from Sullivan & Cromwell
and Swidler & Berlin, dated the Closing

                                      -56-
<PAGE>   61

Date and satisfactory in form and substance to the Buyer and its counsel,
substantially to the effect that:

                  (1) The Seller is a corporation duly organized, existing and
      in good standing under the laws of New York and the Seller has the
      corporate power and authority to execute and deliver this Agreement and
      the Ancillary Agreements and to consummate the transactions contemplated
      hereby and thereby; and the execution and delivery of this Agreement and
      such Ancillary Agreements and the consummation of the sale of the
      Purchased Assets contemplated hereby have been duly authorized by all
      requisite corporate action taken on the part of the Seller;

                  (2) This Agreement and the Ancillary Agreements have been duly
      executed and delivered by the Seller and (assuming that the Seller
      Required Regulatory Approvals and the Buyer Required Regulatory Approvals
      are obtained) are valid and binding obligations of the Seller, enforceable
      against the Seller in accordance with their terms, (A) subject to the
      Bankruptcy and Equity Exception and (B) except that the remedy of specific
      performance and injunctive and other forms of equitable relief may be
      subject to certain equitable defenses and to the discretion of the court
      before which any proceeding therefor may be brought;

                  (3) The execution and delivery and performance of this
      Agreement and the Ancillary Agreements by the Seller do not conflict with
      the Certificate of Incorporation or Bylaws, as currently in effect, of the
      Seller; and

                  (4) No declaration, filing or registration with, or notice to,
      or authorization, consent or approval of any governmental authority is
      necessary for the consummation by the Seller of the Closing other than (i)
      the Seller Required Regulatory Approvals, all of such Seller Required
      Regulatory Approvals hereunder having been obtained and being in full
      force and effect with such terms and conditions as shall have been imposed
      by any applicable governmental authority,

                                      -57-
<PAGE>   62

      and (ii) such declarations, filings, registrations, notices,
      authorizations, consents or approvals which, if not obtained or made,
      would not, in the aggregate create a Material Adverse Effect.

            As to any matter contained in such opinions which involves the laws
of any jurisdiction other than the Federal laws of the United States or the laws
of the State of New York, such counsel may rely upon opinions of counsel
admitted in such other jurisdictions. Any opinions relied upon by such counsel
as aforesaid shall be delivered together with the opinion of such counsel. Such
opinions may expressly rely as to matters of fact upon certificates furnished by
the Seller and appropriate officers and directors of the Seller and by public
officials.

            (f) The Buyer shall be reasonably satisfied that all material
Environmental Permits and material Permits will be transferred to the Buyer or
obtained by the Buyer on or before the Closing Date; and

            (g) The Buyer shall have obtained title insurance policies for each
of the Hydroelectric Real Property sites, from a title insurance company or
companies reasonably acceptable to Buyer, issued on an ALTA Owner's Policy of
Title Insurance (10-17-92) with New York Endorsement Modifications, insuring
the property in the name of the Buyer, in the amount of the current fair market
value of the Hydroelectric Real Property and subject to only Permitted
Encumbrances.

            8.3. Conditions to Obligations of the Seller. The obligation of the
Seller to effect the sale of the Purchased Assets contemplated by this Agreement
shall be subject to the fulfillment at or prior to the Closing Date of the
following additional conditions:

            (a) The Buyer shall have performed in all material respects its
covenants and agreements contained in this Agreement which are required to be
performed on or prior to the Closing Date;

            (b) The representations and warranties of the Buyer set forth in
this Agreement shall be true and correct as of the date of this Agreement and as
of the Closing Date as though made at and as of the Closing Date;

                                      -58-
<PAGE>   63

            (c) The Seller shall have received a certificate from an authorized
officer of the Buyer, dated the Closing Date, to the effect that, to the best of
such officer's knowledge, the conditions set forth in Sections 8.3(a) and (b)
have been satisfied;

            (d) The Buyer shall have assumed, as set forth in Section 7.10, the
Collective Bargaining Agreement.

            (e) The Seller shall have received an opinion from Kirkland & Ellis,
counsel for the Buyer, dated the Closing Date and satisfactory in form and
substance to the Seller and their counsel, substantially to the effect that:

                  (l) The Buyer is a limited partnership duly organized,
      existing and in good standing under the laws of the State of Delaware and
      has the partnership power and authority to execute and deliver this
      Agreement and the Ancillary Agreements and to consummate the transactions
      contemplated hereby and thereby; and the execution and delivery of this
      Agreement and such Ancillary Agreements and the consummation of the sale
      of the Purchased Assets contemplated hereby have been duly authorized by
      all requisite partnership action taken on the part of the Buyer;

                  (2) This Agreement and the Ancillary Agreements have been duly
      executed and delivered by the Buyer and (assuming that the Seller Required
      Regulatory Approvals and the Buyer Required Regulatory Approvals are
      obtained) are valid and binding obligations of the Buyer, enforceable
      against the Buyer in accordance with their terms, (A) subject to the
      Bankruptcy and Equity Exception and (B) except that the remedy of specific
      performance and injunctive and other forms of equitable relief may be
      subject to certain equitable defenses and to the discretion of the court
      before which any proceeding therefor may be brought;

                  (3) The execution and delivery and performance of this
      Agreement and the Ancillary Agreements by the Buyer does not conflict with
      the Certificate of Limited Partnership or Limited

                                      -59-
<PAGE>   64

      Partnership Agreement, as currently in effect, of the Buyer; and

                  (4) No declaration, filing or registration with, or notice to,
      or authorization, consent or approval of any governmental authority is
      necessary for the consummation by the Buyer of the Closing other than the
      Buyer Required Regulatory Approvals, all of such Buyer Required Regulatory
      Approvals having been obtained and being in full force and effect with
      such terms and conditions as shall have been imposed by any applicable
      governmental authority.

            As to any matter contained in such opinion which involves the laws
of any jurisdiction other than the federal laws of the United States, Delaware
and New York, such counsel may rely upon opinions of counsel admitted in such
other jurisdictions. Any opinions relied upon by such counsel as aforesaid shall
be delivered together with the opinion of such counsel. Such opinion may
expressly rely as to matters of facts upon certificates furnished by appropriate
officers and directors of the Buyer and its subsidiaries and by public
officials.

                                   ARTICLE IX

                                 INDEMNIFICATION

            9.1. Indemnification. (a) The Seller will indemnify, defend and hold
harmless the Buyer from and against any and all claims, demands or suits (by any
Person), losses, liabilities, damages (including consequential or special
damages), obligations, payments, costs and expenses (including, without
limitation, the costs and expenses of any and all actions, suits, proceedings,
assessments, judgments, settlements and compromises relating thereto and
reasonable attorneys' fees and reasonable disbursements in connection therewith)
(each, an "Indemnifiable Loss"), asserted against or suffered by the Buyer
relating to, resulting from or arising out of (i) any breach by the Seller of
any covenant or agreement of the Seller contained in this Agreement or the
representations and warranties contained in Sections 5.1, 5.2 or 5.3 hereof,
(ii) the Excluded Liabilities, (iii) noncompliance by the Seller with any bulk
sales or transfer laws as provided in

                                      -60-
<PAGE>   65

Section 11.11, or (iv) one-half of the costs in excess of $50,000 incurred
during the two years following the Closing Date in connection with the license
surrender and decommissioning of the hydroelectric generating and related assets
comprising the Stuyvesant Falls Project (No. 2696).

            (b) The Buyer will indemnify, defend and hold harmless the Seller
from and against any and all Indemnifiable Losses asserted against or suffered
by the Seller relating to, resulting from or arising out of (i) any breach by
the Buyer of any covenant or agreement of the Buyer contained in this Agreement
or the representations and warranties contained in Sections 6.1, 6.2 and 6.3
hereof and (ii) the Assumed Obligations.

            (c) Any Person entitled to receive indemnification under this
Agreement Can "Indemnitee") having a claim under these indemnification
provisions shall make a good faith effort to recover all losses, damages, costs
and expenses from insurers of such Indemnitee under applicable insurance
policies so as to reduce the amount of any Indemnifiable Loss hereunder. The
amount of any Indemnifiable Loss shall be reduced (i) to the extent that
Indemnitee receives any insurance proceeds with respect to an Indemnifiable Loss
and (ii) to take into account any net Tax benefit recognized by the Indemnitee
arising from the recognition of the Indemnifiable Loss and any payment actually
received with respect to an Indemnifiable Loss.

            (d) The expiration, termination or extinguishment of any covenant or
agreement shall not affect the parties' obligations under this Section 9.1 if
the Indemnitee provided the Person required to provide indemnification under
this Agreement (the "Indemnifying Party") with proper notice of the claim or
event for which indemnification is sought prior to such expiration, termination
or extinguishment.

            (e) The rights and remedies of the Seller and the Buyer under this
Article IX are exclusive and in lieu of any and all other rights and remedies
which the Seller and the Buyer may have under this Agreement or otherwise for
monetary relief with respect to (i) any breach or failure to perform any
covenant or agreement set forth in this Agreement or (ii) the Assumed
Obligations or the Excluded Liabilities, as the case may be.

                                      -61-
<PAGE>   66

            (f) The Buyer and the Seller each agree that notwithstanding any
provisions in this Agreement to the contrary, all parties to this Agreement
retain their remedies at law or in equity with respect to willful or intentional
breaches of this Agreement.

            (g) Any indemnity payment under this Agreement shall be treated as
an adjustment to the Purchase Price for tax purposes.

            9.2. Defense of Claims. (a) If any Indemnitee receives notice of the
assertion of any claim or of the commencement of any claim, action, or
proceeding made or brought by any Person who is not a party to this Agreement or
an Affiliate of a party to this Agreement (a "Third Party Claim") with respect
to which indemnification is to be sought from an Indemnifying Party, the
Indemnitee will give such Indemnifying party reasonably prompt written notice
thereof, but in any event not later than ten (10) calendar days after the
Indemnitee's receipt of notice of such Third Party Claim. Such notice shall
describe the nature of the Third Party Claim in reasonable detail and shall
indicate the estimated amount, if practicable, of the Indemnifiable Loss that
has been or may be sustained by the Indemnitee. The Indemnifying Party will have
the right to participate in or, by giving written notice to the Indemnitee, to
elect to assume the defense of any Third Party Claim at such Indemnifying
Party's own expense and by such Indemnifying Party's own counsel, and the
Indemnitee will cooperate in good faith in such defense at such Indemnitee's own
expense.

            (b) If within ten (10) calendar days after an Indemnitee provides
written notice to the Indemnifying Party of any Third Party Claim the Indemnitee
receives written notice from the Indemnifying Party that such Indemnifying Party
has elected to assume the defense of such Third Party Claim as provided in the
last sentence of Section 9.2(a), the Indemnifying Party will not be liable for
any legal expenses subsequently incurred by the Indemnitee in connection with
the defense thereof; provided, however, that if the Indemnifying Party fails to
take reasonable steps necessary to defend diligently such Third Party Claim
within twenty (20) calendar days after receiving notice from the Indemnitee that
the Indemnitee believes the Indemnifying Party has failed to take such steps,
the Indemnitee may assume its own defense, and the Indemnifying Party will be
liable for all reasonable expenses thereof. Without the

                                      -62-
<PAGE>   67

prior written consent of the Indemnitee, the Indemnifying Party will not enter
into any settlement of any Third Party Claim which would lead to liability or
create any financial or other obligation on the part of the Indemnitee for which
the Indemnitee is not entitled to indemnification hereunder. If a firm offer is
made to settle a Third Party claim without leading to liability or the creation
of a financial or other obligation on the part of the Indemnitee for which the
Indemnitee is not entitled to indemnification hereunder and the Indemnifying
Party desires to accept and agree to such offer, the Indemnifying Party will
give written notice to the Indemnitee to that effect. If the Indemnitee fails to
consent to such firm offer within ten (10) calendar days after its receipt of
such notice, the Indemnitee may continue to contest or defend such Third Party
Claim and, in such event, the maximum liability of the Indemnifying Party as to
such Third Party claim will be the amount of such settlement offer, plus
reasonable costs and expenses paid or incurred by the Indemnitee up to the date
of such notice.

            (c) Any claim by an Indemnitee on account of an Indemnifiable Loss
which does not result from a Third Party Claim (a "Direct Claim") will be
asserted by giving the Indemnifying Party reasonably prompt written notice
thereof, stating the nature of such claim in reasonable detail and indicating
the estimated amount, if practicable, and the Indemnifying Party will have a
period of thirty (30) calendar days within which to respond to such Direct
Claim. If the Indemnifying Party does not respond within such thirty (30)
calendar day period, the Indemnifying Party will be deemed to have accepted such
claim. If the Indemnifying Party rejects such claim, the Indemnitee will be free
to seek enforcement of its rights to indemnification under this Agreement.

            (d) If the amount of any Indemnifiable Loss, at any time subsequent
to the making of an indemnity payment in respect thereof, is reduced by
recovery, settlement or otherwise under or pursuant to any insurance coverage,
or pursuant to any claim, recovery, settlement or payment by or against any
other entity, the amount of such reduction, less any costs, expenses or premiums
incurred in connection therewith (together with interest thereon from the date
of payment thereof at the base rate then in effect of Citibank N.A., will
promptly be repaid by the Indemnitee to the Indemnifying Party. Upon making any
indemnity payment, the Indemnifying Party will, to the extent of such indemnity

                                      -63-
<PAGE>   68

payment, be subrogated to all rights of the Indemnitee against any third party
in respect of the Indemnifiable Loss to which the indemnity payment relates;
provided, however, that (i) the Indemnifying Party will then be in compliance
with its obligations under this Agreement in respect of such Indemnifiable Loss
and (ii) until the Indemnitee recovers full payment of its Indemnifiable Loss,
any and all claims of the Indemnifying Party against any such third party on
account of said indemnity payment is hereby made expressly subordinated and
subject in right of payment to the Indemnitee's rights against such third party.
Without limiting the generality or effect of any other provision hereof, each
such Indemnitee and Indemnifying Party will duly execute upon request all
instruments reasonably necessary to evidence and perfect the above-described
subrogation and subordination rights, and otherwise cooperate in the prosecution
of such claims at the direction of the Indemnifying Party. Nothing in this
Section 9.2(d) shall be construed to require any party hereto to obtain or
maintain any insurance coverage.

            (e) A failure to give timely notice as provided in this Section 9.2
will not affect the rights or obligations of any party hereunder except if, and
only to the extent that, as a result of such failure, the party which was
entitled to receive such notice was actually prejudiced as a result of such
failure.

            9.3. Tax Contest. (a) The Buyer shall notify the Seller in writing
within thirty (30) days of receipt of written notice of any Federal or State
pending or threatened audits, adjustments or assessments (a "Tax Audit"), which
may affect the Seller's liability for Taxes. If the Buyer fails to give such
notice to the Seller, the Buyer shall not be entitled to indemnification for any
Taxes arising in connection with such Tax Audit if such failure to give notice
adversely affects the Seller's right to participate in the Tax Audit.

            (b) (i) If such Tax Audit relates to any taxable period ending on or
before the Closing or for any Taxes for which the Seller is liable hereunder,
the Seller shall at its expense control the defense and settlement of such Tax
Audit; (ii) if such Tax Audit relates to any taxable period beginning after the
Closing for any Taxes, including without limitation Transfer Taxes as provided
in Section 7.8(a), for which the Buyer is liable in full hereunder, the Buyer
shall

                                      -64-
<PAGE>   69

at its expense control the defense and settlement of such Tax Audit, provided
the Seller shall be entitled to participate in such Tax Audit at its expense in
such defense and to employ counsel of its choice at its expense; and (iii) if
such Tax Audit relates to a taxable period, or portion thereof, beginning before
and ending after the Closing and any Tax item cannot be identified as being a
liability of either party or cannot be separated from a Tax item for which the
other party is liable, the Seller shall control the defense and settlement of
the Tax Audit.

            (c) The provisions of this Section 9.3 are subject to Section 7.16
with respect to real property Taxes.

                                    ARTICLE X

                           TERMINATION AND ABANDONMENT

            10.1. Termination. (a) This Agreement may be terminated at any time
prior to the Closing Date by mutual written consent of the Seller and the Buyer.

            (b) This Agreement may be terminated by the Seller or the Buyer if
the Closing contemplated hereby shall have not occurred on or before the first
anniversary of the date of this Agreement (the "Termination Date"); provided
that the right to terminate this Agreement under this Section 10.1(b)(i) shall
not be available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Closing to
occur on or before such date; and provided, further, that if on the first
anniversary of the date of this Agreement the conditions to the Closing set
forth in Section 8.1(c) shall not have been fulfilled but all other conditions
to the Closing shall be fulfilled or shall be capable of being fulfilled, then
the Termination Date shall be the day which is twenty-one months from the date
of this Agreement.

            (c) This Agreement may be terminated by the Seller or the Buyer if
(i) any governmental or regulatory body, the consent of which is a condition to
the obligations of the Seller and the Buyer to consummate the Closing shall have
determined not to grant its or their consent and all appeals of such
determination shall have been taken and have been unsuccessful, (ii) one or more
courts of competent,

                                      -65-
<PAGE>   70

jurisdiction in the United States or any State shall have issued an order,
judgment or decree permanently restraining, enjoining or otherwise prohibiting
the Closing, and such order, judgment or decree shall have become final and
nonappealable or (iii) any statute, rule or regulation shall have been enacted
by any State or Federal government or governmental agency in the United States
which prohibits the consummation of the Closing.

            (d) This Agreement may be terminated by the Buyer, if there has been
a material violation or breach by the Seller of any agreement, representation or
warranty contained in this Agreement which has rendered the satisfaction of any
condition to the obligations of the Buyer to effect the Closing impossible and
such violation or breach has not been waived by the Buyer.

            (e) This Agreement may be terminated by the Seller, if there has
been a material violation or breach by the Buyer of any agreement,
representation or warranty contained in this Agreement which has rendered the
satisfaction of any condition to the obligations of the Seller to effect the
Closing impossible and such violation or breach has not been waived by the
Seller.

            (f) This Agreement may be terminated by the Seller or the Buyer in
accordance with the provisions of Section 7.11(b) or (c).

            (g) This Agreement may be terminated by the Buyer if, at the time
all of the conditions contained in Article VIII have been satisfied or waived,
the Buyer after performing appropriate due diligence, does not in good faith
believe that the software, hardware, database and other similar or related items
of automated or computerized systems used by Seller in its operation of the
Purchased Assets will be Year 2000 Compliant by December 31, 1999, which failure
to be Year 2000 Compliant is reasonably likely to result in a Material Adverse
Effect. For purposes of this Agreement, an item is "Year 2000 Compliant" if it
will not malfunction, will not cease to function, will not generate incorrect
data, and will not produce incorrect results when processing, providing or
receiving (i) date-related data into and between the twentieth and twenty-first
centuries and (ii) date-related data in connection with any valid date in the
twentieth and twenty-first centuries.

                                      -66-
<PAGE>   71

            10.2. Procedure and Effect of Termination. In the event of
termination of this Agreement and abandonment of the transactions contemplated
hereby by either or both of the parties pursuant to Section 10.1, written notice
thereof shall forthwith be given by the terminating party to the other party and
this Agreement shall terminate and the transactions contemplated hereby shall be
abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided herein:

            (a) Said termination shall be the sole remedy of the parties hereto
with respect to breaches of any agreement, representation or warranty contained
in this Agreement and none of the parties hereto nor any of their respective
trustees, directors, officers or Affiliates, as the case may be, shall have any
liability or further obligation to the other party or any of their respective
trustees, directors, officers or Affiliates, as the case may be, pursuant to
this Agreement, except in each case as stated in this Section 10.2 and in
Sections 7.2(b), 7.3 and 7.7.

            (b) All filings, applications and other submissions made pursuant to
this Agreement, to the extent practicable, shall be withdrawn from the agency or
other Person to which they were made.

                                   ARTICLE XI

                            MISCELLANEOUS PROVISIONS

            11.1. Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by written agreement of
the Seller and the Buyer.

            11.2. Waiver of Compliance; Consents. Except as otherwise provided
in this Agreement, any failure of any of the parties to comply with any
obligation, covenant, agreement or condition herein may be waived by the party
entitled to the benefits thereof only by a written instrument signed by the
party granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Notwithstanding anything in

                                      -67-
<PAGE>   72

this Agreement to the contrary, the condition set forth in Section 8.3(d) cannot
be waived by the Seller without the consent of the IBEW.

            11.3. No Survival. Subject to the provisions of Section 9.2, each
and every representation, warranty and covenant contained in this Agreement
(other than the covenants contained in Sections 3.2, 3.3, 3.4, and in Articles
VII, IX and XI (which covenants shall survive in accordance with their terms)
and other than the representations and warranties contained in Sections 5.1, 5.2
and 5.3 (which representations and warranties shall survive for eighteen months
from the Closing)) shall expire with, and be terminated and extinguished by the
consummation of the sale of the Purchased Assets and the transfer of the Assumed
Obligations pursuant to this Agreement and such representations, warranties and
covenants shall not survive the Closing Date; and none of the Seller, the Buyer
or any officer, director, trustee or Affiliate of any of them shall be under any
liability whatsoever with respect to any such representations, warranty or
covenant.

            11.4. Notices. All notices and other communications hereunder shall
be in writing an shall be deemed given if delivered personally or by facsimile
transmission, telexed or mailed by overnight courier or registered or certified
mail (return receipt requested), postage prepaid, to the parties at the
following address (or at such other address for a party as shall be specified by
like notice; provided that notices of a change of address shall be effective
only upon receipt thereof):

              (a) If to the Seller, to:

                  Niagara Mohawk Power Corporation
                  300 Erie Boulevard West
                  Syracuse, NY 13202
                  Facsimile: (315)428
                  Attention: Michael J. Kelleher

                  with a copy to:

                  Sullivan & Cromwell
                  1701 Pennsylvania Avenue, N.W.
                  Washington, D.C. 20006
                  Facsimile: (202) 293-6330
                  Attention: Janet T. Geldzahler, Esq.

                                      -68-
<PAGE>   73

                  Swidler & Berlin
                  3000 K Street, N.W.
                  Washington, D.C. 20007
                  Facsimile: (202) 424-7501
                  Attention: Steven Agresta

              (b) If to the Buyer, to:

                  c/o Orion Power Holdings, Inc.
                  111 Market Place, Suite 520
                  Baltimore, MD 21202
                  Facsimile: (410) 468-3699
                  Attention: Jack A. Fusco

                  with a copy to:
                  Kirkland & Ellis
                  655 15th Street, N.W., Suite #1200
                  Washington, D.C. 20005
                  Facsimile: (202) 879-5200
                  Attention: Michael T. Edsall

            11.5. Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any party
hereto, including by operation of law without the prior written consent of the
other party, nor is this Agreement intended to confer upon any other Person
except the parties hereto any rights or remedies hereunder; provided, however
that Employees may have claims under Sections 2.3(a)(iv) and 7.10.
Notwithstanding the foregoing, no provision of this Agreement shall create any
third party beneficiary rights in any employee or former employee of the Seller
(including any beneficiary or dependent thereof) in respect of continued
employment or resumed employment, and no provision of this Agreement shall
create any rights in any such Persons in respect of any benefits that may be
provided, directly or indirectly, under any employee benefit plan or arrangement
except as expressly provided for thereunder. Notwithstanding the foregoing, (i)
the Buyer may assign all of its rights and obligations hereunder to any of its
wholly owned Subsidiaries (direct or indirect) provided but no such assignment
will release the Buyer from any liabilities or obligations hereunder, (ii) the
Buyer or its permitted assignee may assign, transfer, pledge or otherwise
dispose of its rights and interests

                                      -69-
<PAGE>   74

hereunder to a trustee or lending institution(s) for the purposes of financing
or refinancing, or by way of assignments, transfers, conveyances or dispositions
in lieu thereof; provided, however, that no such assignment or disposition shall
relieve or in any way discharge the Buyer or such assignee from the performance
of its duties and obligations under this Agreement and (iii) the Buyer or its
permitted assignee may assign its rights and obligations under the provisions of
this Agreement that relate to the employment, management and compensation of
Buyer Employees to any Person engaged by the Buyer or its permitted assignee to
operate the purchased Assets on its behalf and to employ, manage and compensate
Buyer Employees. The Seller agrees to execute and deliver such documents as may
be reasonably necessary to accomplish any such assignment, transfer, conveyance,
pledge or disposition of rights hereunder so long as the Seller's rights under
this Agreement are not thereby altered, amended, diminished or otherwise
impaired.

            11.6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (regardless of
the laws that might otherwise govern under applicable New York principles of
conflicts of law) as to all matters, including but not limited to matters of
validity, construction, effect, performance and remedies, except where New York
law is preempted by federal law in which event federal law shall govern.

            11.7. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

            11.8. Interpretation. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.

            11.9. Schedules and Exhibits. All Exhibits and Schedules referred to
herein are intended to be and hereby are specifically made a part of this
Agreement.

            11.10. Entire Agreement. This Agreement, the Confidentiality
Agreement and the Ancillary Agreements including the Exhibits, Schedules,
documents, certificates

                                      -70-
<PAGE>   75

and instruments referred to herein or therein, embody the entire agreement and
understanding of the parties hereto in respect of the transactions contemplated
by this Agreement. There are no restrictions, promises, representations,
warranties, covenants or undertakings, other than those expressly set forth or
referred to herein or therein. It is expressly acknowledged and agreed that
there are no restrictions, promises, representations, warranties, covenants or
undertakings contained in any material made available to the Buyer pursuant to
the terms of the Confidentiality Agreement (including the Preliminary
Information Memorandum, dated April 1998, the Information Memorandum, dated May
1998, or the Request for Proposal, dated July 1998, previously made available to
the Buyer by the Seller, Merrill Lynch & Co. and Donaldson, Lufkin & Jenrette
Securities Corporation). This Agreement supersedes all prior agreements and
understandings between the parties with respect to such transactions other than
the Confidentiality Agreement.

            11.11. Bulk Sales or Transfer Laws. The Buyer acknowledges that the
Seller will not comply with the provision of any bulk sales or transfer laws
(other than ss. 1141(c) of the New York State Tax Law) of any jurisdiction in
connection with the transactions contemplated by this Agreement. The Buyer
hereby waives compliance by this Seller with the provisions of the bulk sales or
transfer laws of all applicable jurisdictions.

                                      -71-
<PAGE>   76

            IN WITNESS WHEREOF, the Seller and the Buyer have caused this
agreement to be signed by their respective duly authorized representatives as of
the date first above written.

                                               NIAGARA MOWHAWK POWER CORPORATION

                                               By: /s/ Michael J. Kelleher
                                                  ------------------------------
                                                   Name: Michael J. Kelleher
                                                   Title: VP Financial Planning

                                               ERIE BOULEVARD HYDROPOWER, L.P.

                                               By Orion Power New York GP, Inc.,
                                                  Its General Partner

                                               By:
                                                  ------------------------------
                                                   Name:
                                                   Title:
<PAGE>   77

            IN WITNESS WHEREOF, the Seller and the Buyer have caused this
agreement to be signed by their respective duly authorized representatives as of
the date first above written.

                                               NIAGARA MOWHAWK POWER CORPORATION

                                               By:
                                                  ------------------------------
                                                   Name:
                                                   Title:

                                               ERIE BOULEVARD HYDROPOWER, L.P.

                                               By Orion Power New York GP, Inc.,
                                                  Its General Partner

                                               By: /s/ Jack A. Fusco
                                                  ------------------------------
                                                   Name: Jack A. Fusco
                                                   Title: President
<PAGE>   78

                                                                       EXHIBIT A

                               NINE MILE POINT ONE
                        EMERGENCY POWER SUPPLY AGREEMENT
                  (Bennetts Bridge Hydro Development Facility)

      This Nine Mile Point One Emergency Power Supply Agreement (the
"Agreement") is entered into as of this ______ day of __________, 1998 between
Niagara Mohawk Power Corporation ("Niagara Mohawk"). a New York corporation and
Erie Boulevard Hydropower, L.P. ("Buyer") a Delaware limited partnership (each
individually a "Party" and collectively the "Parties").

                                   WITNESSETH:

      WHEREAS, Niagara Mohawk and Buyer have entered into an Asset Sales
Agreement dated as of December 2, 1998. for the sale of certain of Niagara
Mohawk electric generating assets to Buyer including the Bennetts Bridge Hydro
Development facility:

      WHEREAS, the Parties recognize and acknowledge that the Bennetts Bridge
Hydro Development facility is arranged to supply emergency power to Niagara
Mohawk's Nine Mile Point One Nuclear Generating Station ("NMP1") during a system
blackout condition:

      WHEREAS. the Parties recognize and acknowledge that the Bennetts Bridge
Hydro Development's ability to provide backup emergency power to NMP1 during a
system blackout condition is described in the Final Safety Analysis Report
("FSAR") for NMP1 and requires a safety evaluation and/or NRC approval in
accordance with 10 C.F.R. ss.ss. 50.59 and 50.90 before that arrangement can be
altered in any way;

      WHEREAS, Niagara Mohawk intends to retain ownership of and to continue to
operate NMP1; and

      WHEREAS, the Parties desire and intend that the Bennetts Bridge Hydro
Development facility continue to provide supply emergency power to NMP1 during a
system blackout condition consistent with the NMP1 FSAR.

      NOW THEREFORE, in consideration of the mutual representations, covenants
and agreements set forth herein, and intending to be legally bound hereby, the
Parties agree as follows:

                                       1
<PAGE>   79

                                    ARTICLE 1

                                   DEFINITIONS

      1.0 Whenever used in this Agreement with initial capitalization. the
following terms shall have the meanings specified or referred to in this Article
1.

      1.0 "Asset Sales Agreement" or "ASA" shall mean the Asset Sales Agreement
dated aS of December 2, 1998, between Niagara Mohawk and Buyer.

      1.2 "Closing(s)" shall have the meaning set forth in the ASA.

      1.3 "Closing Date" shall have the meaning set forth in the ASA.

      1.4 "Delivery Point" shall have the meaning set forth in the
Interconnection Agreement.

      1.5 "Interconnection Agreement" shall mean the separate Interconnection
Agreement dated as of _________, 1998 between Niagara Mohawk and Buyer, as from
time to time amended or modified, pertaining the interconnection of the Bennetts
Bridge Hydro Development facility to Niagara Mohawk's transmission system.

      1.6 "Force Majeure" shall mean those causes beyond the reasonable control
of the Party affected, which by reasonable diligence that Party is unable to
prevent, avoid, mitigate, or overcome, including the following: any act of God,
labor disturbance, act of public enemy, war, insurrection, riot, tire, storm or
flood, explosion, order, regulation or restriction imposed by governmental,
military or lawfully established civilian authorities, or any other cause of a
similar nature beyond a Party's reasonable control.

                                    ARTICLE 2

                                      TERM

      2.0 The term of this Agreement shall begin upon the Closing Date of the
ASA and shall continue until the expiration of the Operating License for the
Nine Mile Point One Nuclear Generating Station or any extensions or renewals
thereof.

                                    ARTICLE 3

                                       2
<PAGE>   80

                         REPRESENTATIONS AND WARRANTIES

      3.1 Representations of Niagara Mohawk. Niagara Mohawk represents and
warrants to Buyer as follows:

            3.1.1 Organization. Niagara Mohawk is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York
and Niagara Mohawk has the requisite corporate power and authority to carry on
its business as now being conducted;

            3.1.2 Authority Relative to this Agreement. Niagara Mohawk has the
requisite power and authority to execute and deliver this Agreement and to carry
out the actions required of it by this Agreement. The execution and delivery of
this Agreement and the actions it contemplates have been duly and validly
authorized. The Agreement has been duly and validly executed and delivered by
Niagara Mohawk and constitutes a valid and binding Agreement of Niagara Mohawk;

            3.1.3 Regulation Approval. Niagara Mohawk has obtained any and all
approvals of, and given a notice to, any public authority that are required
for Niagara Mohawk to execute and deliver this Agreement; and

            3.1.4 Compliance With Law. Niagara Mohawk represents and warrants
that it is not in violation of any applicable law, statute, order, rule, or
regulation promulgated or judgment entered by any federal, state, or local
governmental authority, which violates, individually or in the aggregate, or
which would affect Niagara Mohawk's performance of its obligations under this
Agreement and that it will comply with all applicable laws, rules, regulations,
codes, and standards or all Federal, state, and local governmental agencies
having jurisdiction over Niagara Mohawk or the transactions under this
Agreement.

      3.2 Representations of Buyer. Buyer represents and warrants to Niagara
Mohawk as follows:

            3.2.1 Organization. Buyer is a limited partnership organized,
validly existing and in good standing under the laws of the State of Delaware
and Buyer has the requisite power and authority to carry on its business as now
being conducted:

            3.1.2 Authority Relative to this Agreement. Buyer by its general
partner has the requisite power and authority to execute and deliver this
Agreement and to carry out the actions required of it by this Agreement. The
execution and delivery of this Agreement and the actions it

                                       3
<PAGE>   81

contemplates have been duly and validly authorized. The Agreement has been duly
and validly executed and delivered by Buyer and constitutes a valid and binding
Agreement of Buyer.

            3.1.3 Regulatory Approval. Buyer has obtained any and all approvals
of, and given any notice to, any public authority that are required for Buyer
to execute and deliver this Agreement; and

            3.1.4 Compliance With Law. Buyer represents and warrants that it is
not in violation of any applicable law, statute, order, rule, or regulation
promulgated or judgment entered by any federal, state, or local governmental
authority, which violates, individually or in the aggregate, or which would
affect Buyer's performance of its obligations under this Agreement and that it
will comply with all applicable laws, rules, regulations, codes, and standards
or all Federal, state, and local governmental agencies having jurisdiction over
Buyer or the transactions under this Agreement.

                                    ARTICLE 4

                          NMP1 EMERGENCY POWER SUPPORT

      4.1 Except as otherwise provided in this Agreement and except in the case
of Force Majeure, Buyer agrees that at all times during the term of this
Agreement either Unit 3 or Unit 4 will be available following a system blackout
condition affecting NMP1 to supply power to the Delivery Point for the benefit
of NMP1, if needed.

                                    ARTICLE 5

                                   MAINTENANCE

      5.1 Buyer shall give Niagara Mohawk at least thirty (30) days advance
written notice of any planned maintenance or inspection activity that would
remove either Unit 3 or Unit 4 from service. Such notice shall specify when
the unit will be removed from service and when it is expected to be returned to
service. Buyer shall immediately advise Niagara Mohawk of any changes in the
noticed maintenance or inspection schedule. In all other circumstances, Buyer
shall give Niagara Mohawk such advance notice as is reasonably possible of any
maintenance or inspection activity, emergency or otherwise, that will or is
reasonably expected to result in either Unit 3 or Unit 4 being removed from
service. Such notice shall specify when the unit will or is reasonably

                                        4
<PAGE>   82

expected to be removed from service and when it is expected to be returned to
service. Buyer immediately advise Niagara Mohawk of any changes in the noticed
maintenance or inspection schedule.

      5.2 Buyer shall make all reasonable efforts to plan, schedule and
implement its maintenance and inspection activities in a manner that does not
result in both Unit 3 and Unit 4 being removed from service at the same time.

                                    ARTICLE 6

                        NEW CONSTRUCTION OR MODIFICATIONS

      6.1 Buyer shall give Niagara Mohawk advance written notice of any plan to
construct new facilities or to alter any equipment, system or facility at tile
Bennetts Bridge Hydro Development facility and provide sufficient description
(including all drawings and specifications) of such plans so as to enable
Niagara Mohawk to reasonably determine whether the planned activity is likely to
impact the supply of emergency power to NMP1 during a system blackout condition.

      6.2 Buyer acknowledges that any change to the Bennetts Bridge Hydro
Development facility that alters in any way the conditions described in the NMP
FSAR may require a safety evaluation and/or NRC approval in accordance with 10
C.F.R. ss.ss 50.59 and 50.90 prior to implementing any change or modification.
Buyer agrees that if Niagara Mohawk determines that such a safety evaluation
and/or NRC approval should be undertaken or is required, it will cooperate with
Niagara Mohawk in all respects with regard to the performance of any such safety
evaluation and/or NRC approval process. Any such safety evaluation shall be
performed at Niagara Mohawk's expense by Niagara Mohawk's Nuclear Engineering
Department or its designee. In addition, Niagara Mohawk will reimburse Buyer for
all reasonable costs incurred in complying with the safety evaluation and/or NRC
approval process.

      6.3 Buyer agrees that it will not undertake any modification to or
operation of the facility with first obtaining Niagara Mohawk's determination
whether a safety evaluation and/or NRC approval is required in accordance with
10 C.F.R. ss.ss. 50.59 and/or 50.90. Buyer will accept Niagara Mohawk's
determination in this regard. Further, if as a result of a safety evaluation
and/or NRC approval in accordance with 10 C.F.R. ss.ss. 50.59 and/or 50.90 ii is
determined that it is necessary to

                                       5
<PAGE>   83

modify the facility or its operation. Buyer will implement and such modification
and Niagara Mohawk shall reimburse Buyer for all reasonable costs incurred in so
doing.

                                    ARTICLE 7

                                   INSPECTIONS

      7.1 Niagara Mohawk shall have the right, at its own expense. to inspect or
observe the maintenance activities, equipment tests. installation, construction,
or other modification of any equipment, systems or facilities at the Bennetts
Bridge Hydro Development facility which Niagara Mohawk reasonably determines
might affect the supply of emergency power to the Delivery Point for the benefit
of NMP1 during a system blackout condition.

      7.2 If Niagara Mohawk identifies any deficiency or defect at the Bennetts
Bridge Hydro Development facility that it reasonably determines might affect the
supply of emergency power to the Delivery Point for the benefit of NMP1 during a
system blackout condition, upon receipt of notice of such deficiency or defect,
Buyer shall take all reasonable steps to immediately remedy such deficiency or
defect. If Buyer is unable or unwilling to make the corrections deemed necessary
by Niagara Mohawk to ensure the available of the supply of emergency power to
the Delivery Point for the benefit of NMP1 during a system blackout condition,
Niagara Mohawk shall have the right to make all such corrections. Buyer shall be
responsible for all costs incurred by Niagara Mohawk under these circumstances.

                                    ARTICLE 8

                              REGULATORY COMPLIANCE

      8.1 At Niagara Mohawk's expense, Buyer shall make available and provide to
Niagara Mohawk all such information and undertake all such inspections or tests
as Niagara Mohawk may reasonably request to meet all regulatory obligations with
respect to its ownership and/or operation of NMP1.

                                    ARTICLE 9

                        COMPENSATION, BILLING AND PAYMENT

                                        6
<PAGE>   84

      9.1 Niagara Mohawk shall reimburse Buyer for the actual costs incurred in
providing the services set forth in this Agreement.

      9.2 Buyer shall provide Niagara Mohawk with notice (each, a "Notice") of
any payments due for services in accordance with Section 9.1 above during the
preceding calendar month on or before the 5th day of the calendar month, unless
Buyer and Niagara Mohawk otherwise agree. Each Notice shall include a detailed
description of the services provides and the basis for the determination of the
payment due. Payments shall be due (each, a "Payment Date") on the later of (i)
the 25th day of the calendar month in which the Notice is given, or (ii) the
15th day after delivery by Buyer to Niagara Mohawk of such Notice. In the event
such 25th or 15th day is a Saturday, Sunday or legal holiday, the corresponding
payment shall be due on or before the first business day following such 25th or
15th day or legal holiday, as the case may be.

      9.3 Niagara Mohawk shall have the right to audit the records of Buyer upon
which any Notice or payment obligation is based upon one days notice to Buyer.
If Niagara Mohawk, in good faith, disputes or questions any part of any Notice
or payment obligation, Niagara Mohawk shall provide a written explanation of the
basis for such dispute and the undisputed portion of the net payment
obligations set forth in such Notice shall be paid no later than the applicable
Payment Date. Any adjustment under this Section shall bear interest in the prime
rate for U.S. currency as published from time to time under "Money Rates" in The
Wall Street Journal, from and including the Payment Date and such underpayment
or overpayment was originally due but excluding the date on which such
underpayment or overpayment is finally settled or by the Parties hereto or
otherwise resolved.

                                   ARTICLE 10

                   ASSIGNMENT OR CHANGE IN CORPORATE IDENTITY

      10.1 This Agreement and all of the provisions hereof shall be binding upon
and insure to the benefit of the Parties hereto and their respective successors
and permitted assigns, but neither this Agreement nor any of the rights,
interests, or obligations hereunder shall be assigned without the

                                        7
<PAGE>   85

prior written consent of the other Party hereto, including by operation of law,
such consent not to be unreasonably withheld.

      10.2 No assignment or transfer of rights or obligations under this
Agreement by Buyer shall relieve Buyer from full liability and responsibility
for the performance thereof after any such transfer or assignment unless and
until the transferee or assignee shall agree in writing to assume the
obligations and duties of Buyer under this Agreement and Niagara Mohawk has
consented in writing to such assignment.

      10.3 If Buyer terminates its existence as a limited partnership, whether
by merger, acquisition, sale, consolidation, or otherwise, or if all or
substantially all of such Party's assets are transferred to another person or
business entity without complying with Article 8.2 above, Niagara Mohawk shall
have the right, enforceable in a court of competent jurisdiction: (i) to enjoin
Buyer's successor from using the property in any manner that interferes with,
impedes, or restricts Niagara Mohawk's ability to rely on the Bennetts Bridge
Hydro Development to supply emergency power to NMP1 during a system blackout
condition, and (ii) to take control of the operation of the Bennetts Bridge
Hydro Development to ensure its ability to supply emergency power to NMPI during
a system blackout condition until such time as Niagara Mohawk is reasonably
assured that the entity that has succeeded to Buyer's interest in the Bennetts
Bridge Hydro Development is able to fulfill the rights and obligations under
this Agreement.

                                   ARTICLE 11

                             LIMITATION OF LIABILITY

      11.1 To the fullest extent permitted by law and notwithstanding any other
provision of this Agreement, neither Niagara Mohawk or Buyer, nor their
respective officers, directors, agents, employees, parent or affiliates,
successors or assigns, shall be liable to the other Party or its parent,
subsidiaries, affiliates, officers, directors, agents, employees, successors or
assigns, for claims, suits, actions, or causes of action for incidental,
punitive, special, indirect, multiple or consequential damages (including
attorney's fees or litigation costs) connected with or resulting from
performance or non-performance of this Agreement, or any actions undertaken in
connection with or related to this Agreement, including without limitation any
such damages which are based upon causes of action for breach of contract, tort
(including negligence and misrepresentation), breach of warranty,

                                        8
<PAGE>   86

strict liability, or any other theory of recovery. The provisions of this
Article II shall apply regardless of fault and shall survive termination,
cancellation, suspension, completion or of this .Agreement.

      11.2 Buyer's liability for breach of this Agreement is expressly limited
to the amounts paid by Niagara Mohawk under this Agreement.

      11.3 (a) Notwithstanding anything in this Agreement to the contrary, Buyer
and Seller shall not be liable in damages or otherwise or responsible to the
other for its failure to carry out any of its obligations under this Agreement
if and only to the extent that they are unable to perform or are prevented from
performing by an event of Force Majeure.

            (b) If a Party shall rely on the occurrence of a Force Majeure event
or condition as a basis for being excused from performance of its obligations
under this Agreement, then the party relying on the event or condition shall:
(i) provide prompt written notice of such Force Majeure event to the other Party
giving an estimate of its expected duration and the probable impact on the
performance of its obligations hereunder; (ii) exercise all reasonable efforts
to continue to perform its obligations under this Agreement; (iii) expeditiously
take action to correct or cure the event or condition excusing performance;
provided that settlement of strikes or other labor disputes will be completely
within the sole discretion of the Party affected by such strike or labor
dispute; (iv) exercise all reasonable efforts to mitigate or limit damages to
the other Party; and (v) provide prompt notice to the other Party of the
cessation of the event or conditions giving rise to its excuse from performance.
All performance obligations hereunder, shall be extended by a period equal to
the term of tile resultant delay.

                                   ARTICLE 12

                                    REMEDIES

      12.1 Upon its determination that Buyer has failed to honor or otherwise
comply with any provision or obligation of this Agreement, without further
notice to Buyer. Niagara Mohawk shall have the right, enforceable in a court of
competent jurisdiction: (i) to specific performance of the provision or
obligation; (ii) to enjoin Buyer's successor from using the property in any
manner that interferes with, impedes, or restricts Niagara Mohawk's ability to
rely on the Bennetts Bridge Hydro

                                        9
<PAGE>   87

Development to supply emergency power to NMP1 during a system blackout
condition; or (iii) without any liability to Buyer of any sort, to take control
of the operation of the Bennetts Bridge Hydro Development to ensure its
ability to supply emergency power to NMPI during a System blackout condition
until such time as Niagara Mohawk is reasonably assured that Buyer is able and
wil1ing to honor and perform its obligations under this Agreement.

                                   ARTICLE 13

                                  MISCELLANEOUS

      13.1 Governing Law and Jurisdiction. This Agreement and the rights and
duties of the Parties hereunder shall be governed by and construed, enforced and
performed in accordance with laws of the State of New York, without regard to
principles of conflicts of law. Any law suit arising under this Agreement shall
be instituted in the Federal or State courts of New York located in the City of
Syracuse and each party hereby irrevocably submits to the in personam
jurisdiction of such courts. Each Party herein waives its respective right to a
jury trial with respect to any litigation arising under or in connection with
this Agreement.

      13.2 Notices. All notices shall be in writing and shall be given (and will
be deemed to have been duly given of so given) by hand delivery, cable, telecopy
(confirmed in writing) or telex, or by mail (registered or certified, postage
prepaid) to the respective Parties as follows:

            For Niagara Mohawk:

            For Buyer:

      13.3 General. This Agreement as well as the ASA constitutes the entire
Agreement between the Parties as to the subject matter contemplated by this
Agreement. The Agreement shall be considered for all purposes as prepared
through the joint efforts of the Parties and shall not be

                                       10
<PAGE>   88

construed against one Party or the other as a result of the preparation,
substitution, submission or other event of negotiation, drafting or execution
hereof. No amendment or modification of this Agreement shall be enforceable
unless reduced to writing and executed by both Parties. No waiver by a Party of
any default by the other Party shall be construed as a waiver of any other
default. Any provision declared or rendered unlawful by any applicable court of
law or regulatory agency or deemed unlawful because of a statutory change shall
not otherwise affect the remaining lawful obligations that arise under this
Agreement. The headings used herein are for convenience and reference purposes
only.

                                       11
<PAGE>   89

      IN WITNESS WHEREOF, Niagara Mohawk and Buyer have caused this Agreement to
be signed by the respective duly authorized officers as of the date first above
written.

Erie Boulevard Hydropower, L.P.              Niagara Mohawk Power Corporation

By:__________________________________        By:________________________________
Name:________________________________        Name:______________________________
Title:_______________________________        Title:_____________________________

                                       12
<PAGE>   90

                                                                       EXHIBIT B

                                     FORM OF

                                  BILL OF SALE

            THIS BILL OF SALE, dated as of ____________, by and between Niagara
Mohawk Power Corporation, a New York corporation (the "Seller"), and Erie
Boulevard Hydropower, L.P., a Delaware limited partnership (the "Buyer").

                                   WITNESSETH

            WHEREAS, pursuant to that certain Asset Sales Agreement, dated as of
December 2, 1998 (as amended, supplemented or otherwise modified from time to
time, the "Asset Sales Agreement"), by and between the Seller and the Buyer, the
Seller has agreed to sell, assign, convey, transfer and deliver all of its
right, title and interest in the Purchased Assets (as defined in the Asset Sales
Agreement) to the Buyer and the Buyer has agreed to purchase and acquire such
Purchased Assets from the Seller, all as more fully described in the Asset Sales
Agreement; and

            WHEREAS, pursuant to the Asset Sales Agreement, the Seller and the
Buyer have agreed to enter into this Bill of Sale pursuant to which that part of
the Purchased Assets which constitutes personal property will be conveyed to the
Buyer.

            NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties hereto hereby agree as follows:

            1. Defined Terms. Capitalized terms which are used but not defined
in this Bill of Sale shall have the meaning ascribed to such term in the Asset
Sales Agreement.

            2. Assignment. Except as set forth in Section 3 below and subject to
the terms and conditions of the Asset Sales Agreement, the Seller does hereby
sell, assign, convey, transfer and deliver to the Buyer all of the Seller's
right, title and interest in and to all of the Purchased Assets which constitute
personal property.

            3. Excluded Assets Not Assigned. Notwithstanding anything herein to
the contrary, the Excluded Assets are specifically excluded from the Purchased
Assets and shall be retained by the Seller at and following the Closing Date,

<PAGE>   91

            4. Appointment. The Seller hereby constitutes and appoint the Buyer,
and its successors and assigns, as the Seller's true and lawful attorney, with
full power of substitution, in the Seller's name and stead, by, on behalf of and
for the benefit of the Buyer, and its successors and assigns, to demand and
receive any and all of the Purchased Assets transferred hereunder and to give
receipts and releases for and in respect of the same, and any part thereof, and
from time to time to institute and prosecute, at the expense and for the benefit
of the Buyer, and its successors and assigns, any and all proceedings at law, in
equity or otherwise, which the Buyer, and its successors or assigns, may deem
proper for the collection or reduction to possession of any of the Purchased
Assets transferred hereunder or for the collection and enforcement of any claim
or right of any kind hereby sold, assigned, conveyed, transferred and delivered,
and to do all acts and things in relation to the Purchased Assets transferred
hereunder which the Buyer, and its successors or assigns, shall deem desirable.

            5. No Third Party Beneficiaries. Nothing in this instrument, express
or implied, is intended or shall be construed to confer upon, or give to, any
person other than the Buyer any remedy or claim under or by reason of this
instrument or any agreements, terms, covenants or conditions hereof, and all the
agreements, terms, covenants and conditions in this instrument contained shall
be for the sole and exclusive benefit of the Buyer and its successors and
permitted assigns.

            6. Binding Effect; Assignment. This Bill of Sale and all of the
provisions hereof shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns.

            7. Governing Law. This Bill of Sale shall be governed by and
construed in accordance with the laws of the State of New York (regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws).

            8. Construction. This Bill of Sale is delivered pursuant to and is
subject to the Asset Sales Agreement. In the event of any conflict between the
terms of the Asset Sales Agreement and the terms of this Bill of Sale,

                                      -2-
<PAGE>   92

including those terms set forth in paragraph 6 hereof, the terms of the Asset
Sales Agreement shall prevail.

            IN WITNESS WHEREOF, this Bill of Sale has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first above written.

                        NIAGARA MOHAWK POWER CORPORATION

                        By__________________________________
                          Name:
                          Title:

                        ERIE BOULEVARD HYDROPOWER, L.P.

                        By__________________________________
                          Name:
                          Title:

                                      -3-
<PAGE>   93

                                                             EXHIBIT [ILLEGIBLE]

                                EIRPTA Affidavit

            Section 1445 of the Internal Revenue code provides that a transferee
of a U.S. real property interest must withhold tax if the transferor is a
foreign person. To inform the transferee that withholding tax is not required
upon the disposition of U.S. real property interest by Niagara Mohawk Power
Corporation (the "Company"), the undersigned hereby certifies the following on
behalf of the Company:

            1. The Company is not a foreign corporation, foreign partnership,
foreign trust, or foreign estate (as those terms are defined in the Internal
Revenue Code and the Income Tax Regulations);

            2. The Company's U.S. employer identification number is
___________________; and

            3. The Company's office address is: 300 Erie Boulevard West,
Syracuse, New York 13202.

            The Company understands that this certification may be disclosed to
the Internal Revenue Service by a transferee and that any false statement
contained herein could be punished by fine, imprisonment or both.

            Under penalties of perjury I declare that I have examined this
certificate and to the best of my knowledge and belief it is true, correct and
complete, and I further declare that I have authority to sign this document on
behalf of the Company.

                                   By: ________________________
                                       Name:
                                       Title:

<PAGE>   94

                                     FORM OF

                            INSTRUMENT OF ASSUMPTION

            Instrument of Assumption made, executed and delivered on this day of
____________, by Erie Boulevard Hydropower, L.P., a Delaware limited partnership
(the "Buyer"), in favor of Niagara Mohawk Power Corporation, a New York
corporation, (the "Seller").

                              W I T N E S S E T H:

            WHEREAS, pursuant to that certain Asset Sales Agreement, dated as of
December 2, 1998 (as amended, supplemented or otherwise modified from time to
time, the "Asset Sales Agreement"), by and between the Seller and the Buyer, the
Seller is concurrently herewith selling, assigning, conveying, transferring and
delivering to the Buyer the Purchased Assets (as defined in the Asset Sales
Agreement); and

            WHEREAS, in partial consideration therefor, the Asset Sales
Agreement requires that the Buyer assume and agree to pay, perform or discharge
or cause to be paid, performed or discharged certain liabilities and obligations
of the Seller;

            NOW, THEREFORE, in consideration of these premises and for other
good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the Buyer agrees as follows:

            1. Capitalized terms which are used in this Instrument of Assumption
(including Appendix I hereto) but are not defined in this Instrument of
Assumption shall have the meaning ascribed to such terms in the Asset Sales
Agreement.

            2. The Buyer hereby assumes and agrees to pay, perform or discharge
in accordance with their terms, to the extent not heretofore paid, performed or
discharged and subject to the limitations contained in this Instrument of
Assumption, the liabilities and obligations of the Sellers which are described
in Appendix I hereto (the "Assumed Liabilities").

            3. It is understood and agreed that nothing in this Instrument of
Assumption or in Section 2.3 of the Asset

<PAGE>   95

Sales Agreement shall constitute a waiver or release of any claims arising out
of the contractual relationships between the Seller and the Buyer.

            4. The assumption by the Buyer of the Assumed Liabilities shall not
be construed to defeat, impair or limit in any way the rights, claims or
remedies of the Buyer under the Asset Sales Agreement.

            5. Other than as specifically set forth in this Instrument of
Assumption or in Section 2.3 of the Asset Sales Agreement, the Buyer shall not
assume or be obligated to pay, perform or otherwise discharge any liability or
obligation of the Seller, direct or indirect, known or unknown, absolute or
contingent, other than the Assumed Liabilities, including, without limitation,
any liabilities or obligation in respect of any Excluded Assets.

            6. This Instrument of Assumption shall be enforceable against the
successors and assigns of the Buyer and shall inure to the benefit of the
successors and assigns of the Seller.

            7. This Instrument of Assumption shall be governed by and construed
in accordance with the laws of the State of New York (regardless of the laws
that might otnerwise govern under applicable principles of conflicts of laws).

            8. This Instrument of Assumption is delivered pursuant to and is
subject to the Asset Sales Agreement. the event of any conflict between the
terms of the Asset Sales Agreement and the terms of this Instrument of
Assumption, the terms of the Asset Sales Agreement shall prevail.

                                       -2-
<PAGE>   96

             IN WITNESS WHEREOF, this Instrument of Assumption has been duly
executed and delivered by the duly authorized representatives of the Buyer as of
the date first written.

                                 ERIE BOULEVARD HYDROPOWER, L.P.

                                 By_________________________________
                                   Name:
                                   Title:

Attest:

_______________________
Name:
Title:

                                      -3-
<PAGE>   97

                                                                      APPENDIX I
                                                     TO INSTRUMENT OF ASSUMPTION

                              Obligations Assumed

            All of the liabilities and obligations of Seller, direct or
indirect, known or unknown, absolute or contingent, which principally relate to
the Purchased Assets, other than Excluded Liabilities, in accordance with the
respective terms and subject to the respective conditions thereof, including,
without limitation, the following liabilities and obligations:

                     [insert paragraphs (I) through (vii) of
                 Section 2..3(a) of the Asset Sales Agreement]

                                       -4-
<PAGE>   98

                                                                       EXHIBIT E

                            INTERCONNECTION AGREEMENT

                                     BETWEEN

                      NIAGARA MOHAWK POWER CORPORATION AND

                         ERIE BOULEVARD HYDROPOWER, L.P.

                                                    Date: September 25, 1998

                                        1
<PAGE>   99

                                TABLE OF CONTENTS

DEFINITIONS ...............................................................    3
AGREEMENT TO INTERCONNECT .................................................    5
REPRESENTATIONS AND WARRANTIES OF PARTIES .................................    7
MODIFICATION TO THE INTERCONNECTION FACILITY ..............................    9
POWER DELIVERIES ..........................................................   11
INSURANCE PROVISIONS ......................................................   13
COMPLIANCE WITH LAWS ......................................................   15
COST PAYMENTS .............................................................   16
NOTICES ...................................................................   19
TERM AND TERMINATION ......................................................   20
FORCE MAJEURE .............................................................   21
RELATIONSHIP OF THE PARTIES ...............................................   22
THIRD PARTY BENEFICIARY/ASSIGNMENT ........................................   22
APPROVAL ..................................................................   24
WAIVER ....................................................................   24
AMENDMENT AND MODIFICATION ................................................   25
GOVERNING LAW .............................................................   26
DISPUTE RESOLUTION ........................................................   26
SEVERABILITY ..............................................................   27
HEADINGS ..................................................................   27
INTEGRATION/MERGER/SURVIVABILITY ..........................................   27
COMPLIANCE WITH THE NERC ..................................................   27
COUNTERPARTS ..............................................................   29
Exhibit A .................................................................   30
Exhibit B .................................................................   31

                                        2
<PAGE>   100

      403 This INTERCONNECTION AGREEMENT (hereinafter referred to as the
"AGREEMENT") is made as of___________, 1998. between NIAGARA MOHAWK POWER
CORPORATION (hereinafter referred to as "NIAGARA MOHAWK") and ERIE BOULEVARD
HYDROPOWER, L.P., a ________, (hereinafter referred to as the "PRODUCER").

      WHEREAS, PRODUCER'S ability to deliver and sell ELECTRICITY to NIAGARA
MOHAWK and/or other purchasers from the PRODUCTION FACILITY is contingent on the
PRODUCTION FACILITY remaining interconnected to the TRANSMISSION SYSTEM through
the INTERCONNECTION FACILITY.

      NOW THEREFORE, in consideration of the mutual obligations and undertakings
set forth herein, the parties to this AGREEMENT covenant and agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

The terms listed below shall have the following meanings when used in this
INTERCONNECTION AGREEMENT.

1.1   This AGREEMENT shall become effective as of the date first above written
      (the "EFFECTIVE DATE").

1.2   "INTERCONNECTION POINT" is the point at which the PRODUCTION FACILITY is
      connected to the INTERCONNECTION FACILITY as indicated on a one-line
      diagram included as part of Exhibit A.

1.3   "DELIVERY POINT" is the point at which the INTERCONNECTION FACILITY is
      connected to the TRANSMISSION SYSTEM as indicated on a one-line diagram
      included as part of Exhibit A.

1.4   "ELECTRICITY" shall mean electric capacity and/or energy produced by the
      PRODUCTION FACILITY.

1.5   "FERC" shall mean the Federal Energy Regulatory Commission or successor
      organization.

1.6   "GOOD UTILITY PRACTICE" shall mean any of the practices, methods and acts
      engaged in or approved by a significant portion of the electric utility
      industry during the relevant time period, or any of the practices, methods
      and acts which, in the exercise of reasonable judgment in light of the
      facts known at the time the decision was made, could have been expected to
      accomplish the desired result at the lowest reasonable cost consistent
      with good business practices, reliability, safety and expedition. Good
      Utility

                                        3
<PAGE>   101

      Practice is not intended to be limited to the optimum practice, method, or
      act, to the exclusion of all others, but rather to be acceptable
      practices, methods, or acts generally accepted in the region and
      consistently adhered to by the Company. GOOD UTILITY PRACTICE shall
      include, but not be limited to North American Electric Reliability Council
      ("NERC") Criteria & Guidelines, Northeast Power Coordinating Council
      ("NPCC") Criteria & Guidelines, New York State Reliability Council
      ("NYSRC") if any, and New York Power Pool ("NYPP") criteria, rules and
      standards, as they may be amended from time to time including the rules,
      guidelines and criteria of any successor organization to the foregoing
      entities.

1.7   "HAZARDOUS SUBSTANCE(S)" shall mean those substances, materials, products
      or wastes which are classified as hazardous or toxic under any applicable
      federal, state or local law, or any regulations promulgated thereunder,
      effective the date of execution of this AGREEMENT, and the presence of
      which requires redemption, removal or cleanup under this AGREEMENT.

1.8   "INTERCONNECTION FACILITY" shall include all those facilities and NIAGARA
      MOHAWK PROPERTIES on which such facilities are located between the
      INTERCONNECTION POINT and the DELIVERY POINT, necessary to effect the
      transfer of ELECTRICITY, produced at the PRODUCTION FACILITY into NIAGARA
      MOHAWK'S TRANSMISSION SYSTEM, including those facilities identified in
      more particularity in Exhibit A to this AGREEMENT.

1.9   "NIAGARA MOHAWK PROPERTIES" shall mean those parcels of real property
      and/or easements that NIAGARA MOHAWK uses for its transmission facilities
      upon which portions of the INTERCONNECTION FACILITY have been constructed,
      which parcels of real property and/or easements and facilities are
      described in more particularity in Exhibit A hereto.

1.10  "PRODUCTION FACILITY" shall mean PRODUCER'S ELECTRICITY generating
      facility with a maximum output of______ MW located in the Town of
      _____________ County of, New York.

1.11  "TRANSMISSION SYSTEM" shall mean NIAGARA MOHAWK'S TRANSMISSION SYSTEM,
      including any modifications subsequent to the date of this AGREEMENT.

1.12  "ELECTRIC SYSTEM BULLETIN No. 756" shall mean NIAGARA MOHAWK'S Electric
      System Bulletin 756, dated December, 1997, and all subsequent revisions,
      as it may be amended from time to time.

1.13  "INDEPENDENT SYSTEM OPERATOR" ("ISO") shall mean an organization formed in
      accordance with FERC order (s) to administer the operation of the
      transmission

                                        4
<PAGE>   102

      system, provide equal access to the transmission system of New York State,
      and to maintain system reliability.

1.14  "ISLANDING" shall mean the separation of PRODUCER'S generation from
      NIAGARA MOHAWK'S electric system while continuing to serve NIAGARA
      MOHAWK'S isolated load.

1.1.5 "ELECTRIC SYSTEM EMERGENCY" shall mean an emergency condition defined by
      criteria established by NPCC, NYSFC, the NYPP, or the New York ISO, or any
      of their successors.

                                   ARTICLE II
                            AGREEMENT TO INTERCONNECT
                     DESCRIPTION OF INTERCONNECTION FACILITY

2.1   NIAGARA MOHAWK and PRODUCER agree to remain interconnected in accordance
      with the terms agreed to herein.

2.2   NIAGARA MOHAWK and PRODUCER shall be interconnected by means of the
      INTERCONNECTION FACILITY, which NIAGARA MOHAWK shall operate, own and
      maintain, at the PRODUCER's expense.

2.3   The PRODUCTION FACILITY shall include all facilities and equipment on the
      PRODUCER's side of the INTERCONNECTION POINT as indicated on Exhibit A.
      PRODUCER agrees that the installation of the electrical equipment and the
      operation of the PRODUCTION FACILITY must meet or exceed the requirements
      of NIAGARA MOHAWK'S ELECTRIC SYSTEM BULLETIN No. 756. Notwithstanding the
      foregoing, NIAGARA MOHAWK acknowledges and agrees to the following
      limitations for the existing PRODUCTION FACILITY as it pertains to NIAGARA
      MOHAWK'S ELECTRIC SYSTEM BULLETIN No. 756:

      2.3.1 If at the date of this AGREEMENT the PRODUCTION FACILITY does not
            conform to NIAGARA MOHAWK'S ELECTRIC SYSTEM BULLETIN No. 756, but
            was built in accordance with GOOD UTILITY PRACTICE and does not
            present any adverse impact on NIAGARA MOHAWK'S TRANSMISSION SYSTEM
            as determined by NIAGARA MOHAWK, then it is not the intent of this
            AGREEMENT to cause the PRODUCER'S PRODUCTION FACILITY to immediately
            upgrade to full compliance with ELECTRIC SYSTEM BULLETIN No. 756.
            Any upgrades required to protect NIAGARA MOHAWK'S TRANSMISSION
            SYSTEM from adverse impacts will be listed in Exhibit B [to be
            provided] and must be completed within ninety (90) days of signing
            this AGREEMENT unless otherwise mutually agreed upon by both
            parties.

                                       5
<PAGE>   103

      2.3.2 The parties agree that it is the intent of this AGREEMENT to require
            the PRODUCER'S PRODUCTION FACILITY to conform to ELECTRIC SYSTEM
            BULLETIN No. 756 and therefore, agree that as additions,
            modifications and replacements to PRODUCER'S PRODUCTION FACILITY are
            implemented, the additions, modifications and replacements will
            conform to ELECTRIC SYSTEM BULLETIN No. 756. If the PRODUCER
            upgrades the system protection or upgrades technology employed at
            the PRODUCTION FACILITY (for example, but not limited to,
            repowering), at NIAGARA MOHAWK'S reasonable discretion exercised
            consistent with GOOD UTILITY PRACTICE, the PRODUCER'S entire
            PRODUCTION FACILITY will be brought into full compliance with the
            requirements of ELECTRIC SYSTEM BULLETIN No. 756, at that time.

      2.3.3 If PRODUCER relies on NIAGARA MOHAWK'S system protection equipment
            and practices for protection of PRODUCTION FACILITY equipment,
            PRODUCER agrees to indemnify, defend, and save NIAGARA MOHAWK, its
            agents and employees, harmless from, and against any loss, damage,
            liability (civil or criminal), cost, suit, charge, expense
            (including reasonable attorneys fees) or cause of action, whether
            conditionally certain or otherwise, arising from any damage to the
            PRODUCTION FACILITY resulting from such reliance, as long as NIAGARA
            MOHAWK maintains and performs such system protection equipment and
            practices consistent with GOOD UTILITY PRACTICE.

      2.3.4 NIAGARA MOHAWK reserves the right to operate the first means of
            disconnect on the PRODUCER'S side of the INTERCONNECTION POINT.

      2.3.5 NIAGARA MOHAWK reserves the right, and PRODUCER will maintain at no
            cost to NIAGARA MOHAWK, the ability to transmit power to NIAGARA
            MOHAWK'S existing customers that are interconnected as of December
            2, 1998 whose electric services are supplied directly off the
            PRODUCTION FACILITY'S bus without first going through the
            INTERCONNECTION FACILITY.

      2.3.6 Upon implementation of an ISO, if NIAGARA MOHAWK is given the option
            whether to administer any requirement, rule or regulation of the ISO
            or a requirement of Electric System Bulletin No. 756, NIAGARA MOHAWK
            may do so at its sole discretion.

2.4   PRODUCER recognizes that neither this AGREEMENT nor the PRODUCER'S
      financial support of the INTERCONNECTION FACILITIES confers upon it any
      right to transmit electricity over NIAGARA MOHAWK'S TRANSMISSION SYSTEM
      other than through the INTERCONNECTION FACILITIES.

2.5   NIAGARA MOHAWK shall use due diligence, in accordance with GOOD UTILITY
      PRACTICE, to operate and maintain the INTERCONNECTION FACILITIES and to

                                        6
<PAGE>   104

      have them available for the transmission of electricity. NIAGARA MOHAWK
      shall consult with PRODUCER regarding the timing of scheduled maintenance
      of the INTERCONNECTION FACILITY, which might reasonably be expected to
      affect PRODUCER'S PRODUCTION FACILITY. NIAGARA MOHAWK shall, to the extent
      practicable, schedule any maintenance to coincide with PRODUCER'S
      scheduled outage. NIAGARA MOHAWK does not, however, guarantee or warrant
      uninterrupted availability of the INTERCONNECTION FACILITIES or
      TRANSMISSION SYSTEM. Curtailment of deliveries over the INTERCONNECTION
      FACILITIES or TRANSMISSION SYSTEM shall be governed by the transmission
      agreement or agreements between NIAGARA MOHAWK and the PRODUCER.

2.6   PRODUCER hereby grants NIAGARA MOHAWK all necessary rights of way,
      easements, and licenses as NIAGARA MOHAWK may require to install, operate,
      maintain, replace and remove NIAGARA MOHAWK'S facilities, including
      adequate and continuing rights of access to PRODUCER'S property for any
      purpose reasonably related to this AGREEMENT. PRODUCER hereby agrees to
      execute such grants, deeds, licenses, instruments or other documents as
      NIAGARA MOHAWK may require to enable it to record such rights of way,
      easements and licenses.

                                   ARTICLE III
                    REPRESENTATIONS AND WARRANTIES OF PARTIES

3.1   PRODUCER is a corporation duly organized and validly existing under the
      laws of the State of _______. PRODUCER is qualified to do business under
      the laws of the State of New York, is in good standing under the laws of
      the State of New York, has the power and authority to own its properties,
      to carry on its business as now being conducted, and to enter into this
      AGREEMENT and the transactions contemplated herein and perform and carry
      out all covenants and obligations on its part to be performed under and
      pursuant to this AGREEMENT, and is duly authorized to execute and deliver
      "this AGREEMENT" and consummate the transactions contemplated herein.

3.2   PRODUCER is not prohibited from entering into this AGREEMENT and
      discharging and performing all covenants and obligations on its part to be
      performed under and pursuant to this AGREEMENT. The execution and delivery
      of this AGREEMENT, the consummation of the transactions contemplated
      herein and the fulfillment of and compliance with the provisions of this
      AGREEMENT will not conflict with or constitute a breach of or a default
      under any of the terms, conditions or provisions of any law, rule or
      regulation, any order, judgment, writ, injunction, decree, determination,
      award or other instrument or legal requirement of any court or other
      agency of government, the agreement of limited partnership of PRODUCER or
      any contractual limitation, corporate restriction or outstanding trust
      indenture, deed of trust, mortgage, loan agreement, lease, other evidence
      of indebtedness or any other agreement or instrument to which PRODUCER is
      a party or by which it or any of its property is bound and will not result
      in

                                        7
<PAGE>   105

      a breach of or a default under any of the foregoing. This AGREEMENT is the
      legal, valid and binding obligation of PRODUCER enforceable in accordance
      with its terms, except as limited by applicable reorganization,
      insolvency, liquidation, readjustment of debt, moratorium, or other
      similar laws affecting the enforcement of rights of creditors generally as
      such laws may be applied in the event of a reorganization, insolvency.
      liquidation, readjustment of debtor other similar proceeding of or
      moratorium applicable to PRODUCER and by general principles of equity
      (regardless of whether such enforceability is considered in a proceeding
      in equity or at law.)

3.3   NIAGARA MOHAWK is a corporation duly organized, validly existing and
      qualified to do business under the laws of the State of New York, is in
      good standing under its certificate of incorporation and the laws of the
      State of New York, has the corporate authority to own its properties, to
      carry on its business as now being conducted, and to enter into this
      AGREEMENT and the transactions contemplated herein and perform and carry
      out all covenants and obligations on its part to be performed under and
      pursuant to this AGREEMENT, and is duly authorized to execute and deliver
      this AGREEMENT and consummate the transactions contemplated herein.

3,4   NIAGARA MOHAWK is not prohibited from entering into this AGREEMENT and
      discharging and performing all covenants and obligations on its part to be
      performed under and pursuant to this AGREEMENT pending review and
      acceptance of the terms of this AGREEMENT by the FERC or successor
      organization. The execution and delivery of this AGREEMENT and upon its
      acceptance for filing by the FERC, the consummation of the transactions
      contemplated herein and the fulfillment of and compliance with the
      provisions of this AGREEMENT will not conflict with or constitute a breach
      of or a default under any of the terms, conditions or provisions of any
      law, rule or regulation, any order, judgment, writ, injunction, decree,
      determination, award or other instrument or legal requirement of any court
      or other agency of government, the certificate of incorporation or bylaws
      of NIAGARA MOHAWK or any contractual limitation, corporate restriction or
      outstanding trust indenture, deed of trust, mortgage, loan agreement,
      lease, other evidence of indebtedness or any other agreement or instrument
      to which NIAGARA MOHAWK is a party or by which it or any of its property
      is bound and will not result in a breach of or a default under any of the
      foregoing. This AGREEMENT is the legal, valid and binding obligation of
      NIAGARA MOHAWK upon its acceptance for filing by the FERC becomes
      enforceable in accordance with its terms, except as limited by later order
      of the FERC, applicable reorganization, insolvency, liquidation,
      readjustment of debt, moratorium, or other similar laws affecting the
      enforcement of rights of creditors generally as such laws may be applied
      in the event of a reorganization, insolvency, liquidation, readjustment of
      debt or other similar proceeding of or moratorium applicable to PRODUCER
      and by general principles of equity (regardless of whether such
      enforceability is considered in a proceeding in equity or at law).

                                        8
<PAGE>   106

                                   ARTICLE IV
                  MODIFICATION TO THE INTERCONNECTION FACILITY

4.1   NIAGARA MOHAWK shall retain the discretion to determine whether, when, and
      in what manner replacements or upgrades to the INTERCONNECTION FACILITIES
      shall be installed. NIAGARA MOHAWK shall exercise that discretion in
      accordance with GOOD UTILITY PRACTICE. Any such replacements or upgrades
      that are installed shall be deemed to be INTERCONNECTION FACILITIES for
      purposes of this AGREEMENT.

4.2   NIAGARA MOHAWK shall notify the PRODUCER if it determines that a
      replacement or upgrade to any portion of the INTERCONNECTION FACILITIES is
      necessary or advisable. If the replacement upgrade is necessitated by
      actions taken by PRODUCER. the actual cost of designing, permitting,
      installing and operating the replacement or upgrade shall be included in
      the charges calculated in accordance with Article VIII. PRODUCER shall
      also be responsible for all costs related to the PRODUCTION FACILITY, if
      any, caused by said replacement and/or upgrade.

4.3   If PRODUCER plans any additions, modifications or replacements to the
      PRODUCTION FACILITY which may effect the electrical interconnection
      between the PRODUCTION FACILITY and the INTERCONNECTION FACILITY or
      NIAGARA MOHAWK's TRANSMISSION SYSTEM, PRODUCER shall put forth its best
      efforts to give NIAGARA MOHAWK not less than one (1) year prior written
      notice thereof accompanied by appropriate plans, specifications,
      information and operating instructions impacting NIAGARA MOHAWK'S electric
      operations, of any such addition, modification or replacement. All such
      additions, modifications or replacements shall meet NIAGARA MOHAWK'S
      ELECTRIC SYSTEM BULLETIN No. 756, NERC, NPCC, NYPP, NYSRC, or its
      respective successors, the standards of GOOD UTILITY PRACTICE and shall be
      subject to the approval of NIAGARA MOHAWK. which approval shall not
      unreasonably be withheld.

4.4   PRODUCER shall be responsible for the costs of any modifications to the
      INTERCONNECTION FACILITIES that arise from changes to the PRODUCTION
      FACILITY in accordance with this AGREEMENT.

4.5   If, during the term of this AGREEMENT, NIAGARA MOHAWK determines that it
      is necessary to relocate, rearrange, abandon, or retire its TRANSMISSION
      SYSTEM, so that a change is required to a section of the INTERCONNECTION
      FACILITY, NIAGARA MOHAWK shall put forth its best efforts to give the
      PRODUCER no less than one (1) year's written notice of such relocation or
      rearrangement and shall use all reasonable efforts to defer such
      relocation or rearrangement until the INTERCONNECTION FACILITY can be
      reconfigured so that service may continue without interruption.

                                        9
<PAGE>   107

4.6   If NIAGARA MOHAWK is required or ordered by governmental authority to
      relocate, rearrange, abandon, or retire its TRANSMISSION SYSTEM requiring
      modification to the INTERCONNECTION FACILITY, NIAGARA MOHAWK shall
      promptly so notify PRODUCER.

4.7   If relocation, rearrangement, abandonment, or retirement is required (as
      referred to in paragraphs 4.5 and 4.6) due to an action taken by PRODUCER
      or a governmental authority, NIAGARA MOHAWK shall perform or have
      performed, at PRODUCER'S expense, the studies necessary to identify
      modifications to the INTERCONNECTION FACILITY and shall inform the
      PRODUCER of its estimate of the costs of the construction of the modified
      INTERCONNECTION FACILITY, and PRODUCER shall at its option either (i)
      reimburse NIAGARA MOHAWK for the actual costs of the construction of such
      modification in accordance with Article VIII of this AGREEMENT: (ii)
      construct, at its own expense, a new INTERCONNECTION FACILITY subject to
      the terms of this AGREEMENT; or (iii) terminate this AGREEMENT, upon no
      less than thirty (30) days written notice to NIAGARA MOHAWK. If
      relocation, rearrangement, abandonment, or retirement is required due to
      an action taken by NIAGARA MOHAWK or by a third party with the approval of
      NIAGARA MOHAWK, NIAGARA MOHAWK shall be responsible for all costs to
      modify the INTERCONNECTION FACILITY.

4.8   If the relocation, rearrangement, abandonment, or retirement is ordered or
      required by governmental authority, NIAGARA MOHAWK shall endeavor to
      obtain compensation on behalf of PRODUCER from such governmental authority
      for its mutually agreed upon share of the costs of such relocation or
      rearrangement, but in no event shall NIAGARA MOHAWK be responsible on its
      own account for reimbursing PRODUCER for any costs associated with such
      relocation or rearrangement.

4.9   If the PRODUCER elects to construct, at its own expense, a new section of
      the INTERCONNECTION FACILITY subject to the terms of this AGREEMENT, then
      the PRODUCER shall assign all rights, title and interest in such new
      section of the INTERCONNECTION FACILITY to NIAGARA MOHAWK upon completion
      of construction and shall execute all necessary documents to effectuate
      transfer of ownership thereof to NIAGARA MOHAWK. PRODUCER shall obtain any
      necessary permits, authorizations and rights-of-way for the new section of
      the INTERCONNECTION FACILITY, in accordance with this AGREEMENT, the costs
      thereof to be borne by the PRODUCER. Regardless of whether NIAGARA MOHAWK
      or the PRODUCER constructs a new section of the INTERCONNECTION FACILITY,
      NIAGARA MOHAWK shall own, operate and maintain, at PRODUCER's expense, any
      such new section as part of the INTERCONNECTION FACILITY, and PRODUCER
      shall reimburse NIAGARA MOHAWK for all costs of operating and maintenance
      expenses for any new section of the INTERCONNECTION FACILITY in accordance
      with Article VIII.

                                       10
<PAGE>   108

4.10  PRODUCER acknowledges and agrees that NIAGARA MOHAWK reserves the rights
      and ability to deliver ELECTRICITY to all customers. If, during the term
      of this AGREEMENT, NIAGARA MOHAWK determines that it is necessary to
      relocate or rearrange the INTERCONNECTION POINT, in order to permit
      NIAGARA MOHAWK access or to deliver electricity to its customers or new
      customers, so that a change is required to a section of the
      INTERCONNECTION FACILITY, NIAGARA MOHAWK shall put forth its best efforts
      to give the PRODUCER no less than one (1) year's written notice of such
      relocation or rearrangement and shall use all reasonable efforts to defer
      such relocation or rearrangement until the INTERCONNECTION FACILITY can be
      reconfigured so that service to PRODUCER may continue without
      interruption.

                                    ARTICLE V
                                POWER DELIVERIES

5.1.  METERING

      5.1.1 NIAGARA MOHAWK shall, at PRODUCER'S expense, provide, own, and
            maintain compatible metering equipment. PRODUCER shall provide
            suitable space within its facilities for installation of the
            metering equipment.

      5.1.2 PRODUCER shall be responsible for providing all necessary
            communication equipment and transmission mediums, such as telephone
            lines and any necessary protection for such communication equipment
            and shall furthermore be responsible for all communication required
            by NIAGARA MOHAWK or NYPP or its successor.

      5.1.3 All metering equipment installed pursuant to this AGREEMENT and
            associated with the PRODUCTION FACILITY may be routinely tested by
            NIAGARA MOHAWK, in accordance with applicable NIAGARA MOHAWK, NYPP,
            NERC and GOOD UTILITY PRACTICE.

      5.1.4 If, at any time, any metering equipment is found to be inaccurate by
            more than the limits defined in 16 NYCRR Part 92 as may be amended
            from time to time, NIAGARA MOHAWK shall cause such metering
            equipment to be made accurate or replaced at PRODUCER'S expense.
            Meter readings for the period of inaccuracy shall be adjusted so far
            as the same can be reasonably ascertained; provided, however, no
            adjustment prior to the beginning of the preceding month shall be
            made except by agreement of the parties. Each party shall comply
            with any reasonable request of the other concerning the sealing of
            meters, the presence of a representative of the other party when the
            seals are broken and the tests are made, and other matters affecting
            the accuracy of the measurement of ELECTRICITY delivered from the
            PRODUCTION FACILITY. If either party

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<PAGE>   109

            believes that there has been a meter failure or stoppage, it shall
            immediately notify the other.

      5.1.5 PRODUCER shall be responsible for purchasing and installing
            software, hardware and/or other technology that may be required to
            read billing meters.

5.2   LOSSES

      5.2.1 If the metering equipment and the DELIVERY POINT are not at the same
            location, the metering equipment shall record delivery of
            electricity in a manner that accounts for losses occurring between
            the metering point and the DELIVERY POINT. If the metering equipment
            does not have the capability of accounting for said losses, then
            either party may install metering equipment to account for said
            losses or the meter readings shall be multiplied by _____ to account
            for said losses between the metering point and the DELIVERY POINT.
            The metering point, DELIVERY POINT, associated equipment and
            distance between the metering point and the DELIVERY POINT shall be
            specified in Exhibit A.

5.3.  REACTIVE POWER SUPPORT

      5.3.1. PRODUCER is required to provide reactive capability to regulate and
             maintain system voltage at the DELIVERY POINT in conformance with
             ELECTRIC SYSTEM BULLETIN No. 756. NIAGARA MOHAWK or NYPP or its
             successor shall establish a scheduled range of voltages or reactive
             power deliveries to be maintained by the generator.

5.4   OPERATING FREQUENCY

      5.4.1 PRODUCER is responsible for the proper coordination of any applied
            under/over frequency generator tripping as per 756, Appendix C,
            Section II, A, 2.7. If the PRODUCTION FACILITY elects to employ
            under frequency generator tripping protection, then the under
            frequency relay set point MUST be on or below the under frequency
            curve referred to in 756, Appendix C, Section IV, A., 3.0, Exhibit
            C-1. Similarly, if the PRODUCTION FACILITY elects to employ over
            frequency generator tripping protection, then the over frequency
            relay set point MUST be on or above the over frequency curve
            referred to in 756, Appendix C, Section IV, A., 3.0, Exhibit C-I. If
            the PRODUCTION FACILITY decides that, after consultation with
            NIAGARA MOHAWK, it cannot meet the under frequency tripping set
            point limitation referred to in Exhibit C-1, then PRODUCER shall
            agree to fund the cost incurred by NIAGARA MOHAWK to install and
            maintain compensatory load shedding equipment required by the NYSRC.
            If the PRODUCER decides that it cannot meet the over frequency
            tripping set point

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<PAGE>   110

            limitation referred to in Exhibit C-1, PRODUCER shall consult with
            NIAGARA MOHAWK and NIAGARA MOHAWK will notify PRODUCER of any
            consequences associated with that decision.

5.5   OPERATING VOLTAGE

      5.5.1 PRODUCER is expected to adhere to the operating voltage performance
            referred to in 756 Appendix C, Section II, B, 2.2 and 756 Appendix
            C, Section IV. B. PRODUCER is responsible for the proper
            coordination of any applied under/over voltage generator tripping as
            per 756, Appendix C, Section II, A., 2.7. If the PRODUCER elects to
            employ over voltage or under voltage protection, then the over
            voltage and under voltage relay settings shall be reviewed and
            approved by NIAGARA MOHAWK.

5.6   ISLANDING

      5.6.1 With reference to 756, Appendix C, Section II, A., 2.4 , during an
            ELECTRIC SYSTEM EMERGENCY, NIAGARA MOHAWK reserves the right to
            require. allow or prevent the ISLANDING of PRODUCER'S generation
            depending upon the prevailing NIAGARA MOHAWK electrical system
            operational needs at the time to the extent that PRODUCER'S
            PRODUCTION FACILITY was capable of same just prior to the date of
            this AGREEMENT.

5.7   PROTECTIVE DEVICE

      5.7.1 PRODUCER shall cooperate with NIAGARA MOHAWK on protective device
            settings and verification in accordance with 756, Appendix B,
            Section II, C and 756, Appendix C, Section V, B.

                                   ARTICLE VI
                              INSURANCE PROVISIONS

6.1   Upon the EFFECTIVE DATE of this AGREEMENT, the PRODUCER shall provide and
      maintain at its own expense, insurance policies, intended to be primary,
      issued by reputable insurance companies reasonably acceptable to NIAGARA
      MOHAWK, which meet or exceed the requirements listed herein:

      6.1.1 Workers Compensation and Employers Liability Insurance as required
            by the State of New York. Coverage shall include the U.S.
            Longshoremen's, and Harbor Workers Compensation Act and the Jones
            Act;

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<PAGE>   111

      6.1.2 Comprehensive General Liability (Including Contractual Liability),
            covering all operations to be performed under this AGREEMENT, with
            minimum limits of:

            (i)   Bodily Injury - $1,000,000/S1,000,000
                  Property Damage - $1,000,000/$ 1,000,000 OR

            (ii)  Combined Single Limit - $1,000,000

                  OR

            (iii) Bodily Injury and Property Damage per Occurrence - $1,000,000
                  General Aggregate & Product Aggregate - $2,000,000 each

      6.1.3 Umbrella Liability, coverage with a minimum limit of S 4,000,000.

6.2   NIAGARA MOHAWK shall be included as an additional insured for all
      coverages in order to provide NIAGARA MOHAWK protection from liability
      arising out of PRODUCER activities at the INTERCONNECTION FACILITY.

6.3   PRODUCER agrees to insure or cause to be insured, on its own side of the
      DELIVERY POINT against loss or damage of the kinds usually insured against
      by operators similarly situated, by means of policies issued by reputable
      insurance companies acceptable to NIAGARA MOHAWK with uniform standard
      coverage endorsement limited only as may be provided in the standard form
      of extended coverage endorsement at that time in use in New York, in
      amounts that are not less than the full insurable value of the
      INTERCONNECTION FACILITY and with such deductible provision as are
      customarily included by operators similarly situated. The term "full
      insurable value", as used herein, shall mean the actual replacement value.
      Alternatively, PRODUCER may insure or cause to be insured such property
      under a blanket insurance policy or policies which cover not only such
      property but other properties in the amount required by the previous
      sentence.

6.4   In the event that PRODUCER uses subcontractors in connection with this
      AGREEMENT, PRODUCER shall require all subcontractors provide the same
      insurance coverages as indicated in paragraph 6.1.1, 6.1.2 and 6.1.3.

6.5   Upon the EFFECTIVE DATE of this AGREEMENT, PRODUCER shall promptly provide
      NIAGARA MOHAWK with the original Owners Protective Liability policy and
      (i) Certificate(s) of Insurance for all other coverages required herein at
      the following address:

                To:   Niagara Mohawk Power Corporation
                      Attn: Risk Management, Bldg. C-1
                      300 Erie Boulevard West
                      Syracuse, NY 13202

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<PAGE>   112

      Such certificates, and any renewals or extensions thereof, shall provide
      that at least thirty (30) days prior written notice shall be given to
      NIAGARA MOHAWK in the event of any cancellation or diminution of coverage
      and shall outline the amount of deductibles or self-insured retentions
      which shall be for the account of PRODUCER. Such deductibles or
      self-insured retentions shall not exceed $100,000 unless agreed to by
      NIAGARA MOHAWK'S Risk Management Department.

6.6   If any insurance coverage is not secured, maintained or is canceled before
      the completion of all services provided under this AGREEMENT, and PRODUCER
      fails immediately to procure such insurance as specified, within ten (10)
      days after written notice is given by NIAGARA MOHAWK of the need for such
      insurance coverage, NIAGARA MOHAWK has the right to procure such insurance
      and to deduct the cost thereof from any sum due the PRODUCER under this
      contract or PRODUCER shall furnish NIAGARA MOHAWK'S Risk Management
      Department with copies of any accidents report(s) sent to PRODUCER
      insurance carriers covering accidents occurring in connection with or as a
      result of the performance of the work under this AGREEMENT.

6.7   These requirements are in addition to any which may be required elsewhere
      in the AGREEMENT. PRODUCER shall comply with any governmental and/or site
      specific insurance requirements even if not stated herein.

6.8   PRODUCER shall notify NIAGARA MOHAWK'S Risk Management Department in
      writing when coverages required herein have been reduced as a result of
      claim payments, expenses, or both.

6.9   PRODUCER represents that it has full policy limits available and shall
      notify NIAGARA MOHAWK'S Risk Management Department in writing when
      coverages required herein have been reduced as a result of claim payments,
      expenses, or both.

6.10  Nothing contained in these insurance requirements is to be construed as
      limiting the extent of the PRODUCER'S responsibility for payment of
      damages, or limiting, diminishing, or waiving contractor's obligation to
      indemnify, defend and save harmless NIAGARA MOHAWK in accordance with this
      AGREEMENT.

                                   ARTICLE VII
                              COMPLIANCE WITH LAWS

7.1   PRODUCER agrees to comply in all material respects with all applicable
      federal, state and local laws, ordinances, rules, regulations, permits,
      licenses, approvals, certificates, and requirements thereunder in
      connection with all its activities performed pursuant to this AGREEMENT,
      including, but not limited to all design, environmental, regulatory,
      engineering, construction, and property acquisition activities.

                                       15
<PAGE>   113

7.2   PRODUCER agrees to indemnify, defend, and save NIAGARA MOHAWK, its agents
      and employees, harmless from, and against any loss, damage, liability
      (civil or criminal), cost, suit, charge, expense (including reasonable
      attorneys fees) or cause of action, whether conditionally certain or
      otherwise, arising from violations by PRODUCER of said laws, ordinances,
      rules, regulations, permits, licenses, approvals, certificates and
      requirements thereunder. PRODUCER agrees to bear fully all civil and
      criminal penalties that may arise from its activities or from its
      violations of or its failure to comply with the aforementioned laws and
      requirements, whether such penalties are assessed against PRODUCER or
      NIAGARA MOHAWK.

7.3   If PRODUCER observes that any requirement specified in this AGREEMENT is
      at variance with any governing laws, ordinances, rules, regulations,
      permits, licenses, approvals, certificates and requirements thereunder,
      PRODUCER shall promptly notify NIAGARA MOHAWK in writing before incurring
      any further liability, expense or obligation. NIAGARA MOHAWK and PRODUCER
      shall in good faith attempt to reform this AGREEMENT to comply with the
      aforementioned laws, ordinances, rules, regulations, permits, approvals,
      or certificates. If NIAGARA MOHAWK and PRODUCER, are unable to do so,
      either party may terminate this AGREEMENT.

                                  ARTICLE VIII
                                  COST PAYMENTS

8.1   NIAGARA MOHAWK shall invoice PRODUCER at the end of each calendar quarter
      in an amount equal to NIAGARA MOHAWK'S actual costs and expenses for that
      quarter for which NIAGARA MOHAWK is to be reimbursed under this AGREEMENT.

8.2   PRODUCER shall reimburse NIAGARA MOHAWK for PRODUCER'S share of all of the
      following actual costs incurred, consistent with GOOD UTILITY PRACTICE, by
      NIAGARA MOHAWK after the EFFECTIVE DATE with respect to the
      INTERCONNECTION FACILITY and Interconnection upgrade facilities:

      8.2.1 All NIAGARA MOHAWK costs and expenses associated with the
            acquisition, ownership, operation, administration, inspection,
            design review, engineering, surveying, project management and
            coordination, testing of electrical equipment and installation of
            EMS-RTU and metering equipment, construction, financing,
            maintenance, environmental and regulatory permitting and licensing
            of, taxes and transfer of title and interest to, the INTERCONNECTION
            FACILITY, and any modified facility.

      8.2.2 All NIAGARA MOHAWK costs and expenses in connection with
            INTERCONNECTION STUDIES related to this INTERCONNECTION FACILITY.

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<PAGE>   114

      8.2.3 All NIAGARA MOHAWK costs and expenses of acquiring, owning,
            designing, engineering, constructing, financing, taxes,
            environmental permitting, and licensing, or any new or modified
            facilities.

      8.2.4 All legal fees and costs incurred by NIAGARA MOHAWK arising out of
            its exercise of eminent domain powers.

      8.2.5 Any capital costs associated with modification performed in
            accordance with this AGREEMENT.

      8.2.6 The PRODUCER shall reimburse NIAGARA MOHAWK for PRODUCER'S share of
            any and all actual costs or expenses that are incurred consistent
            with GOOD UTILITY PRACTICE by NIAGARA MOHAWK after the EFFECTIVE
            DATE pursuant to this AGREEMENT for the operation, maintenance and
            repair of the INTERCONNECTION FACILITY as follows:

            8.2.6.1 Operation, maintenance and repair costs and expenses shall
                    include all actual costs and expenses associated with
                    operation, inspection, engineering and legal services,
                    contract administration, rights-of-way acquisition,
                    administrative and general, working capital (including
                    material adders, overhead charges, and transportation
                    charges), and allowed earnings and/or rates of return
                    approved by a regulatory body having jurisdiction, including
                    but not be limited to, the following:

                  (i)   Power Delivery Inspections: Monthly substation
                        inspections by a traveling operator to inspect
                        substation equipment for physical indications of
                        potential problems. The inspection includes the
                        documentation of equipment status, gauge indications and
                        equipment loading. Includes substation security
                        inspections to prevent unauthorized entry. Documentation
                        of all such inspections to be provided to PRODUCER.
                        Switching: Periodic switching to remove or install
                        electrical equipment in service for scheduled work
                        activities or during emergency conditions for equipment
                        restoration activities. Disconnects: Maintenance
                        activities associated with disconnects based on work
                        request generated by a traveling operator or as part of
                        equipment maintenance requirements. Breakers: Preventive
                        and corrective maintenance conducted on high voltage
                        circuit breakers based on field observations, problems
                        or per established maintenance procedures intervals.
                        Relay PM: Preventive and corrective maintenance
                        conducted on relay related problems or per established
                        relay maintenance procedure intervals.

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<PAGE>   115

                  (ii)  Regional Control Center
                        EMS Switching: Administrative and support functions in
                        the corrective and preventive maintenance activities of
                        circuits and equipment conducted by Power Delivery and
                        T&D departments. Work activities include emergency
                        switching and restoration requirements, sequence of
                        switching instructions, directing switching activities,
                        mark-up procedures, and associated documentation.

                  (iii) Forestry
                        Stations: Includes substation yard herbicide program.
                        ROW Maintenance: Includes the ROW maintenance program
                        associated with substation and transmission circuits.

                  (iv)  Transmission and Delivery
                        Operation and Maintenance: Corrective and maintenance of
                        transmission, sub-transmission and distribution
                        circuits. Operation and maintenance activities include
                        patrols, maintenance and repair activities of facilities
                        per established electric operating procedures.

      8.2.7 Any and all federal, state or local taxes levied or assessed on
            NIAGARA MOHAWK, with respect to the INTERCONNECTION FACILITY, or
            payments made to NIAGARA MOHAWK by PRODUCER for services provided by
            NIAGARA MOHAWK under this AGREEMENT including, but not limited to,
            the following: transfer tax, property tax, federal income tax, New
            York State taxes. If any form of tax, other than income or excess
            profits tax, under any present or future federal, state or other law
            different from or in addition to the taxes for which participation
            in or payment by PRODUCER is provided herein or elsewhere in this
            AGREEMENT, should be levied or assessed against or incurred by
            NIAGARA MOHAWK with respect to any property, property right,
            commodity, service, or other matter involved in, growing out of or
            accruing from NIAGARA MOHAWK'S performance under this AGREEMENT,
            which different or additional tax would not be required to be paid
            by NIAGARA MOHAWK in the absence of this AGREEMENT and, with respect
            to such different or additional tax, no obligation of PRODUCER to
            participate or pay would have attached under the provisions of this
            AGREEMENT elsewhere than in this paragraph, then in such event
            PRODUCER shall fully reimburse NIAGARA MOHAWK for the full amount of
            such different or additional tax paid by NIAGARA MOHAWK.

      8.2.8 Increased Income Tax to NIAGARA MOHAWK Arising from PRODUCER'S
            Payment or Reimbursement of Tax Under the Proceeding Provisions.
            PRODUCER shall fully reimburse NIAGARA MOHAWK for any net actual
            federal income tax or New York State tax ("Tax"), if any, arising
            out of any

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<PAGE>   116

            payment or reimbursement of any tax by PRODUCER under this Article.
            The amount reimbursed to NIAGARA MOHAWK under this paragraph shall
            consist of(l) the initial amount of net actual Tax arising under
            this paragraph (the "First Amount"); (2) the net actual Tax on the
            First Amount (the "Second Amount"); (3) the net actual Tax on the
            Second Amount (the "Third Amount"); and (4) the net actual Tax on
            the Third Amount and on each succeeding amount until the final
            amount is less than one dollar.

      8.2.9 NIAGARA MOHAWK agrees to cooperate with PRODUCER in attempting to
            minimize NIAGARA MOHAWK'S costs under this Article, provided
            PRODUCER reimburses NIAGARA MOHAWK for all costs incurred by NIAGARA
            MOHAWK in connection with such cooperation, including reasonable
            attorneys fees, and provided further that PRODUCER shall indemnify,
            defend, and save harmless NIAGARA MOHAWK its agents and employees,
            against any and all penalties, judgments, fines civil or criminal,
            or other costs that may be imposed by any governmental authority as
            a result hereof.

8.3   PRODUCER agrees to pay all invoices within thirty (30) days from date of
      the invoice. If any invoice remains unpaid thirty (30) days from the
      invoice date, NIAGARA MOHAWK shall apply to the unpaid balance, and
      PRODUCER shall pay, a finance charge at the rate of one and one-half
      percent (1.5%) per month, but in no event more than the maximum allowed by
      law.

8.4   In the event that NIAGARA MOHAWK is the purchaser of power from the
      PRODUCTION FACILITY, any outstanding invoices which the PRODUCER has not
      paid to NIAGARA MOHAWK shall be deducted from the payments due PRODUCER by
      NIAGARA MOHAWK.

                                   ARTICLE IX
                                     NOTICES

9.1   All notices required or permitted under this AGREEMENT shall be in writing
      and shall be personally delivered or sent by certified or registered first
      class mail, postage prepaid, telex, facsimile transmission, or overnight
      express mail or courier service addressed as follows:

      To PRODUCER:                        To NIAGARA MOHAWK POWER
                                             CORPORATION:

      _______________________                MANAGER-TRANSMISSION
      _______________________                & DELIVERY SERVICES
      _______________________                NIAGARA MOHAWK POWER
      _______________________                CORPORATION

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<PAGE>   117

      _______________________                300 Erie Boulevard West
      _______________________                 Syracuse, NY 13202

9.2   Either party may change its address for notices by notice to the other in
      the manner provided above.

9.3   Notwithstanding paragraph 9.1, any notice hereunder, with respect to a
      system emergency or other occurrence requiring prompt attention, may be
      made by telephone provided that such notice is confirmed in writing
      promptly thereafter.

9.4   These representatives as noted in paragraph 9.1 or their designees shall
      be authorized to act on behalf of the parties, and their instructions,
      requests, and decisions will be binding upon the parties as to all matters
      pertaining to this AGREEMENT and the performance of the parties hereunder.
      Only these representatives shall have the authority to commit funds or
      make binding obligations on behalf of the parties. These representatives
      shall be responsible for tracking work, costs, schedules and all other
      matters related to this AGREEMENT, and to the performance of any third
      parties.

9.5   NIAGARA MOHAWK shall give Buyer 24 hours advance notice before conducting
      any inspection referenced in paragraph 8.2.6.2(i) above.

                                    ARTICLE X
                              TERM AND TERMINATION

10.1  This AGREEMENT shall become effective as of the date first above written
      (the "EFFECTIVE DATE"), subject to its approval or acceptance for filing
      by the FERC, and shall continue in effect for thirty (30) years.

10.2  This AGREEMENT shall not merge with or be terminated or superseded by any
      future agreement between the parties that does not specifically so
      provide.

10.3  In the event PRODUCER abandons the PRODUCTION FACILITY; becomes insolvent;
      or assigns or sublets this AGREEMENT in a manner inconsistent with this
      AGREEMENT, or is violating any of the material conditions, terms,
      obligations, or covenants of this AGREEMENT, or is not executing this
      AGREEMENT in good faith, NIAGARA MOHAWK may terminate this AGREEMENT.
      Before instituting proceedings before FERC to terminate the AGREEMENT,
      NIAGARA MOHAWK must give PRODUCER written notice of the reasons for
      termination. If within a period of thirty (30) days of such notice
      PRODUCER cures the default or breach cited by NIAGARA MOHAWK in such
      notice, to the reasonable satisfaction of NIAGARA MOHAWK, and shall have
      complied with the provisions of this AGREEMENT, such notice shall become
      null and void and of no effect.

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<PAGE>   118

10.4  In the event of a billing dispute between NIAGARA MOHAWK and the PRODUCER.
      NIAGARA MOHAWK will not apply to remove the INTERCONNECTION FACILITIES
      from service or to terminate transmission service thereon as long as the
      PRODUCER: (i) continues to make all payments not in dispute and (ii) pays
      into an independent escrow account the portion of the invoice in dispute,
      pending resolution of such dispute. If the PRODUCER fails to meet these
      two requirements, then a default shall be deemed to exist, to which the
      procedures set forth in this section for the removal of the
      INTERCONNECTION FACILITIES from service shall apply.

10.5  Termination of this AGREEMENT shall not relieve PRODUCER of any of its
      liabilities and obligations arising hereunder prior to the date
      termination becomes effective, and NIAGARA MOHAWK may take whatever
      judicial or administrative actions as appear necessary or desirable to
      enforce its rights hereunder. The rights specified herein are not
      exclusive and shall be in addition to all other remedies available to
      NIAGARA MOHAWK, either at law or in equity, for default or breach of any
      provision of this AGREEMENT.

10.6  PRODUCER shall be liable to NIAGARA MOHAWK for all costs, expenses,
      liabilities and obligations, including reasonable attorneys' fees,
      incurred by NIAGARA MOHAWK that result from or relate to the termination
      of this AGREEMENT.

10.7  In the event of termination of this AGREEMENT in accordance with Article
      X, NIAGARA MOHAWK will physically disconnect the PRODUCTION FACILITY from
      the TRANSMISSION SYSTEM and at NIAGARA MOHAWK'S sole determination remove
      any or all of NIAGARA MOHAWK'S INTERCONNECTION FACILITY equipment.

                                   ARTICLE XI
                                  FORCE MAJEURE

11.1  Neither party shall be considered to be in default or breach hereunder,
      and shall be excused from performance hereunder, if and to the extent that
      it shall be delayed in or prevented from performing or carrying out any
      provisions of this AGREEMENT by reason of storm, flood, lightning strikes,
      earthquake, fire, ice, snow, epidemic, war, invasion, riot, civil
      disturbance, sabotage, explosion, insurrection, military or usurped power,
      strikes, stoppage of labor, labor dispute, failure of contractors or
      supplies of material, action of any court or governmental authority, or
      any civil or military authority de facto or de jure, change in law, act of
      God or the public enemy, or any other cause beyond either party's control,
      including, without limitation, disconnection or limited operation of
      NIAGARA MOHAWK'S electric system, unscheduled repairs or maintenance, fuel
      or energy shortages, or equipment breakdown. A party's year 2000 computer
      compliance failure shall not constitute force majeure.

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<PAGE>   119

11.2  The party claiming force majeure shall use due diligence to resume
      performance or the provision of service hereunder as soon as practicable.

11.3  Neither party shall be liable to the other party for or on account of any
      loss, damage. injury or expense, including, but not limited to, special,
      indirect and consequential damages, resulting from or arising out of such
      delay or inability to perform.

                                   ARTICLE XII
                           RELATIONSHIP OF THE PARTIES

12.1  Except as expressly provided in Article III, nothing contained in this
      AGREEMENT shall be construed or deemed to cause, create, constitute, give
      effect to, or otherwise recognize PRODUCER and NIAGARA MOHAWK to be
      partners, joint venturers, employer and employee, principal agent, or any
      other business association, with respect to any matter.

12.2  Except as expressly provided in Article III or unless otherwise agreed to
      in writing signed by both parties, neither party shall have any authority
      to create or assume in the other party's name or on its behalf any
      obligation, express or implied or to act or purport to act as the other
      party's agent or legal empowered representative for any purpose
      whatsoever.

12.3  Neither party shall be liable to any third party in any way for any
      engagement, obligation, commitment, contract, representation or for any
      negligent act or omission to act of the other party, except as expressly
      provided for herein.

12.4  The rights and obligations of the parties shall be limited to those
      expressly set forth herein.

                                  ARTICLE XIII
                       THIRD PARTY BENEFICIARY/ASSIGNMENT

13.1  No person or party shall have any rights or interests, direct or indirect,
      in this AGREEMENT or the services or facilities to be provided hereunder,
      or both, except the parties, their successors, and authorized assigns.

13.2  The parties specifically disclaim any intent to create any rights in any
      person or party as a third-party beneficiary to this AGREEMENT or to the
      services or facilities to be provided hereunder, or both.

13.3  PRODUCER may assign or collaterally assign this AGREEMENT to lenders, or
      any financial institution participating in financing PRODUCER's
      INTERCONNECTION FACILITY or property acquisition, or to any partnerships
      created to operate PRODUCER's facilities, or to any other parties upon
      prior written notification to NIAGARA MOHAWK.

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<PAGE>   120

13.4  PRODUCER agrees to reimburse NIAGARA MOHAWK for costs and expenses
      (including reasonable fees and expenses of NIAGARA MOHAWK'S counsel)
      incurred in connection with NIAGARA MOHAWK'S review, execution and
      delivery of instruments, agreements or documents necessary in connection
      with the PRODUCER'S assignment, transfer, sale or other disposition of
      this AGREEMENT or any interest in the INTERCONNECTION FACILITY.

13.5  Any assignment in violation of Article XIII shall be considered null and
      void from its inception.

13.6  Any NIAGARA MOHAWK authorized assignment shall not relieve PRODUCER of the
      responsibility of full compliance with the requirements of this AGREEMENT,
      except in connection with the sale or disposition of the PRODUCTION
      FACILITY or the merger of the PRODUCER.

13.7  PRODUCER shall not make any assignment unless and until its successor in
      interest has agreed to undertake the obligations accepted by PRODUCER
      herein, and has provided written assurances to NIAGARA MOHAWK of continued
      performance and protection against liability upon assignment.

13.8  Assignment contrary to the provisions of this AGREEMENT shall make
      PRODUCER the indemnitor of NIAGARA MOHAWK and its successors, against any
      liabilities and costs, including attorneys fees as to which PRODUCER'S
      transferee fails to indemnify, defend, and hold harmless NIAGARA MOHAWK,
      its agents, employees and its successors, from and against any loss,
      damage, liability (civil or criminal), cost, suit, charge, expense
      (including reasonable attorneys fees) or cause of action, whether
      unconditionally certain or otherwise, incurred by NIAGARA MOHAWK as a
      result of said assignment or as a result of any dispute between PRODUCER
      and its transferees, or between any subsequent transferees, that arises
      from or relates to any assignment by PRODUCER.

13.9  This AGREEMENT shall bind and inure to the benefit of the parties to this
      AGREEMENT, their successors and permitted assigns.

                                       23
<PAGE>   121

                                   ARTICLE XIV
                                    APPROVAL

14.1  NIAGARA MOHAWK shall file this AGREEMENT with the appropriate regulatory
      authorities. If such regulatory body substantially modifies the terms and
      conditions of this AGREEMENT, either party shall have the right to
      unilaterally terminate this AGREEMENT.

14.2  This AGREEMENT is entered into subject to authorization by, or
      requirements of regulatory authorities having jurisdiction in respect to
      this AGREEMENT.

14.3  Nothing contained in this AGREEMENT shall be construed as affecting in any
      way the right of NIAGARA MOHAWK to unilaterally make application to the
      FERC for a change in rates, terms and conditions under Section 205 of the
      Federal Power Act and pursuant to the Commission's rules and regulations.

                                   ARTICLE XV
                                     WAIVER

15.1  No provision of this AGREEMENT may be waived except by mutual agreement of
      the parties as expressed in writing and signed by both parties.

15.2  Any waiver that is not in writing and signed by both parties shall be null
      and void from its inception.

15.3  No express waiver in any specific instance as provided in a required
      writing shall be construed as a waiver of future instances unless
      specifically so provided in the required writing.

15.4  No express waiver of any specific default shall be deemed a waiver of any
      other default whether or not similar to the default waived, or a
      continuing waiver of any other right or default by a party.

15.5  The failure of either party to insist in any one or more instances upon
      the strict performance of any of the provisions of this AGREEMENT, or to
      exercise any right herein, shall not be construed as a waiver or
      relinquishment for the future of such strict performance of such provision
      or the exercise of such right.

                                       24
<PAGE>   122

                                   ARTICLE XVI
                           AMENDMENT AND MODIFICATION

16.1  This AGREEMENT may be amended or modified only if the amendment or
      modification is in writing and executed by both parties. Any amendment or
      modification that is not in writing and signed by both parties shall be
      null and void from its inception.

16.2  No express amendment or modification in any specific instance as provided
      herein shall be construed as an amendment or modification of future
      instances, unless specifically so provided in the required writing.

16.3  Nothing in this AGREEMENT shall be construed as affecting in any way the
      ability of the PRODUCER to exercise its rights under the Federal Power Act
      and pursuant to FERC's rules and regulations promulgated thereunder.

                                       25
<PAGE>   123

                                  ARTICLE XVII
                                  GOVERNING LAW

17.1  This AGREEMENT and the rights and obligations of the parties to this
      AGREEMENT shall be governed by and construed in accordance with the laws
      of the State of New York.

17.2  PRODUCER and NIAGARA MOHAWK agree to submit to the jurisdiction of the
      courts in the State of New York for the purposes of interpretation and
      enforcement of this AGREEMENT.

17.3  PRODUCER and NIAGARA MOHAWK may waive personal service by manual delivery
      and agree that service of process on PRODUCER and NIAGARA MOHAWK in any
      action concerning or arising out of this AGREEMENT may be made by
      registered or certified mail, return receipt requested, delivered to
      PRODUCER and NIAGARA MOHAWK at its address set forth in the preamble
      hereto.

                                  ARTICLE XVIII
                               DISPUTE RESOLUTION

18.1  Any claim or dispute, which either Party may have against the other,
      arising out of the AGREEMENT shall be submitted in writing to the other
      Party not later than sixty (60) days after the circumstances which gave
      rise to the claim or dispute have taken place. The submission of any claim
      or dispute shall include a concise statement of the question or issue in
      dispute, together with relevant facts and documentation to fully support
      the claim.

18.2  If any such claim or dispute arises, the parties shall use their best
      efforts to resolve the claim or dispute, initially through good faith
      negotiations or upon the failure of such negotiations, through Alternative
      Dispute Resolution ("ADR") techniques in accordance with the Model
      Procedure for Mediation of Business Disputes as published by the Center
      for Public Resources; however, either Party may terminate its
      participation in ADR during any stage of ADR and proceed under paragraph
      18.3.

18.3  If any claim or dispute arising hereunder is not resolved pursuant to
      paragraph 18.2, either Party may, upon giving the other Party at least ten
      (10) days prior written notice, initiate litigation to submit such claim
      or dispute for decision by a court of competent jurisdiction.

18.4  Nothing in this Article XVIII shall restrict the rights of any party to
      file a complaint with FERC under relevant provisions of the Federal Power
      Act.

                                       26
<PAGE>   124

                                   ARTICLE XIX
                                  SEVERABILITY

19.1  If any term of this AGREEMENT, or the interpretation or application of any
      term or provision to any prior circumstance, is held to be unenforceable,
      illegal, or invalid by any governmental agency or court of competent
      jurisdiction, the remainder of this AGREEMENT, or the interpretation or
      application of all other terms or provisions to persons or circumstances
      other than those that are unenforceable, illegal, or invalid, shall not be
      affected thereby and each term and provision shall be valid and be
      enforced to the fullest extent permitted by law.

                                   ARTICLE XX
                                    HEADINGS

20.1  The headings in this AGREEMENT are included herein for convenience of
      reference only and shall not constitute a part of this AGREEMENT for any
      other purpose, or limit or be used as an aid in construing the provisions
      of this AGREEMENT.

                                   ARTICLE XXI
                        INTEGRATION/MERGER/SURVIVABILITY

21.1  This AGREEMENT sets forth the entire understanding and agreement of the
      parties as to the subject matter of this AGREEMENT and merges and
      supersedes all prior agreements, commitments, representations, writings
      and discussions between the parties with respect to the INTERCONNECTION
      FACILITY.

21.2  The obligations of the PRODUCER shall survive the completion, termination,
      or abandonment of this AGREEMENT and of the PRODUCER'S facilities and
      work.

                                  ARTICLE XXII
                            COMPLIANCE WITH THE NERC

22.1  Both parties agree to comply with any existing or future criteria, guides,
      and procedures established by the NERC or any successor organization to
      ensure the continued reliability of North America's interconnected bulk
      electric systems.

                                  ARTICLE XXIII
                        CONFIDENTIALITY AND AUDIT RIGHTS

23.1  PRODUCER hereby represents and confirms to the NIAGARA MOHAWK that it has
      or will take all necessary measures to assure that its deliveries of
      electric power and/or services to the NIAGARA MOHAWK will not be
      interrupted, delayed or otherwise adversely affected by the Year 2000
      Problem. Furthermore, PRODUCER agrees to

                                       27
<PAGE>   125

      promptly notify the NIAGARA MOHAWK if it has reason to believe that the
      deliveries of electric power and/or services to the NIAGARA MOHAWK will be
      affected by the Year 2000 Problem.

23.2  Confidentiality. (a) The Parties shall hold in confidence, unless
      compelled to disclose by judicial or administrative process or other
      provisions of law, all documents and information furnished by the other
      Party in connection with this Agreement, provided that any compelled
      disclosure shall be subject to a protective order. Except to the extent
      that such information or documents are (i) generally available to the
      public other than as a result of a disclosure by the receiving Party, (ii)
      available to the receiving Party on a non-confidential basis prior to
      disclosure under this Agreement, or (iii) available to the receiving Party
      on a non-confidential basis from a source other than the disclosing Party,
      provided that such source is not known, and by reasonable effort could not
      be known, to be bound by a confidentiality agreement or otherwise
      prohibited from transmitting the information by a contractual, legal or
      fiduciary obligation, the receiving Party shall not release or disclose
      such information to any other person, except to its employees on a
      need-to-know basis, in connection with this Agreement who have been
      advised of the confidentiality provisions of this Section 23.1 and have
      agreed in writing to comply with such provisions. In no event shall such
      information be disclosed in violation of the requirements of FERC Order
      889, any orders on rehearing and any successor thereto. The receiving
      Party shall promptly notify the disclosing Party if it receives notice or
      otherwise concludes that the production of any information subject to this
      Section 23.1 is being sought under any provision of law.

      (b) Any audit, as referred to in Section 23.2, shall be subject to the
      confidentiality provisions of this Section 23.1.

      (c) The Parties agree that monetary damages would be inadequate to
      compensate a Party for the other Party's breach of its obligations under
      Section 23.1. Accordingly, a Party shall be entitled to equitable relief,
      by way of injunction or otherwise, if the other Party breaches or
      threatens to breach its obligations under Section 23.1.

23.3  Audit Rights. Within two (2) years following a calendar year, during
      normal business hours, the Parties shall have the right to audit each
      other's accounts and records pertaining to transactions under this
      Agreement during the calendar year at the offices where such accounts and
      records are maintained; provided that appropriate notice shall have been
      given prior to any audit, and provided that the audit shall be limited to
      those portions of such accounts and records that relate to services
      provided to the other Party under this Agreement for said calendar year.
      The Party being audited will be entitled to review the audit report and
      any supporting materials.

                                  ARTICLE XXIV

                                       28
<PAGE>   126

                                  COUNTERPARTS

      This Agreement may be executed in two or more counterparts. each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the day and year first above written.

ERIE BOULEVARD HYDROPOWER, L.P.     NIAGARA MOHAWK POWER
                                    CORPORATION

By: ___________________________     By:________________________________

Title: ________________________     Title: Vice President, Marketing & Planning

Date: _________________________     Date: _______________________________

                                       29
<PAGE>   127

                                   Exhibit A

                                       30
<PAGE>   128

                              Waterport Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Waterport Single Line Diagram. Drawing No. 711532

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1, & 2 - The Interconnection Points are located at the jaw side
      of disconnect switch 323. Buyer owns disconnect switch 323.

      Generators 1, & 2 - Common Delivery Point at the connection to the 34.5 kV
      Waterport station bus.

      Interconnection Facilities are the overhead conductors, insulators,
      connectors, and hardware, between the switch and the 34.5 kV bus. The
      distance between the Interconnection and Delivery Points is approximately
      20 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located on the 12 kV side of transformer TB #2.
      Transformer TB #2 and approximately 20 feet of 34.5 kV circuit separate
      the Metering and Delivery Points

                                       1                         August 27, 1998
<PAGE>   129

                              YALEVILLE HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Yaleville Hydra Station Interconnection Diagram, Drawing No.
      811474

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 & 2 - Interconnection Point is at the jaw side of disconnect
      switch 218, Buyer owns disconnect switch 218

      Generator 1 & 2 - Delivery Point is the respective connection to the 23kV
      Norfolk - Norwood No. 21 Line. Interconnection Facilities are the
      conductors, insulators, support structures, foundations, connectors and
      hardware between the respective disconnect switch and the 23kV line. The
      distance between the Interconnection and Delivery Point is approximately
      ( ) miles per phase, with a total of approximately ( ) miles of conductor
      per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 & 2 - Gross unit output metering is located at the 2.4 kV
      side of Transformer Bank no. 1 approximately ( ) miles of overhead
      transmission separate the Metering and Delivery points.

      08/04/98

<PAGE>   130

                            Trenton Falls Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Trenton Falls Single Line Diagram, Drawing No. 811407

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 5, 6, & 7 - The Interconnection Points are at the jaw side of
      disconnect switches 218 and 228. Buyer owns disconnect switches.

      Generators 5, 6, & 7 - Delivery Points are the points of connection to the
      Trenton Falls station 46 kV C & D bus. Interconnection Facilities are the
      23 kV conductors, insulators, connectors, and hardware between the switch
      and the bus. The distance between the Interconnection and Delivery Point
      is approximately 5 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located on the 13.2 kV side of transformer(s)
      TB #1 and TB #2. Transformers TB #1 & TB #2, approximately 16 feet of 2500
      MCM conductor, 18 feet of 795 MCM conductor, and 20 feet of 3 1/2 inch IPS
      aluminum bus separate the Metering and Delivery Points.

                                                                  August 7, 1998

<PAGE>   131

                               Varick Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Varick Single Line Diagram. Drawing No. 811418

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 2, 3, 4 & 5 - The Interconnection Point are at the jaw side of
      disconnect switches 18 and 32. Buyer owns disconnect switches 18 and 32.

      Generators 2, 3, 4 & 5 - Common Delivery Point is the connection between
      the 34.5 kV bus to the High Dam - Varick # 21 line. Interconnection
      Facilities are the overhead conductors, insulators, support structures,
      connectors, hardware, protection systems, control systems and surge
      arresters between the switches. The distance between the Interconnection
      and Delivery Point is approximately 35 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located on the 2.4 kV side of transformers TB
      #1 and TB #2. Transformer banks and approximately 50 feet of 34.5 kV
      overhead conductor separate the Metering and Delivery Points.

                                                                  August 7, 1998

<PAGE>   132

                              TALCVILLE HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Talcville Hydra Station Interconnection Diagram, Drawing No.
      811462

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 & 2 - Interconnection Point is at the jaw side of disconnect
      switch 218. Buyer owns disconnect switch 218

      Generator 1 & 2 - Delivery Point is the respective connection to the 23kV
      Emeryville - Mine Rd. No. 23 Line. Interconnection Facilities are the
      conductors, insulators, support structures foundations, connectors and
      hardware between the respective disconnect switch and the 23kV line. The
      distance between the Interconnection and Delivery Point is approximately
      ( ) miles per phase, with a total of approximately ( ) miles of conductor
      per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 & 2 - Net unit output metering is located at the 23 kV side
      of Transformer Bank no. 1 approximately ( ) miles of overhead transmission
      separate the Metering and Delivery points.

      08/04/98

<PAGE>   133

                             Taylorville Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Taylorville Since Line Diagram, Drawing No. 811446

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1, 2, 3 & 4 - The Interconnection Point is at the jaw side of
      disconnect switch 216. Buyer owns disconnect switch.

      Generators 1, 2, 3 & 4 - Common Delivery Point is the point of connection
      to the Taylorville station 23 kV bus. Interconnection Facilities are the
      23 kV conductors, insulators, support structures, connectors, and hardware
      between the switch and the bus. The distance between the Interconnection
      and Delivery Point is approximately 20 Feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located on the 2.4 kV side of transformer TB
      #1. Transformer TB #1 and approximately 240 feet of 23 kV overhead
      conductor separate the Metering and Delivery Points.

                                                                  August 7, 1998

<PAGE>   134

                             Stuyvesant Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Stuyvesant Single Line Diagram, Drawing No. G-781-E

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator l - The Interconnection Point is at the jaw side of disconnect
switch 6188. Buyer owns disconnect switch 188.

      Generator 1 - The Delivery Point is the connection where the mobile
substation tap is located in the 34.5 KV substation at Stuyvesant.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Net unit metering for generation needs to be added if the plant goes back
into service.

<PAGE>   135

                            SUGAR ISLAND HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Sugar Island Hydro Station Interconnection Diagram, Drawing
      No.811479

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 & 2 - Interconnection Point is at the jaw side of disconnect
      switch 18, Buyer owns disconnect switch 18

      Generator 1 & 2 - Delivery Point is the respective connection to the
      115kV Dennison - Colton No. 4 Line. Interconnection Facilities are the
      conductors, insulators, support structures, foundations, connectors and
      hardware between the respective disconnect switch and the 115kV line. The
      distance between the Interconnection and Delivery Point is approximately
      ( ) miles per phase, with a total of approximately ( ) miles of conductor
      per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asses Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 & 2 - Gross unit output metering is located at the 4.8 kV
      side of Transformer Bank no. 1 approximately ( ) miles of overhead
      transmission separate the Metering and Delivery points.

      08/04/98

<PAGE>   136

                                STARK HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Stark Hydro Station Interconnection Diagram, Drawing No.
      811494

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 - Interconnection Point is at the jaw side of disconnect
      switch 18, Buyer owns disconnect switch 18

      Generator 1 - Delivery Point is the respective connection to the 115 kV
      switchyard bus at Colton Substation. Interconnection Facilities are the
      conductors, insulators, support structures, foundations, connectors and
      hardware between the respective disconnect switch and the 115 kV
      switchyard bus at Colton Substation. The distance between the
      Interconnection and Delivery Point is approximately ( ) miles per phase.
      with a total of approximately ( ) miles of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 - Gross unit output metering is located at the 12 kV side of
      Transformer Bank no. 1 approximately ( ) miles of overhead transmission
      separate the Metering and Delivery points.

      08/04/98

<PAGE>   137

                           Stewarts Bridge Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Stewarts Bridge Single Line Diagram, Drawing No.

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      The Interconnection Point is at the jaw side of disconnect switch 988.
Buyer owns disconnect switch 988

      The Delivery Point is the Spier-West #9 line at tower 25.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Net unit metering for the generator will be located between R21 and the
13.2 KV connection point for the #6 Bank. Transformer Bank #1 and 1/8 mile of
115 KV circuit separate the metering and delivery points.

<PAGE>   138

                            SOUTH EDWARDS HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the South Edwards Hydro Station Interconnection Diagram, Drawing
      No. 811464

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1, 2, 3 & 4 - Interconnection Point is at the jaw side of fined
      disconnect J225, Buyer owns fused disconnect J225

      Generator 1, 2, 3, & 4 - Delivery Point is the respective connection to
      the 34.5 kV switchyard bus at Colony Switching Station. Interconnection
      Facilities are the conductors, insulators support structures, foundations
      and hardware between connectors between the respective fused disconnect
      and the 34.5 kV switchyard bus at Colony Switching Station. The distance
      between the Interconnection and Delivery Point is approximately ( ) miles
      per phase, with a total of approximately ( ) miles of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1, 2, 3 & 4 - Gross unit output metering is located at the 2.4
      kV side of Transformer Bank no. 1 approximately ( ) miles of overhead
      transmission separate the Metering and Delivery points.

      08/04/98

<PAGE>   139

                             Spier Falls Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Spier Falls Single Line Diagram, Drawing No.

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Spier Falls Unit #8 - The Interconnection Point is at the jaw side of
disconnect switch 6677. Buyer owns disconnect switch 6677

      The Delivery Point is the Spier Falls 77G Bus.

      Spier Falls Unit #9 - The Interconnection Point is the jaw side of
disconnect switch 6999. Buyer owns disconnect switch 6999.

      The delivery point is the Spier falls 99G Bus.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Net unit metering for the generator #9 will be located between switch 5922
and connection paint for the #12 Bank. Transformer bank #9, R69 and
approximately 20 feet of 115KV circuit separate the metering and the delivery
points.

      Net unit metering for generator #8 is located between the 5666 and the
cable to the #6 bank. Approximately 150 feet of 6900V cable, transformer #6, and
20 feet of 115KV circuit separate the metering from the delivery points.

<PAGE>   140

                             Soft Maple Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Soft Maple Single Line Diagram, Drawing No. 811445

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1, & 2 - The Interconnection Points are located at the jaw side
      of circuit switchers 18 and 28 in the Soft Maple transmission station.
      Buyer owns circuit switchers 18 and 28.

      Generators 1, & 2 - Delivery Points at the tie to the 115 kV Soft Maple
      station bus. Interconnection Facilities sac the overhead conductors,
      insulators, connectors, and hardware between the interconnect point and
      delivery point. The distance between the Interconnection and Delivery
      Points is approximately 26 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located the on the 6.9 k side of Soft Maple
      Transformer TB #1 and TB #2. Two meters are utilized at this site. The
      transformer bank(s) and approximately 65 feet of 115 kV circuit separate
      the Metering and Delivery Points.

                                                                  August 7, 1998

<PAGE>   141

                            SOUTH COLTON HYDRO PLANT

                      INTERCONNECTION AGREEMENT- Exhibit A

      Refer to the South Colton Hydro Station Interconnection Diagram, Drawing
      No. 811498

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 - Interconnection Point is at the jaw side of disconnect
      switch 18, Buyer owns disconnect switch 18

      Generator 1 - Delivery Point is the respective connection to the 115 kV
      switchyard bus at Colton Substation. Interconnection Facilities are the
      conductors, insulators, support structures, foundations, connectors and
      hardware between the respective disconnect switch and the 115 kV
      switchyard bus at Colton Substation. The distance between the
      Interconnection and Delivery Point is approximately ( ) miles per phase,
      with a total of approximately ( ) miles of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 - Gross unit output metering is located at the 12 kV side of
      Transformer Bank no. 1 approximately ( ) miles of overhead transmission
      separate the Metering and Delivery points.

      08/04/98

<PAGE>   142

                              Sewalls Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Sewalls Single Line Diagram, Drawing No. 811435

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1, & 2 - The Interconnection Point is at the jaw side of
      disconnect switch 218. Buyer owns disconnect switch 218.

      Generators 1, & 2 - Common Delivery Point is the connection so the 23 kV
      bus. Interconnection Facilities are the overhead conductors, insulators,
      connectors, and hardware between the interconnect point and the 23 kV
      station bus. The distance between the Interconnection and Delivery Points
      is approximately 7 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Access to Sewalls Island is via a ROW or Easement across Black Clawson
      property. Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located on the 2.4 kV side of transformer TB
      #1. Transformer TB #1 and approximately 25 feet of 23 kV circuit separate
      the Metering and Delivery Points.

                                                                  August 7, 1998

<PAGE>   143

                           Sherman Island Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Sherman Island Hydro Single Line Diagram, Drawing No.

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      The interconnection point is the jaw side of the disconnect switch 1788.
Buyer Owens disconnect switch 1788. The delivery point is tower T511 on the
Spier-Queesbury #17 line.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Net unit metering for the generator #2 and #3 will be located between the
#1 Bank and the station service tap from the 6777. The Net unit metering for
Generator #4 and #5 will be between the #2 Bank and the station service tap from
6799. Transformer Banks #1 and #2 and approximately 1/4 mile of 115KV circuit
separate the each metering point from the delivery point.

<PAGE>   144

                            School Street Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the School Street Single Line Diagram, Drawing No. D-7085-E

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 - 4 - The Interconnection Point is at the jaw side of
disconnect switches 6177 and 6199. Buyer owns disconnect switches 6177 and 6199.
This is also the Interconnection Point for Green Island Hydro.

      Generator 1 - 4 - The Delivery Point is the 77 Bus and 99 Bus in the 34.5
KV substation at School Sweet.

      Generator 5 - The Interconnection Point is at the jaw side of disconnect
switches 6577 and 6599. Buyer owns disconnect switches 6577 and 6599.

      Generator 5 - The Delivery Point is the 77 Bus and 99 Bus in the 34.5 KV
substation at School Street.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located on the 13.2 KV bus on the generator
side of disconect switches 5166 and 5544. Transformer TB#1 and TB#5, breakers
R61 and R65, and disconnect switches 5166 and 5544 separate the Metering and
Delivery Points.

<PAGE>   145

                            Schuylerville Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Schuylerville Single Line Diagram, Drawing No.

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      The Interconnection Point for the Schuylerville facility is at the jaw
side of disconnect switch 6199. Buyer owns disconnect switch 6199

      The Delivery Point is the Schuylerville substation 99 Bus.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Net unit metering for the generator #2 will be located between switch 5133
and #1 Bank. Approximately 75 feet of 4.8KV cable, Transformer bank #1 and
approximately 20 feet of 34.5KV circuit separate the metering and the delivery
points.

<PAGE>   146

                            RAYMONDVILLE HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Raymondville Hydro Station Interconnection Diagram, Drawing
      No. 811478

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 - Interconnection Point is at the jaw side of disconnect
      switch 13, Buyer owns disconnect switch 13

      Generator 1 - Delivery Point is the respective connection to the 115kV
      switchyard bus at Norfolk Substation. Interconnection Facilities are the
      conductors, insulators, support structures, foundations, connectors and
      hardware between the respective disconnect switch and the 115 kV
      switchyard bus at Norfolk Substation. The distance between the
      Interconnection and Delivery Point is approximately ( ) miles per phase.
      with a total of approximately ( ) miles of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 - Gross unit output metering is located at the 2.3 kV side of
      Transformer Bank no. 1 approximately ( ) miles of overhead transmission
      separate the Metering and Delivery points.

      08/04/98

<PAGE>   147

                            Schaghticoke Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Schaghticoke Single Line Diagram, Drawing No. C-17641-E

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 - 4 - The Interconnection Point is at the jaw side of
disconnect switches 6277 and 6499. Buyer owns disconnect switches 6277 and 6499.

      Generator 1 - 4 - The Delivery Point is the Mechanicville - Schaghticoke
No. 3 line (34.5 kV - 77 Bus) and the Mechanicville - Schaghticoke No. 7 line
(34.5 kV - 99 Bus).

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Net unit metering for Generators 1-4 will be located off the 34.5 kV
circuits on the generator side of disconnect switch 6211 and disconnect switch
6422. Disconnect switches 6211 and 6422 along with approximately 50 feet of
34.5KV circuit separate the metering points and the delivery points.

<PAGE>   148

                              Prospect Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Prospect Single Line Diagram, Drawing No. 811406

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 - The Interconnection Point is at the jaw side of disconnect
      switch 218. Buyer owns disconnect switch 218.

      Generator 1 - Delivery Point is the at the intersection of Prospect tap
      and 46 kV Trenton-Prospect #23 line (where line goes to Jarvis).
      Interconnection Facilities are the overhead conductor, insulators,
      connectors, and hardware between the interconnection point and delivery
      point. The distance between the Interconnection and Delivery Points is
      3538 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located on the 6.9 kV side of transformer TB
      #1. Transformer TB #1 and approximately 3578 feet of 46 kV circuit
      separate the Metering and Delivery Points.

                                       1                          August 7, 1998

<PAGE>   149

                               RAINBOW HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Rainbow Hydro Station Interconnection Diagram, Drawing No.
      811496

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 - Interconnection Point is at the jaw side of disconnect
      switch 18, Buyer owns disconnect switch 18

      Generator 1 - Delivery Point is the respective connection to the 115 kV
      switchyard bus at Colton Substation. Interconnection Facilities are the
      conductors, insulators, support structures, foundations, connectors and
      hardware between the respective disconnect switch and the 115 kV
      switchyard bus at Colton Substation. The distance between the
      Interconnection and Delivery Point is approximately ( ) miles per phase,
      with a total of approximately ( ) miles of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 - Gross unit output metering is located at the 12 kV side of
      Transformer Bank no. 1 approximately ( ) miles of overhead transmission
      separate the Metering and Delivery points.

      08/04/98

<PAGE>   150

                             PARISHVILLE HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Parishville Hydro Station Interconnection Diagram. Drawing
      No. 811484

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 - Interconnection Point is at the jaw side of disconnect
      switch 716, Buyer owns disconnect switch 716

      Generator 1 - Delivery Point is the respective connection to the 2.4kV
      bus. Interconnection Facilities are the conductors, insulators, support
      structures, foundations, connectors and hardware between the respective
      disconnect switch and the 2.4kV bus. The distance between the
      Interconnection and Delivery Point is approximately ( ) feet per phase,
      with a total of approximately ( ) feet of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 - Gross unit output metering is located between disconnect
      switch 716 and the 2.4kV bus approximately ( ) feet of overhead
      transmission separate the Metering and Delivery points.

      08/04/98

<PAGE>   151

                             PIERCEFIELD HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Piercefield Hydra Station Interconnection Diagram, Drawing
      No. 811502

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1, 2 & 3 - Interconnection Point is at the jaw side of
      disconnect switch 392. Buyer owns disconnect switch 392

      Generator 1, 2 & 3 - Delivery Point is the respective connection to the
      46kV bus. Interconnection Facilities are the conductors, insulators,
      support structures, foundations, connectors and hardware between the
      respective disconnect switch and the 46kV bus. The distance between the
      Interconnection and Delivery Point is approximately ( ) feet per phase,
      with a total of approximately ( ) feet of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 - Gross unit output metering is located at the 2.4 kV side of
      Transformer Bank No. 2 approximately ( ) feet of overhead transmission
      separate the Metering and Delivery points.

      Generator 2 & 3 - Gross unit output metering is located at the 600V side
      of Transformer Bank No. 3 approximately ( ) feet of overhead transmission
      separate the Metering and Delivery points.

      08/04/98

<PAGE>   152

                          Oswego Falls East Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Oswego Falls East Single Line Diagram, Drawing No. 811416

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1, 2 & 3 - The Interconnection Point is at the hinge side of
      disconnect switch 218, Oswego Falls West substation. Buyer owns disconnect
      switch 218.

      Generators 1, 2 & 3 - Delivery Point is at the Oswego Falls West
      substation, 34.5 kV common tie to Eureka-Fay St. #24. Interconnection
      Facilities are the overhead conductor, insulators, support structures,
      connectors, and hardware between the switch and the 34.5 kV tie. The
      distance between the Interconnection and Delivery Points is approximately
      10 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located on the 2.4 kV side of transformer TB
      #1, Oswego Falls West substation. Transformer TB #1 and approximately 20
      feet of 34.5 kV conductor separate the Metering and Delivery Points.

                                                                  August 7, 1998

<PAGE>   153

                          Oswego Falls West Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Oswego Falls West Single Line Diagram. Drawing No. 811416

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 3, 4 & 5 - The Interconnection Point is at the hinge side of
      disconnect switch 218. Buyer owns disconnect switch 218.

      Generators 3, 4 & 5 - Delivery Point is at the Oswego Falls West
      substation, 34.5 kV common tie to Eureka-Fay St. #24. Interconnection
      Facilities are the overhead conductor, insulators, support structures,
      connectors, and hardware between the switch and the 34.5 kV tie. The
      distance between the Interconnection and Delivery Points is approximately
      10 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located on the 2.4 kV side of transformer TB
      #1. Transformer TB #1 and approximately 20 feet of 34.5 kV conductor
      separate the Metering and Delivery Points.

                                                                  August 7, 1998

<PAGE>   154

                             Oak Orchard Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Oak Orchard Single Line Diagram, Drawing No. 711601

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 - The Interconnection Point is located at Pole #1 on 13.2 kV
      feeder F7654 Buyer owns Pole #1 and all equipment form this point into the
      plant.

      Generator 1 - Common Delivery Point is located at Pole #1 on 13.2 kV
      feeder F7654.

      There are no Interconnection Facilities at this site.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located on the 480 V side of transformer TB #1.
      Transformer TB #1 and approximately 400 feet of 13.2 kV circuit separate
      the Metering and Delivery Points.

                                       1                          AUGUST 7, 1998

<PAGE>   155

                             OSWEGATCHIE HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Oswegatchie Hydro Station Interconnection Diagram, Drawing
      No. 811463 and South Edwards Hydro Station Interconnection Diagram,
      Drawing No. 811464

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 & 2 - Interconnection Point is at the jaw side of disconnect
      switch 613, Buyer owns disconnect switch 613

      Generator 1 & 2 - Delivery Point is the respective connection to the 34.5
      kV switchyard bus at Colony Switching Station. Interconnection Facilities
      are the conductors, insulators, support structures foundations and
      hardware connectors between the respective disconnect switch and the 34. 5
      kV switchyard bus at Colony Switching Station. The distance between the
      Interconnection and Delivery Point is approximately ( ) miles per phase,
      with a total of approximately ( ) miles of conductor per phase

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1&2 - Gross unit output metering is located at the 2.4 kV side
      of Transformer Bank no. 1 at South Edwards approximately ( ) miles of
      overhead transmission separate the Metering and Delivery points.

      08/04/98

<PAGE>   156

                               NORFOLK HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Norfolk Hydro Station Interconnection Diagram, Drawing No.
      811476

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 - Interconnection Points are at the jaw side of disconnect
      switches 18 & 28, Buyer owns disconnect switches 18 & 28

      Generator 1 - Delivery Point is the respective connection to the 11 5kV
      bus. Interconnection Facilities are the conductors, insulators, support
      structures, foundations, connectors and hardware between the respective
      disconnect switch and the 115kV bus. The distance between the
      Interconnection and Delivery Point is approximately ( ) feet per phase.
      with a total of approximately ( ) feet of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 - Gross unit output metering is located at the 2.4 kV side of
      Transformer Banks no. 1 and no. 2 approximately ( ) feet of overhead
      transmission separate the Metering and Delivery points.

      08/04/98

<PAGE>   157

                               NORWOOD HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Norwood Hydro Station Interconnection Diagram. Drawing No.
      811477

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 - Interconnection Point is at the jaw side of disconnect
      switch 228. Buyer owns disconnect switch 228

      Generator 1 - Delivery Point is the respective connection to the 23kV
      bus. Interconnection Facilities are the conductors, insulators, support
      structures, foundations, connectors and hardware between the respective
      disconnect switch and the 23kV bus. The distance between the
      Interconnection and Delivery Point is approximately ( ) feet per phase,
      with a total of approximately ( ) feet of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 - Gross unit output metering is located at the 2.4 kV side of
      Transformer Bank No. 1 approximately ( ) feet of overhead transmission
      separate the Metering and Delivery points.

      08/04/98

<PAGE>   158

                               Minetto Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Minetto Single Line Diagram, Drawing No. 811420

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 2, 3, 4, 5 & 6 - The Interconnection Points are at the jaw side
      of disconnect switch 87, the jaw side of disconnect switch 78, the jaw
      side of disconnect switch 84 and the supply side of fused disconnect J141.
      Buyer owns disconnect switches and fused disconnect and surge arresters.

      Generators 2, 3, 4, 5 & 6 - Common Delivery Point is the connection to
      Seneca Hills tap from the Minetto 34.4 kV feeder. Interconnection
      Facilities are the overhead conductors, insulators, support structures,
      connectors, hardware, protection systems, control systems, between the
      switches and the tap point. The distance between the Interconnection and
      Delivery Point is approximately 550 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located on the 34.5 kV side of transformers TB
      #1 and TB #2. Transformer banks and approximately 600 feet of 34.5 kV
      overhead conductor separate the Metering and Delivery Points.

                                                                  August 7, 1998

<PAGE>   159

                               Moshier Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Moshier Single Line Diagram, Drawing No. 811448

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1 & 2 - Interconnection Point is the jaw side of disconnect
      switch 18 where the arrester lead meets the 115kv line. Buyer owns
      disconnect switch 18 and 115kv arresters.

      Generators 1 & 2 - Common Delivery Point is at the connection between the
      Taylorville-Moshier 115 kV transmission circuit and Sunday Creek station
      tie. Interconnection Facilities are the conductors, insulators, support
      structures, foundations, connectors, and hardware associated with the 115
      kV feeder circuit Taylorville-Moshier #7 between the Delivery Point and
      the Interface point. Moshier 98 kV MCOV surge and supports are owned by
      the Buyer. The distance between the Interconnection and Delivery Point is
      approximately 230 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Portions of the Interconnection Facilities are located on Niagara Mohawk
      lands associated with the 115 kV transmission system and Sunday Creek
      Station switchyard.

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Net unit metering for generators 1 & 2 is located at the 6600 V side of
      transformer TB #1. Transformer TB #1, and approximately 235 feet of 115 KV
      circuit separate the Metering and Delivery Points.

                                                                  August 7, 1998

<PAGE>   160

                               MACOMB HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Macomb Hydro Station Interconnection Diagram, Drawing No.
      811487

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 - Interconnection Point is at the jaw side of disconnect
      switch 203, Buyer owns disconnect switch 203

      Generator 1 - Delivery Point is the respective connection to the 34.5 kV
      Spencers Corners-Malone No. 26 Line. Interconnection Facilities are the
      conductors, insulators, connectors support structures, foundations and
      hardware between the respective disconnect switch and the 34.5 kV Line.
      The distance between the Interconnection and Delivery Point is
      approximately ( ) miles per phase, with a total of approximately ( ) miles
      of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 - Gross unit output metering is located at the 2.4 kV side of
      Transformer Bank no. 1 approximately ( ) miles of overhead transmission
      separate the Metering and Delivery points.

      08/04/98

<PAGE>   161

                            Mechanicville Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Mechanicville Single Line Diagram, Drawing No. D-9657-E

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 - 7 - The Interconnection Point is at the jaw side of
disconnect switches 6977 and 6899. Buyer owns disconnect switches 6977 and 6899.

      Generator 1 - 7 - The Delivery Point is the 77 Bus and 99 Bus in the 34.5
KV substation at Mechanicville.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Net unit metering for generation is located off the 34.5 kV side of
transformer TB#8 and TB#9. The metering and delivery points are the same.

<PAGE>   162

                               Kamargo Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Kamargo Single Line Diagram, Drawing No. 811432

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1, 2 & 3 - The Interconnection Point is at the jaw side of
      disconnect switch 243. Buyer owns disconnect switch 243.

      Generators 1, 2 & 3 - Common Delivery Point is the connection between the
      23 kV Black River-Kamargo #24 line and the 23 kV transmission feed to
      Leray. Interconnection Facilities are the overhead conductors, insulators,
      connectors, and hardware between the switch and the 23 kV feed to Leray.
      The distance between the Interconnection and Delivery Points is
      approximately 310 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located on the 2.4 kV side of transformer TB
      #1. Transformer TB #1 and approximately 330 feet of 23 kV circuit separate
      the Metering and Delivery Points.

                                                                  August 7, 1998

<PAGE>   163

                           Lighthouse Hill Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Lighthouse Hill Single Line Diagram, Drawing No.811492

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1 & 2 - The Interconnection Points to the 115 kV grid are
      located at the jaw side of motor operated disconnect 18, and the hinge
      side of disconnects 28 and 48. Interconnection Points for the 12 kV "B"
      bus are located at the jaw side of disconnect switch 458, at the jaw side
      of load break switch 411 and at the jaw side of load break switch 441.
      Interconnection Points for the 12 kV "A" bus are located at the hinge side
      of disconnect switch 438.

      Generators 1 & 2 - Delivery Points to the 115 kV grid are at the
      connection point of the power leads from TB #1, TB #2 and TB #4 to the 115
      kV line conductor. The Interconnection Facilities on the 115 kV side of
      the station are the overhead conductors, insulators, connectors, hardware,
      protection systems, and control systems between the switch and the 115 kV
      line connection. The distance between the Interconnection and Delivery
      Points is approximately 50 feet per phase. The Delivery Points to the 12
      kV system are at the above defined Interconnection Points. The
      Interconnection Point and Delivery Point are common for the 12 kV system
      and as such there are no Interconnection Facilities on the 12 kV side of
      the station. The distance between the Interconnection and Delivery Points
      is approximately 0 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators locations are on 12 kV side of Lighthouse Hill
      transformers TB #1, TB #2 and TB #4 and are on the 12 kV load side of
      switches 413 and 443 for feeders #6141 and #6144. The Metering and
      Delivery Points to the 115 kV grid, at transformer bank TB #1, TB #2 and
      TB #4 feeds, are separated by the respective transformer and approximately
      75 feet of 115 kV circuit. Each Metering and Delivery Point for the 12 kV
      feeders are separated by approximately 14 feet of 12 kV circuit, a
      regulator and a breaker.

                                                                   August 7,1998

<PAGE>   164

                               Inghams Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Inghams Single Line Diagram, Drawing No. 911020

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1, & 2 - The Interconnection Points are located at the jaw side
      of disconnect switches 6199 and 6177. Buyer owns disconnect switches 6177
      and 6199 and all equipment on the generation side of these switches.

      Generators 1, & 2- Common Delivery Point at the connection to the 46 kV
      bus 77E and 99E. Interconnection Facilities are the overhead conductors,
      insulators, connectors, and hardware between the interconnect point and
      delivery point. The distance between the Interconnection and Delivery
      Points is approximately 5 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located on the 2.4 kV side of transformer TB
      #1. Transformer TB #1 and approximately 20 feet of 46 kV circuit separate
      the Metering and Delivery Points.

                                                                  August 7, 1998

<PAGE>   165

                            Johnsonville Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Johnsonville Single Line Diagram, Drawing No. H-1444-E

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 - 2 - The Interconnection Point is at the jaw side of
disconnect switch 288. Buyer owns disconnect switch 288.

      Generator 1 - 2 - The Delivery Point is the connection to the
Schaghticoke-Johnsonville No. 2 line (34.5KV).

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Net unit metering for Generators 1-2 is located off the 34.5 kV bus on the
generator side of disconnect switch 277. Circuit breaker R2 and disconnect
switch 277 separate the metering point and the delivery point.

<PAGE>   166

                             HOGANSBURG HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Hogansburg Hydro Station Interconnection Diagram, Drawing No.
      811483

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 - Interconnection Point is at the jaw side of disconnect
      switch 613, Buyer owns disconnect switch 613

      Generator 1 - Delivery Point is the respective connection to the 4.8 kV
      Feeder 97771. Interconnection Facilities are the conductors, insulators,
      connectors, support structures, foundations and hardware between the
      respective disconnect switch and the 4.8 kV Feeder 97771. The distance
      between the Interconnection and Delivery Point is approximately ( ) feet
      per phase, with a total of approximately ( ) feet of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 - Net unit output metering is located at the 4.8 kV side of
      Transformer Bank no. 1 approximately ( ) feet separate the Metering and
      Delivery points.

      08/04/98

<PAGE>   167

                           Hydraulic Race Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Hydraulic Race Single Line Diagram, Drawing No. 711498

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 - The Interconnection Point is located at the cable splice
      located in manhole 4R. Buyer owns manhole 4R and Seller owns cable splice.
      Buyer owns cable from splice to station.

      Generators 1 - Delivery Point at the 12 kV bus at Lockport Station,
      Hinman Road, Lockport, NY.

      The Interconnection Facility is the 751 line from the Interconnection
      Point, splice in Manhole #4R to the Delivery Point, Lockport Station 12 kV
      bus. The Interconnection Facilities include cables, duct banks, manholes,
      wire, poles, insulators, connectors, circuit breakers, relay protection
      systems, and control systems. The distance between the Interconnection and
      Delivery Points is approximately 1.8 miles per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generator is located on the blade side of switch 7.
      Approximately 1.8 miles of 12 kV circuit separate the Metering and
      Delivery Points.

                                                                 August 27, 1998

<PAGE>   168

                             High Falls Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the High Falls Single Line Diagram, Drawing No. 811447

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1, 2 & 3 - The Interconnection Point is at the bus connection
      point of the power leads from TB #1.

      Generators 1, 2 & 3 - Common Delivery Point is at the connection point of
      the power leads from TB #1 to 23kV bus. The Interconnection Point and the
      Delivery Points are common and as such there are no Interconnection
      Facilities at this site. The distance between the Interconnection and
      Delivery Points is approximately 0 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generation is located on the 2.4 kV side of transformer TB
      #1. Transformer TB #1 and approximately 10 feet of 23 kV circuit separate
      the Metering and Delivery Points.

                                                                  August 7, 1998

<PAGE>   169

                               HIGLEY HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Higley Hydro Station Interconnection Diagram, Drawing No.
      811473

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1, 2 & 3 - Interconnection Point is at the jaw side of
      disconnect switch 18. Buyer owns disconnect switch 18

      Generator 1, 2 & 3 - Delivery Point is the respective connection to the
      115kV bus. Interconnection Facilities are the conductors, insulators,
      connectors, support structures, foundations, and hardware between the
      respective disconnect switch and the 115kV bus. The distance between the
      Interconnection and Delivery Point is approximately ( ) feet per phase,
      with a total of approximately ( ) feet of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1, 2 & 3 - Gross unit output metering is located at the 4.8kV
      side of Transformer Bank No. 1 approximately ( ) feet of overhead
      transmission separate the Metering and Delivery points.

      08/04/98

<PAGE>   170

                              Herrings Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Herrings Single Line Diagram, Drawing No. 811434

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1, 2 & 3 - The Interconnection Points are located at the bus
      connection point of the power leads from TB #1

      Generators 1, 2 & 3 - Common Delivery Point is at the tie to the
      connection point of the power leads from TB #1 to 23 kV bus. The
      Interconnection Point and Delivery Point are common and as such there are
      no Interconnection Facilities at this site. The distance between the
      Interconnection and Delivery Points is approximately 0 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located the on the 2.4 kV side of Herrings
      Transformer TB #1. The transformer bank and approximately 30 feet of 23 kV
      circuit separate the Metering and Delivery Points.

                                                                  August 7, 1998

<PAGE>   171

                              HEUVELTON HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Heuvelton Hydro Station Interconnection Diagram, Drawing No.
      811461

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 & 2 - Interconnection Point is at the jaw side of disconnect
      switch 218, Buyer owns disconnect switch 218.

      Generator 1 & 2 - Delivery Point is the respective connection to the 23kV
      bus. Interconnection Facilities are the conductors, insulators, support
      structures, foundations, connectors and hardware between the respective
      disconnect switch and the 23kV bus. The distance between the
      Interconnection and Delivery Point is approximately ( ) feet per phase,
      with a total of approximately ( ) feet of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 & 2 - Gross unit output metering is located at the 2.4kV side
      of Transformer Bank No. 1 approximately ( ) feet of overhead transmission
      separate the Metering and Delivery points.

      08/04/98

<PAGE>   172

                            Green Island Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Green Island Single Line Diagram, Drawing No. D-16899-E

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 - 4 - The Interconnection Point is at the jaw side of
disconnect switches 6177 and 6199 at School Street Hydro. Buyer owns disconnect
switches 6177 and 6199. The Interconnection Points are also the Interconnect
Points for School Street Hydro.

      Generator 1 - 4 - The Delivery Point is the 77 Bus and 99 Bus in the 34.5
KV substation at School Street Hydro. The Delivery Points are also the Delivery
Points for School Street Hydro.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Net unit metering for generators is located off the 13.2 kV bus on the
Green Island Hydro side of R85 at School Street Hydro. Transformer TB#1, R85,
R61, disconnect switches 5166, 6199, and 6177, and approximately 2 miles of 13.2
KV circuit separate the Metering and Delivery Points.

<PAGE>   173

                            HANNAWA FALLS HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Hannawa Falls Hydro Station Interconnection Diagram, Drawing
      No. 811472

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 & 2 - Interconnection Point is at the jaw side of circuit
      switcher R15, Buyer owns circuit switcher R15

      Generator 1 & 2 - Delivery Point is the respective connection to the
      115kV Dennison-Colton No. 5 Line. Interconnection Facilities are the
      conductors, insulators, connectors, support structures, foundations and
      hardware between the respective circuit switcher and the 115 kV Line. The
      distance between the Interconnection and Delivery Point is approximately
      ( ) miles per phase, with a total of approximately ( ) miles of conductor
      per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 & 2 - Gross unit output metering is located at the 4.8 kV
      side of Transformer Bank no. 1 approximately ( ) miles of overhead
      transmission separate the Metering and Delivery points.

      08/04/98

<PAGE>   174

                              Glenwood Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Glenwood Single Line Diagram, Drawing No. 711531

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1, 2 & 3 - The Interconnection Points are located at the hinge
      side of disconnect switch 7239 in Medina substation. Buyer owns disconnect
      switch 7239.

      Generators 1, 2 & 3 - Common Delivery Point at the connection to the main
      34.5 kV Medina station bus.

      Interconnection Facilities are the overhead conductors, insulators,
      connectors, hardware, protection systems, and control systems between the
      switch and the 34.5 kV bus. The distance between the Interconnection and
      Delivery Points is approximately 10 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located the on the 4.8 kV, Glenwood-Medina 309
      Line. Transformer TB #1 and approximately 500 feet of 4.8 kV circuit
      separate the Metering and Delivery Points.

                                       1                          August 7, 1998

<PAGE>   175

                               Granby Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Granby Single Line Diagram, Drawing No. 811413

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1 & 2 - The Interconnection Point is at the jaw side of
      disconnect switch 243. Buyer owns disconnect switch 243.

      Generators 1 & 2 Common Delivery Point is the point of connection to the
      Fay St. - Granby 24 circuit. Interconnection Facilities are the overhead
      conductors, insulators, connectors, and hardware, between the switch and
      the delivery point. The distance between the Interconnection and Delivery
      Point is approximately 2 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators as located on the 4.16 kV side of transformer TB
      #1. The transformer bank and approximately 50 feet of 34.5 kV overhead
      conductor separate the Metering and Delivery Points.

                                                                  August 7, 1998

<PAGE>   176

                           FRANKLIN FALLS HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Franklin Hydro Station Interconnection Diagram, Drawing No.
      811501

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 & 2 - Interconnection Point is ax the jaw side of disconnect
      switch 218, Buyer owns disconnect switch 218.

      Generator 1 & 2 - Delivery Point is the respective connection to the 46kV
      bus. Interconnection Facilities are the conductors, insulators, support
      structures, foundations, connectors and hardware between the respective
      disconnect switch and the 46kV bus. The distance between the
      Interconnection and Delivery Point is approximately ( ) feet per phase,
      with a total of approximately ( ) feet of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 & 2 - Gross unit output metering is located at the 2.4kV side
      of Transformer Bank No. 1 approximately ( ) feet of overhead transmission
      separate the Metering and Delivery points.

      08/04/98

<PAGE>   177

                               Fulton Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Fulton Single Line Diagram, Drawing No. 811411

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1 & 2 - The Interconnection Points are at the jaw side of
      disconnect switch 218. Buyer owns disconnect switch 218.

      Generators 1 & 2 - Common Delivery Point is the tap connection point to
      the Granby-Eureka #21. Interconnection Facilities are the overhead
      conductors, insulators, support structure, connectors, and hardware
      between switch 218 and the delivery point. The distance between the
      Interconnection and Delivery Point is approximately 5 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located on the 2.3 kV side of transformer TB
      #1. The transformer bank and approximately 50 feet of 34.5 kV conductor
      separate the Metering and Delivery Points.

                                                                  August 7, 1998

<PAGE>   178

                             FIVE FALLS HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Five Falls Station Interconnection Diagram, Drawing No.
      811497

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 - Interconnection Point is at the jaw side of disconnect
      switch 18, Buyer owns disconnect switch 18

      Generator 1 - Delivery Point is the respective connection to the 115 kV
      switchyard bus at Colton Substation. Interconnection Facilities are the
      conductors, insulators, support structures, foundations, connectors and
      hardware between the respective disconnect switch and the 115 kV
      switchyard bus at Colton Substation. The distance between the
      Interconnection and Delivery Point is approximately ( ) miles per phase,
      with a total of approximately ( ) miles of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 - Gross unit output metering is located at the 12 kV side of
      Transformer Bank no. 1 approximately ( ) miles of overhead transmission
      separate the Metering and Delivery points.

      08/04/98

<PAGE>   179

                                                                          Page 1

                              FLAT ROCK HYDRO PLANT

      Refer to the Flat Rock Hydro Station Interconnection Diagram, Drawing No.
      81146O

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 & 2 - Interconnection Point is at the jaw side of circuit
      switcher 18, Buyer owns circuit switcher 18

      Generator 1 & 2 - Delivery Point is the respective connection to the
      115kV bus. Interconnection Facilities are the conductors, insulators,
      connectors, support structures, foundations and hardware between the
      respective circuit switcher and the 115 kV bus. The distance between the
      Interconnection and Delivery Point is approximately ( ) feet per phase,
      with a total of approximately ( ) feet of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 & 2 - Gross unit output metering is located as the 2.4 kV
      side of Transformer Bank no. 1 approximately ( ) feet of overhead
      transmission separate the Metering and Delivery points.

      08/04/98

<PAGE>   180

                              Ephratah Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Ephratah Single Line Diagram, Drawing No. 911018

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1, 2, 3 & 4 - The Interconnection Point is at the jaw side of
      disconnect switch 6499. Buyer owns disconnect switch 6499.

      Generators 1, 2, 3 & 4 - Common Delivery Point is the connection to the 23
      kV bus. Interconnection Facilities are the overhead conductors,
      insulators, connectors, and hardware between the switch and the station
      bus. The distance between the Interconnection and Delivery Points is
      approximately 5 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located on the 2.4 kV side of transformer TB
      #4. Transformer TB #4 and approximately 25 feet of 23 kV circuit separate
      the Metering and Delivery Points.

                                                                  August 7, 1998

<PAGE>   181

                             Feeder Dam Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

       Refer to the Feeder Dam Hydro Single Line Diagram, Drawing No.

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      The interconnection point is the jaw side of the disconnect switch 1488.
Buyer Owens disconnect switch 1488. The delivery paint is pole 89 on the
Queensbury-Henry St. #14 line.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for the facility is located between the #2 Bank and the 5288.
Transformer Bank #2 and approximately 50 feet of 34.5kV circuit separate the
metering and the delivery points.

<PAGE>   182

                              EJ West Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the EJ West Hydro Single Line Diagram, Drawing No. 91138

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      The interconnection point is the jaw side of the disconnect switches 1677
and the 6277. Buyer owns disconnect switches 1677 and 6277. The delivery point
is the EJ West substation 77G bus.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for the #1 generator is located between the R51 and the #1 Bank
Metering for the #2 Generator is between the R52 and the #2 Bank. Transformer
Banks #1 and #2 and approximately 20 feet of 115KV circuit separate the metering
and the delivery points.

08/10/98

<PAGE>   183

                               Elmer Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Slitter Single Line Diagram, Drawing No. 811444

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1 & 2 - The Interconnection Point is at the jaw side of
      disconnect switch 218. Buyer owns disconnect switch

      Generators 1 & 2 - Common Delivery Point is the connection between to 23
      kV Taylorville-Effley #24 transmission line and Elmer Tap. Interconnection
      Facilities are the conductors, insulators, support structures, connectors,
      and hardware between the switch interconnect point and the delivery point.
      The distance between the Interconnection and Delivery Points is
      approximately 2250 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Access to Elmer plant is provided by an easement across Ed Keib property.
      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located on the 2.4 kV side of transformer TB
      #1. Transformer TB #1 and approximately 2260 feet of 23 kV overhead
      conductor separate the Metering and Delivery Points.

                                       1                          August 7, 1998

<PAGE>   184

                              EEL WEIR HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Eel Weir Hydro Station Interconnection Diagram, Drawing No.
      811474

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1, 2, & 3 - Interconnection Point is at the jaw side of
      disconnect switch 218, Buyer owns disconnect switch 218

      Generator 1, 2, & 3 - Delivery Point is the respective connection to the
      23kV bus. Interconnection Facilities are the conductors, insulators,
      support structures, foundations, connectors and hardware between the
      respective disconnect switch and the 23kV bus. The distance between the
      Interconnection and Delivery Point is approximately ( ) feet per phase,
      with a total of approximately ( ) feet of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING FONTS

      Generator 1, 2 & 3 - Net unit output metering is located at the 23 kV
      side of Transformer Bank no. 1 approximately ( ) feet of overhead
      transmission separate the Metering and Delivery points.

      08/04/98

<PAGE>   185

                               Effley Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Effley Single Line Diagram, Drawing No. 811443

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1, 2, 3 & 4 - The interconnection point(s) for Effley
      generation is at the jaw side of disconnect switch 218, Buyer owns
      disconnect switch

      Generators 1 through 4 - Delivery Point is the connection to the 23 kV
      Taylorville - Effley #24 transmission line. Interconnection Facilities are
      the conductors, insulators, support structure, connectors, and hardware
      between the switch and the first transmission structure on the #24 line.
      The distance between the Interconnection and Delivery Points approximately
      250 feet per phase. Surge arresters will be owned by the buyer.

2.    NIAGARA MOHAWK PROPERTIES

      Access to Effley plant is by easement across Keib property. Refer to the
      Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located on the 2.3 kV side of TB #1 and
      approximately 255 feet of overhead conductor separate the Metering and
      Delivery Points.

                                                                  August 7, 1998

<PAGE>   186

                               Eagle Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Eagle Single Line Diagram, Drawing No. 811442

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1, 2 3, & 4 - The Interconnection Point is at the jaw side of
      disconnect switch 28. Buyer owns disconnect switch.

      Generators, 1, 2, 3 & 4 - Common Delivery Point is the connection between
      the 115kv tap to Eagle and the 115kv Taylorville-Moshier #7 transmission
      line. Interconnection Facilities are the conductors, insulators, support
      structures, connectors, and hardware between the switch and the first
      transmission structure on the #7 line. The distance between the
      Interconnection and Delivery Points is approximately 120 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located on the 2.4 kV side of transformer TB
      #2. Transformer TB #2 and approximately 140 feet of 115 kV overhead
      conductor separate the Metering and Delivery Points.

                                       1                          August 7, 1998

<PAGE>   187

                            EAST NORFOLK HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the East Norfolk Hydro Station Interconnection Diagram, Drawing
      No. 811475

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 - Interconnection Point is at the jaw side of disconnect
      switch 218, Buyer owns disconnect switch 218

      Generator 1 - Delivery Point is the respective connection to the 23kV
      bus. Interconnection Facilities are the conductors, insulators, support
      structures, foundations, connectors and hardware between the respective
      disconnect switch and the 23kV bus. The distance between the
      Interconnection and Delivery Point is approximately ( ) feet per phase,
      with a total of approximately ( ) feet of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 - Gross unit output metering is located at the 2.4 kV side of
      Transformer Bank no. 1 approximately ( ) feet of overhead transmission
      separate the Metering and Delivery points.

      08/04/98

<PAGE>   188

                               COLTON HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Colton Hydro Station Interconnection Diagram, Drawing No.
      811471

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1, 2 & 3 - Interconnection Point is ax the jaw side of
      disconnect switches 16 & 19, Buyer owns disconnect switches 16 & 19.

      Generator 1, 2 & 3 - Delivery Point is the respective connection to the
      115kV Transfer bus and 115kV "B" bus section. Interconnection Facilities
      are the conductors, insulators, support structures, foundations,
      connectors and hardware between the respective disconnect switches and the
      115kV Transfer bus and 115kV "B" bus section. The distance between the
      Interconnection and Delivery Point is approximately 70 feet per phase,
      with a total of approximately 210 feet of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 - Gross unit output metering is located at the 13.2kV side of
      Transformer Bank No. 1 approximately 150 feet of overhead transmission
      separate the Metering and Delivery points.

      Generator 2 - Gross unit output metering is located at the 13.2kV side of
      Transformer Bank No. 2 approximately 150 feet of overhead transmission
      separate the Metering and Delivery points.

      Generator 3 - Gross unit output metering is located at the 13.2kV side of
      Transformer Bank No. 3 approximately 150 feet of overhead transmission
      separate the Metering and Delivery points.

      8/04/98

<PAGE>   189

                              Deferiet Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Deferiet Single Line Diagram, Drawing No. 811433

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1, 2 & 3 - The Interconnection Points are located at the jaw
      side of disconnect switches 218 in the Deferiet station.

      Generators 1, 2 & 3 - Delivery Points at the tie to the 23 kV Deferiet
      station bus. Interconnection Facilities are the overhead conductors,
      insulators, connectors, hardware, between the interface point and the
      delivery point. The distance between the Interconnection and Delivery
      Points is approximately 10 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located the on the 2.4 kV side of Deferiet
      Transformer TB #1. The transformer bank and approximately 30 feet of 23 kV
      circuit separate the Metering and Delivery Points.

                                                                  August 7, 1998

<PAGE>   190

                            BROWNS FALLS HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Browns Falls Hydro Station Interconnection Diagram, Drawing
      No. 811457

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 - Interconnection Point is at the jaw side of disconnect
      switch 18, Buyer owns disconnect switch 18.

      Generator 2 - Interconnection Point is at the jaw side of disconnect
      switch 28, Buyer owns disconnect switch 28.

      Generator 1 & 2 - Delivery Point is the respective connection to the
      115kV bus. Interconnection Facilities are the conductors, insulators,
      support structures, foundations, connectors and hardware between the
      respective disconnect switch and the 115kV bus. The distance between the
      Interconnection and Delivery Point is approximately ( ) feet per phase,
      with a total of approximately ( ) feet of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 - Gross unit output metering is located at the 6.6kV side of
      Transformer Bank No. 1 approximately ( ) feet of overhead transmission
      separate the Metering and Delivery points.

      Generator 2 - Gross unit output metering is located at the 6.6kv side of
      Transformer Bank No. 2 approximately ( ) feet of overhead transmission
      separate the Metering and Delivery points.

      08/04/98

<PAGE>   191

                            CHASM FALLS HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Chasm Falls Hydro Station Interconnect Diagram, Drawing No.
      811486

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1, 2 & 3 - Interconnection Point is at the jaw side of
      disconnect switch 228, Buyer owns disconnect switch 228

      Generator 1, 2 & 3 - Delivery Point is the respective connection to the
      34.5kV bus. Interconnection Facilities are the conductors, insulators,
      support structures, foundations, connectors and hardware between the
      respective disconnect switch and the 34.5kV bus. The distance between the
      Interconnection and Delivery Point is approximately ( ) feet per phase,
      with a total of approximately ( ) feet of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1, 2 & 3 -- Gross unit output metering is located at the 2.4 kV
      side of Transformer Bank No. 2 approximately ( ) feet of overhead
      transmission separate the Metering and Delivery points.

      08/04/98

<PAGE>   192

                            Black River Hydro Plant

                     INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Black River Single Line Diagram, Drawing No. 811431

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1, 2 & 3 - The Interconnection Point is at the line side of
      fuse disconnect J245. Buyer owns fuse disconnect J245.

      Generators 1, 2 & 3 - Common Delivery Point is the tie-in with
      transmission switch X22K24, on the 23 kV Black River-Black River Hydro #22
      line. Interconnection Facilities are the overhead conductors, insulators,
      connectors, and hardware, between the fused disconnect and the 23 kV
      transmission switch X22K24. The distance between the Interconnection and
      Delivery Points is approximately 1100 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located on the 2.4 kV side of transformer TB
      #4. Transformer TB #4 and approximately 1125 feet of 23 kV circuit
      separate the Metering and Delivery Points.

                                                                  August 7, 1998

<PAGE>   193

                                BLAKE HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Blake Hydro Station Interconnection Diagram, Drawing No.
      811495

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 - Interconnection Point is at the jaw side of disconnect
      switch 18, Buyer owns disconnect switch 18

      Generator 1 - Delivery Point is the respective connection to the 115 kV
      switchyard bus at Colton Substation. Interconnection Facilities are the
      conductors, insulators, support structures, foundations, connectors and
      hardware between the respective disconnect switch and the 115 kV
      switchyard bus at Colton Substation. The distance between the
      Interconnection and Delivery Point is approximately ( ) miles per phase,
      with a total of approximately ( ) miles of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 - Gross unit output metering is located at the 6.9 kV side of
      Transformer Bank no. 1 approximately ( ) miles of overhead transmission
      separate the Metering and Delivery points.

      08/04/98

<PAGE>   194

                              Belfort Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Belfort Single Line Diagram, Drawing No. 81144.

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1, 2 & 3 - Interconnection Points is the jaw side of disconnect
      switch 253, Buyer owns disconnect switch 253.

      Generators 1, 2 & 3 - Common Delivery Point is the connection to the
      Taylorville 23 kV bus. Interconnection Facilities are the conductors,
      insulators, support structures, foundations, connectors, and hardware
      associated with the 23 kV circuit, Belfort - Taylorville No. 25 between
      Belfort switch 253 and Taylorville switch 253, and Taylorville station
      switches 251 and 253 and breaker R250; including all conductor, 23 kV bus,
      insulators, support structures, foundations, protection systems, control
      systems, power supply including cables associated with R250. The distance
      between the Interconnection and Delivery Points is approximately 3300 feet
      per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators 1, 2 & 3 is located at the 2.4 kV side of
      transformer TB #1. Transformer TB #1, Belfort switch 253, approximately
      3325 feet of 23 kV circuit, Taylorville switches 251 and 253 and
      Taylorville breaker R250 separate the Metering and Delivery Points.

                                       1                          August 7, 1998

<PAGE>   195

                           Bennetts Bridge Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Bennetts Bridge Single Line Diagram, Drawing No.811491

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1, 2, 3 & 4 - The Interconnection Points are located at
      Lighthouse Hill station. Interconnection Points to the 115 kV grid are
      located at the hinge side of motor operated disconnects 28 and 48 and the
      jaw side of motor operated disconnect 18. (Field verify) Interconnection
      Points for the 12 kV "B" bus are located at the jaw side of disconnect
      switch 458, at the jaw side of load break switch 411 and at the jaw side
      of load break switch 441. Interconnection Points for the 12 kV "A" bus are
      located at the jaw side of disconnect switch 438.

      Generators 1, 2, 3 & 4 - Delivery Points are located at Lighthouse Hill
      station. Delivery Points to the 115kV grid are at the connection point of
      the power leads from Sw 18, 28 and 48 to the 115 kV bus conductor. The
      Interconnection Facilities on the 115 kV side of the station are the
      overhead conductors, insulators, connectors, hardware, protection systems,
      and control systems between the switches and the 115 kV line connection.
      The distance between the Interconnection and Delivery Points is
      approximately 50 feet per phase. The Delivery Points to the 12 kV system
      are at the above defined Interconnection Points. The Interconnection Point
      and Delivery Point are common for the 12 kV system and as such there are
      no Interconnection Facilities on the 12 kV side of the station. The
      distance between the Interconnection and Delivery Points is approximately
      0 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering is located at Lighthouse Hill station. Bennetts Bridge
      incorporates three primary distribution lines on poles/towers to
      Lighthouse Hill station. Metering for generators locations are on 12 kV
      side of Lighthouse Hill transformers TB #1, TB #2 and TB #4 and are on the
      12 kV load side of switches 413 and 443 for feeders #6141 and #6144. The
      Metering and Delivery Points to the 115 kV grid, at transformer bank TB
      #1, TB #2 and TB #4 feeds, are separated by the respective transformer and
      approximately 75 feet of 11 kV circuit. Each Metering and Delivery Point
      for the 12 kv feeders are separated by approximately 14 feet of 12 kV
      circuit, a regulator and a breaker.

                                       1                          August 7, 1998

<PAGE>   196

                             Beardslee Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Beardslee Single Line Diagram, Drawing No. 911011

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1 & 2 - The Interconnection Point is at the jaw side of
      disconnect switch 683. Buyer owns disconnect switch.

      Generators 1 & 2 - Common Delivery Point is the connection to the 115 kV
      Inghams-St. Johnsville #6 transmission line. Interconnection Facilities
      are the overhead conductors, insulators, support structures, connectors,
      and hardware between the switch and the first transmission structure on
      the #6 line. The surge arresters will be owned by the Buyer. The distance
      between the Interconnection and Delivery Points is approximately 450 feet
      per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generators is located on the 6.9 kV side of transformer TB
      #1. Transformer TB #2 and approximately 475 feet of 115 kV overhead
      conductor separate the Metering and Delivery Points.

                                                                   July 22, 1998

<PAGE>   197

                               BeeBee Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Beebee Single Line Diagram, Drawing No. 81499

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1 & 2 - The interconnection point(s) for Beebee Island
      generation will be the substation side of breakers R915 and R925. R915
      and R925 are located within the Seller's Mill Street substation metalclad
      switchgear

      Generators 1 & 2 - Delivery Point(s) are the connection to the 4.8 kV Bus
      of the Seller's Mill Street station. Interconnection Facilities are the
      copper bus between the respective breakers and the station bus. The
      distance between the Interconnection and Delivery Points is approximately
      5 feet per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for generator 1 is located on the unit #1, 4800 V feed to the
      Mill Street station duct bank. Net unit metering for generator 2 is
      located on the unit #2, 4800 V feed to the Mill Street station duct bank.

                                       1                          August 7, 1998

<PAGE>   198

                            ALLENS FALLS HYDRO PLANT

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Miens Falls Hydro Station Interconnection Diagram, Drawing
      No. 811481

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generator 1 - Interconnection Point is at the jaw side of disconnect
      switch 13, Buyer owns disconnect switch 13

      Generator 1 - Delivery Point is the respective connection to the 115 kV
      Colton-Malone No. 3 Line. Interconnection Facilities are the conductors,
      insulators, support structures, foundation connectors and hardware between
      the respective disconnect switch and the 115 kV Line. The distance between
      the Interconnection and Delivery Point is approximately ( ) miles per
      phase. with a total of approximately ( ) miles of conductor per phase.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Asset Sales Agreement for property descriptions.

3.    METERING POINTS

      Generator 1 - Gross unit output metering is located at the 4.8 kV side of
      Transformer Bank no. 1 approximately ( ) miles of overhead transmission
      separate the Metering and Delivery points.

      08/04/98

<PAGE>   199

                           Baldwinsville Hydro Plant

                      INTERCONNECTION AGREEMENT - Exhibit A

      Refer to the Baldwinsville Single Line Diagram, Drawing No. 811423

1.    INTERCONNECTION AND DELIVERY POINTS, INTERCONNECTION FACILITIES

      Generators 1 & 2 - The Interconnection Points are intersection of the
      conductors at the jaw side of line disconnect switch X29-8 and X29-9.
      Buyer owns disconnect switch X29-8 and X29-9.

      Generators 1 & 2 - Delivery Points are at the jaw side of disconnect
      switch X29-8 and X29-9. There are no Interconnection Facilities at this
      site. LP. and D.P. are identical. Distance between Interconnection Point
      and Delivery Point is approximately 0 feet.

2.    NIAGARA MOHAWK PROPERTIES

      Refer to the Assets Sales Agreement for property descriptions.

3.    METERING POINTS

      Metering for Baldwinsville Hydro generators is located on the 4.8 kV side
      of transformer TB #1. Net unit metering for Seller's customer Seneca Hydro
      will be installed on the 4.8 kV side of future installed GSU. The
      Baldwinsville transformer bank and approximately 150 feet of 34.5 kV
      conductor separate the Baldwinsville Metering and Delivery Points.

                                       1
<PAGE>   200

                                   Exhibit B

                                       31
<PAGE>   201

                               ALLENS FALLS HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None

      Note: No metering or relaying changes are anticipated for connection to
      Sellers transmission system and sales to the NYPP or NYISO, as applicable.
      NYISO rules, being developed, could affect metering or relaying
      requirements.
<PAGE>   202

                               Baldwinsville Hydro

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      ESB 756 metering for Seneca Hydro will be required.

      Note: No metering or relay changes are anticipated for Baldwinsville Hydro
      connection to Seller's transmission system and sale to the NYPP or NYISO,
      as applicable. NYISO rules that are being developed, could affect metering
      and relaying requirements.

                                       1                          August 7, 1998
<PAGE>   203

                                Beardslee Hydro

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                      1                            July 22, 1998
<PAGE>   204

                               Beebee Island Hydro

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                       1                          August 7, 1998
<PAGE>   205

                                 Belfort Hydro

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relaying changes are anticipated for connection to
      Seller's transmission system and sales to the NYPP or NYISO, as
      applicable. NYISO rules that are being developed, could affect metering or
      relaying requirements.

                                       1                          August 7, 1998

<PAGE>   206

                              Bennetts Bridge Hydro

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                        1                         August 7, 1998
<PAGE>   207

                               Black River Hydro

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                        1                         August 7, 1998
<PAGE>   208

                                   BLAKE HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relaying changes are anticipated for connection to
      Seller's transmission system and sales to the NYPP or NYISO, as
      applicable. NYISO rules, being developed, could affect metering or
      relaying requirements.
<PAGE>   209

                               BROWNS FALLS HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relaying changes are anticipated for connection to
      Seller's transmission system and sales to the NYPP or NYISO, as
      applicable. NYISO rules, being developed, could affect metering or
      relaying requirements.
<PAGE>   210

                                CHASM FALLS HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relaying changes are anticipated for connection to
      Seller's transmission system and sales to the NYPP or NYISO, as
      applicable. NYISO rules, being developed, could affect metering or
      relaying requirements.
<PAGE>   211

                                  COLTON HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relaying changes are anticipated for connection to
      Seller's transmission system and sales to the NYPP or NYISO, as
      applicable. NYISO rules, being developed, could affect metering or
      relaying requirements.
<PAGE>   212

                                 DEFERIET HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                        1                         August 7, 1998
<PAGE>   213

                                   EAGLE HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                        1                         August 7, 1998
<PAGE>   214

                               EAST NORFOLK HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relaying changes are anticipated for connection to
      Seller's transmission system and sales to the NYPP or NYISO, as
      applicable. NYISO rules, being developed, could affect metering or
      relaying requirements.
<PAGE>   215

                                 EEL WEIR HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relaying changes are anticipated for connection to
      Seller's transmission system and sales to the NYPP or NYISO, as
      applicable. NYISO rules, being developed, could affect metering or
      relaying requirements.
<PAGE>   216

                                  Effley Hydro

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                        1                         August 7, 1998
<PAGE>   217

                                  EJ WEST HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed could affect metering and relaying
      requirements.

      8/10/98
<PAGE>   218

                                   ELMER HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                        1                         August 7, 1998

<PAGE>   219

                                 Ephratah Hydro

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                        1                         August 7, 1998
<PAGE>   220

                                FEEDER DAM HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed could affect metering and relaying
      requirements.

                              ASSET SALES AGREEMENT
<PAGE>   221

                                FIVE FALLS HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relaying changes are anticipated for connection to
      Seller's transmission system and sales to the NYPP or NYISO, as
      applicable. NYISO rules, being developed, could affect metering or
      relaying requirements.

<PAGE>   222

                                                                          Page 2

                                 FLAT ROCK HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relaying changes are anticipated for connection to
      Seller's transmission system and sales to the NYPP or NYISO, as
      applicable. NYISO rules, being developed, could affect metering or
      relaying requirements.
<PAGE>   223

                              FRANKLIN FALLS HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relaying changes are anticipated for connection to
      Seller's transmission system and sales to the NYPP or NYISO, as
      applicable. NYISO rules, being developed, could affect metering or
      relaying requirements.
<PAGE>   224

                                 Fulton Hydro

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      No metering or relay changes are anticipated for connection to Seller's
      transmission system and sale to the NYPP or NYISO, as applicable. NYISO
      rules that are being developed, could affect metering and relaying
      requirements.

                                        1                         August 7, 1998

<PAGE>   225

                                 Glenwood Hydro

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      Buyer to install over and under frequency relays and over and under
      voltage relays.

      No metering or relay changes are anticipated for connection to Seller's
      transmission system and sale to the NYPP or NYISO, as applicable. NYISO
      rules that are being developed, could affect metering and relaying
      requirements.

                                        1                        August 7, 1998
<PAGE>   226

                                  Granhy Hydro

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                        1                        August 7, 1998

<PAGE>   227

                               GREEN ISLAND HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                        1
<PAGE>   228

                               HANNAWA FALLS HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relaying changes are anticipated for connection to
      Seller's transmission system and sales to the NYPP or NYISO, as
      applicable. NYISO rules, being developed, could affect metering or
      relaying requirements.

<PAGE>   229

                                 HERRINGS HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                        1                        August 7, 1998
<PAGE>   230

                                HEUVELTON HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relaying changes are anticipated for connection to
      Seller's transmission system and sales to the NYPP or NYISO, as
      applicable. NYISO rules, being developed, could affect metering or
      relaying requirements.
<PAGE>   231

                                High Falls Hydro

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                        1                        August 7, 1998
<PAGE>   232

                                  HIGLEY HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relaying changes are anticipated for connection to
      Seller's transmission system and sales to the NYPP or NYISO, as
      applicable. NYISO rules, being developed, could affect metering or
      relaying requirements.
<PAGE>   233

                                HOGANSBURG HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relaying changes are anticipated for connection to
      Seller's transmission system and sales to the NYPP or NYISO, as
      applicable. NYISO rules, being developed, could affect metering or
      relaying requirements.
<PAGE>   234

                              Hydraulic Race Hydro

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Buyer to install over and under voltage relays, over and under frequency
      relays, 51V voltage restrained overcurrent relays and a 12 kV breaker with
      overcurrent relays.

      No additional metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                        1                        August 7, 1998
<PAGE>   235

                                 Inghams Hydro

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                        1                        August 7, 1998
<PAGE>   236

                               JOHNSONVILLE HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.
<PAGE>   237

                                 Kamargo Hydro

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                        1                        August 7, 1998
<PAGE>   238

                             LIGHTHOUSE HILL HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                        1                        August 7, 1998
<PAGE>   239

                                  MACOMB HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relaying changes are anticipated for connection to
      Seller's transmission system and sales to the NYPP or NYISO, as
      applicable. NYISO rules, being developed, could affect metering or
      relaying requirements.
<PAGE>   240

                              MECHANICVILLE HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.
<PAGE>   241

                                 Minetto Hydro

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                        1                        August 7, 1998

<PAGE>   242

                                 Moshier Hydro

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                                                 August 7, 1998
<PAGE>   243

                                  NORFOLK HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relaying changes are anticipated for connection to
      Seller's transmission system and sales to the NYPP or NYISO, as
      applicable. NYISO rules, are being developed, could affect metering or
      relaying requirements.
<PAGE>   244

                                 NORWOOD HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relaying changes are anticipated for connection to
      Seller's transmission system and sales to the NYPP or NYISO, as
      applicable. NYISO rules, being developed, could affect metering or
      relaying requirements.
<PAGE>   245

                               OAK ORCHARD HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      Buyer to install over and under voltage relays.

      No additional metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering or relaying
      requirements.

                                        1                        August 7, 1998
<PAGE>   246

                                OSWEGATCHIE HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relaying changes are anticipated for connection to
      Seller's transmission system and sales to the NYPP or NYISO, as
      applicable. NYISO rules, being developed, could affect metering or
      relaying requirements.
<PAGE>   247
                            Oswego Falls East Hydro

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                        1                        August 7, 1998
<PAGE>   248

                            Oswego Falls West Hydro

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                        1                        August 7, 1998
<PAGE>   249

                                PARISHVILLE HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relaying changes are anticipated for connection to
      Seller's transmission system and sales to the NYPP or NYISO, as
      applicable. NYISO rules, being developed, could affect metering or
      relaying requirements.
<PAGE>   250

                                PIERCEFIELD HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relaying changes are anticipated for connection to
      Seller's transmission system and sales to the NYPP or NYISO, as
      applicable. NYISO rules, being developed, could affect metering or
      relaying requirements.
<PAGE>   251

                                 Prospect Hydro

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                        1                        August 7, 1998
<PAGE>   252

                                  RAINBOW HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relaying changes are anticipated for connection to
      Seller's transmission system and sales to the NYPP or NYISO, as
      applicable. NYISO rules, being developed, could affect metering or
      relaying requirements.

                                        1
<PAGE>   253

                               RAYMONDVILLE HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relaying changes are anticipated for connection to
      Seller's transmission system and sales to the NYPP or NYISO, as
      applicable. NYISO rules, being developed, could affect metering or
      relaying requirements.

<PAGE>   254

                                SCAGHTICOKE HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.
<PAGE>   255

                               SCHOOL STREET HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
Seller's transmission system and sale to the NYPP or NYISO, as applicable. NYISO
rules that are being developed, could affect metering and relaying requirements.
<PAGE>   256

                               SCHUYLERVILLE HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller' transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed could affect metering and relaying
      requirements.
<PAGE>   257

                                  Sewalls Hydro
--------------------------------------------------------------------------------

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                       1                          August 7, 1998
<PAGE>   258

                              SHERMAN ISLAND HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
Seller' transmission system and sale to the NYPP or NYISO, as applicable. NYISO
rules that are being developed, could affect metering and relaying requirements.
<PAGE>   259

                                Soft Maple Hydro
--------------------------------------------------------------------------------

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None

      No metering or relay changes are anticipated for connection to Seller's
      transmission system and sale to the NYPP or NYISO, as applicable. NYISO
      rules that are being developed, could affect metering and relaying
      requirements.

                                       1                          August 7, 1998
<PAGE>   260

                               SOUTH COLTON HYDRO

                      INTERCONNECTION AGREEMENT - Exhibit B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None

      Note. No metering or relaying changes are anticipated for connection to
      Sellers transmission system and sales to the NYPP or NYISO, as applicable.
      NYISO rules. being developed, could affect metering or relaying
      requirements.
<PAGE>   261

                               SOUTH EDWARDS HYDRO

                      INTERCONNECTION AGREEMENT - Exhibit B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None

      Note: No metering or relaying changes are anticipated for connection to
      Sellers transmission system and sales to the NYPP or NYISO, as applicable.
      NYISO rules, being developed, could affect metering or relaying
      requirements.
<PAGE>   262

                                SPIER FALLS HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note; No metering or relay changes are anticipated for connection to
      Seller' transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed could affect metering and relaying
      requirements.
<PAGE>   263

                                   STARK HYDRO

                      INTERCONNECTION AGREEMENT - Exhibit B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None

      Note: No metering or relaying changes are anticipated for connection to
      Sellers transmission system and sales to the NYPP or NYISO, as applicable.
      NYISO rules, being developed, could affect metering or relaying
      requirements.
<PAGE>   264

                              STEWARTS BRIDGE HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
Seller's transmission system and sale to the NYPP or NYISO, as applicable. NYISO
rules that are being developed could affect metering and relaying requirements
<PAGE>   265

                                STUYVESANT HYDRO

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
Seller's transmission system and sale to the NYPP or NYISO, as applicable. NYISO
rules that are being developed, could affect metering and relaying requirements.
<PAGE>   266

                               SUGAR ISLAND HYDRO

                      INTERCONNECTION AGREEMENT - Exhibit B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None

      Note: No metering or relaying changes are anticipated for connection to
      Sellers transmission system and sales to the NYPP or NYISO, as applicable.
      NYISO rules, being developed, could affect metering or relaying
      requirements.
<PAGE>   267

                                 TALCVILLE HYDRO

                      INTERCONNECTION AGREEMENT - Exhibit B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None

      Note. No metering or relaying changes are anticipated for connection to
      Sellers transmission system and sales to the NYPP or NYISO, as applicable.
      NYISO rules, being developed, could affect metering or relaying
      requirements.
<PAGE>   268

                               Taylorville Hydro
--------------------------------------------------------------------------------

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                       1                          August 7, 1998
<PAGE>   269

                               Trenton Falls Hydro
--------------------------------------------------------------------------------

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note:No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                       1                          August 7, 1998
<PAGE>   270

                                  Varick Hydro
--------------------------------------------------------------------------------

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None.

      Note: No metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.

                                        1                         August 7, 1998
<PAGE>   271

                                 Waterport Hydro
--------------------------------------------------------------------------------

                      INTERCONNECTION AGREEMENT - EXHIBIT B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      Buyer to install a 34.5 kV circuit breaker or recloser with internal
      battery, and overcurrent relays for overcurrent protection. Note: Fuse
      protection will not coordinate with existing bus protection scheme. Bus
      protection scheme must be modified for new circuit breaker.

      No additional metering or relay changes are anticipated for connection to
      Seller's transmission system and sale to the NYPP or NYISO, as applicable.
      NYISO rules that are being developed, could affect metering and relaying
      requirements.
<PAGE>   272

                                 YALEVILLE HYDRO

                      INTERCONNECTION AGREEMENT - Exhibit B

1.    IMMEDIATE REQUIRED ESB 756 MODIFICATIONS

      None

      Note: No metering or relaying changes are antcipated for connection to
      Sellers transmission system and sales to the NYPP or NYISO, as applicable.
      NYISO rules, being developed, could affect metering or relaying
      requirements.
<PAGE>   273

                                                                       EXHIBIT F

                                 SITE AGREEMENT

                                 By and Between

                        NIAGARA MOHAWK POWER CORPORATION

                                       and

                                     "Buyer"

                          Dated ________________, 1998
<PAGE>   274

                                Table of Contents

       Article                                                  Page
-----------------------------------------------------------     ----

 1. Definitions                                                   2
 2. Term and Delineation of Assets                                5
 3. Site Access                                                   6
 4. Maintenance                                                   8
 5. Equipment Testing                                             8
 6. New Construction, Modifications or Alterations                9
 7. Inspections                                                  11
 8. Transmission, Distribution and Telecommunication
    Structures                                                   11
 9. Information Reporting and Investigations                     12
10. Notice of Alarms or Problems                                 13
11. Local Services                                               14
12. Remote Terminal Units (RTUs)                                 15
13. Protection Relays                                            15
14. Emergency Procedures                                         16
15. Safety                                                       16
16. Environmental Procedures                                     17
17. Audits                                                       18
18. Cost Responsibilities and Billing Procedures                 18
19. Documentation                                                19
20. Seller's Right to Operate                                    19
21. Damage to Equipment, Facilities and Property                 20
22. Personal Injury, Indemnification                             21
23. Insurance                                                    22
24. Claims                                                       23
25. Force Majeure                                                24
26. Governing Law, Disputes                                      25
27. Assignment/Change in Corporate Identity                      25
28. Contractors and Subcontractors                               26
29. Labor Relations                                              27
30. Independent Contractor Status                                28
31. Limitation of Liability                                      28
<PAGE>   275

                                Table of Contents
                                    (cont'd.)

    Article                                                     Page
-----------------------------------------------------------     ----

32. Notices                                                      28
33. Headings                                                     29
34. Waiver                                                       29
35. Counterparts                                                 29
36. Severability                                                 30
37. Amendment                                                    30
38. Entire Agreement                                             30

    Schedules
<PAGE>   276

                                 SITE AGREEMENT

      This Site Agreement is entered into on _______________ (the "Agreement")
by and between Niagara Mohawk Power Corporation ("Seller") a New York
corporation with a principal place of business located at 300 Erie Boulevard
West, Syracuse, New York 13202, and Acquisition Corporation ("Buyer") a
_____________ corporation with a principal place of business located at
__________________ (individually each a "Party" and collectively the "Parties").

                                    RECITALS

      WHEREAS, Seller and Buyer have entered into an Asset Sales Agreement dated
             , for the sale of certain of Seller's electric generating assets;

      WHEREAS, Seller intends to continue to operate Seller's transmission and
distribution businesses from their present locations;

      WHEREAS, in the Asset Sale Agreement, Seller has agreed to transfer to
Buyer certain designated real and personal properties, contracts, and licenses
constituting certain of Seller's electric generating assets and has retained
certain designated real and personal properties, contracts and licenses
associated with Seller's transmission and distribution businesses;

      WHEREAS, Seller requires access to parts of the electric generating assets
acquired by Buyer and Buyer requires access to parts of the transmission and
distribution assets retained by Seller to conduct their respective businesses;
and

      WHEREAS, the Parties wish to define the continuing responsibilities and
obligations that each has to the other with respect to access to, the use of,
and the services to be provided for and in respect to the property, assets and
facilities of the other.

      NOW THEREFORE, in consideration of the mutual representations, covenants
and agreements set forth herein, and intending to be legally bound hereby, the
Parties agree as follows:
<PAGE>   277

                                    ARTICLE 1

                                   DEFINITIONS

      1.0 Wherever used in this Agreement with initial capitalization, the
following terms shall have the meanings specified or referred to in this Article
1. Any term with initial capitalization not defined herein, has the meaning set
forth in the ASA or the Interconnection Agreement.

      1.1 "Asset Sales Agreement or "ASA" shall mean the Asset Sales Agreement
dated as of ________________ , 1998, between Niagara Mohawk Power Corporation
and Acquisition Corporation.

      1.2 "Black Start Capability" shall mean the ability of a generating unit
or station to go from a shutdown condition to an operating condition and start
delivering power without assistance from the electric system.

      1.3 "Closing(s)" shall have the meaning set forth in the ASA.

      1.4 "Closing Date" shall have the meaning set forth in the ASA.

      1.5 "Delivery Point" shall the meaning set forth in the ASA.

      1.6 "Distribution System" shall mean Niagara Mohawk's distribution
equipment operated for delivery of electric energy to interconnected customers
unless otherwise noted.

      1.7 "Easement" shall have the meaning set forth in the ASA.

      1.8 "Electric System Bulletin No. 756" or "ESB756" shall mean Niagara
Mohawk Power Corporation's Electric System Bulletin 756, dated December 1997,
attached as Schedule B to this Agreement, as it may be amended or revised from
time to time.

      1.9 "Energy Management System" or "EMS" shall mean Seller's computer based
system used primarily for the real time operation of Seller's existing power
generation, transmission and distribution facilities.

      1.10 "Environmental Laws" shall have the meaning set forth in the ASA.

      1.11 "Excluded Assets" shall have the meaning set forth in the ASA.

      1.12 "FERC" shall mean the Federal Energy Regulatory Commission.

      1.13 "Good Utility Practice" shall mean any of the practices, methods and
acts engaged in or approved by a significant portion of the electric industry
during the relevant time period, or any of the practices, methods and acts
which, in the exercise of reasonable judgment in light of the facts known at the
time the decision was made, could have been

                                       2
<PAGE>   278

expected to accomplish the desired result at a reasonable cost consistent with
good business practices, reliability, safety and expedition. Good Utility
Practice is not intended to be limited to the optimum practice, method, or act,
to the exclusion of all others, but rather to be acceptable practices, methods,
or acts generally accepted in the region and consistently adhered to by the
Seller. Good Utility Practice shall include, but not be limited to, North
American Electric Reliability Council ("NERC"), Northeast Power Coordinating
Council ("NPCC"), and New York Power Pool ("NYPP") or successor organizations
policies, criteria, guidelines, rules and standards, as they may be amended or
reused from time to time.

      1.14 "Hazardous Substances" shall have the meaning set forth in the ASA.

      1.15 "Interconnection Agreement" shall mean a separate Interconnection
Agreement(s) dated as of _____, 1998, between Niagara Mohawk Power Corporation
and Acquisition Corporation pertaining to the electric generating facilities
included in the Purchased Assets.

      1.16 "Interconnection Facility" shall have the meaning set forth in the
Interconnection Agreement.

      1.17 "Interconnection Point" shall have the meaning set forth in the
Interconnection Agreement.

      1.18 "Maintain" shall mean construct, reconstruct, install, inspect,
repair, replace, operate, patrol, maintain, use, modernize, expand, upgrade,
modify or other similar activities.

      1.19 "Metering Point" ("MP") shall mean the location on the power system
where electrical measurements (kWh, kW, KVAR, V, I, etc.) are determined for
reconciliation between parties. These quantities are either measured directly by
instrumentation installed at that point, or determined indirectly through the
application of compensation factors to measurements made by instrumentation
installed in proximity to the point

      1.20 "NYPP" shall mean New York Power Pool or its successor.

      1.21 "NYPP Tariff" shall mean the New York Power Pool's Open Access
Transmission Tariff as filed with FERC on _________________,or revised amended
from time to time.

      1.22 "NERC" shall mean North American Electric Reliability Council.

      1.23 "NPCC" shall mean Northeast Power Coordinating Council, a regional
reliability coordination body.

                                       3
<PAGE>   279

      1.24 "Primary Systems" shall mean bulk power equipment such as
transformers, circuit breakers, rigid or strain bus and other equipment
operating at or above 600 volts.

      1.25 "Purchased Assets" shall have the meaning set forth in the ASA.

      1.26 "Qualified Personnel" shall mean individuals (i) who meet the
standards and requirements set forth at 29 C.F.R. ss. l910.269(a)(2) (1998), as
amended; and (ii) if performing switching, tagging or grounding of electrical
equipment, who are appropriately trained and meet the qualifications and
requirements to switch, tag and ground electrical equipment as set forth in
"Switching and Tagging Rules" attached as Schedule H to this Agreement and
"Testing and Grounding for the Protection of Employees" attached as Schedule I
to this Agreement.

      1.27 "Release" shall have the meaning set forth in the ASA.

      1.28 "Revenue Meters" shall mean all Kwh, Kvah, and Kvarh meters. pulse
isolation relays, pulse conversion relays, associated totalizing and Remote
Access Pulse Recorder (RAPR) equipment required to measure the transfer of
energy between the Parties.

      1.29 "Right of Way Access" shall mean the existing gates, roadways, paths
or other means of access required to gain entry to the Transmission or
Distribution System assets located on or within the property or facilities of
the other Party.

      1.30 "Routine Inspection and Maintenance" shall mean any inspection and/or
work required pursuant to Good Utility Practice on either Party's property or
facilities to ensure and maintain reliable substation, transmission, and
distribution operations.

      1.31 "Secondary Systems" shall mean control or power circuits that operate
below 600 volts, ac or dc, including but not limited to any hardware, control or
protective devices, cables, conductor, electric raceways, secondary equipment
panels, transducers, batteries, chargers, and voltage and current transformers
where signals or energy may be used by Buyer and/or Seller.

      1.32 "Separation Document" shall mean such documents or exhibits
delineated as such and which have been provided to and adopted by Buyer which
describe the Purchased Assets and Excluded Assets and define and identify the
ownership and dispatch points of demarcation of said assets.

      1.33 "Service Point" shall mean the point of connection between the
facilities of Seller and the equipment of Buyer.

                                       4
<PAGE>   280

      1.34 "Shared-Use Equipment" shall mean that equipment that Buyer and
Seller may jointly operate for the benefit of their respective operations as is
identified in Schedule A to this Agreement.

      1.35 "Site" shall mean the location of all the plant equipment and real
property associated with each electric generating facility included in the
Purchased Assets.

      1.36 "Spill Prevention Control and Countermeasure Plan" or "SPCC" shall
mean a plan developed in accordance with 40 C.F.R. Part 112 to be implemented
for onshore facilities that includes physical structures and other measures to
respond to and to prevent spills of oil or hazardous substances from reaching
navigable waters.

      1.37 "Stormwater Management" shall mean physical structures and other
measures used to collect, store, treat, or dispose of water as a result of rain,
snow, or other precipitation, including snow melt runoff, surface runoff and
drainage.

      1.38 "Stormwater Pollution Prevention Plan" or "SWPPP" shall mean a plan
developed in accordance with 40 C.F.R. Part 122 to be implemented to control and
monitor stormwater discharges associated with industrial or construction
activities.

      1.39 "Switching and Tagging Rules" shall mean the document attached as
Schedule H to this Agreement and as may be amended from time to time.

      1.40 "SPDES" shall mean State Pollutant Discharge Elimination Systems
permit.

      1.41 "Testing and Grounding for the Protection of Employees" shall mean
the document attached as Schedule I to this Agreement and as may be amended from
time to time.

      1.42 "Transmission System" shall mean Niagara Mohawk's transmission system
including any modifications subsequent to the date of this Agreement.

                                    ARTICLE 2

                         TERM AND DELINEATION OF ASSETS

      2.0 This Agreement shall become effective as of the Closing Date, and
shall continue in full force and effect for 40 years (the "Term"). Upon notice
by either Party at the end of the thirty-eighth (38) year of a desire to extend
this Agreement, the Parties shall negotiate in good faith to extend this
Agreement on mutually agreeable terms.

      2.1 The points of demarcation between the Purchased Assets and the
Excluded Assets are the service points as set forth in Schedule A of this
Agreement.

                                       5
<PAGE>   281

      2.2 Seller shall own the grounding grid, ductbanks, cable raceway, and
drains within the boundaries of Seller's property. Buyer shall own the grounding
grid, ductbanks, cable raceway, and drains within the boundaries of Buyer's
property. For Seller's equipment located on Buyer's property, Seller shall own
the connection to Buyer's ground grid and drains. Seller shall own the cables
attached to Seller's equipment regardless of location. For Buyer's equipment
located on Seller's property, Buyer shall own the connection to Seller's ground
grid and drains. Buyer shall own the cables attached to Buyer's equipment
regardless of location. Both Buyer and Seller shall be responsible for ensuring
continuity the above items on and between their respective properties.

      2.3 Seller shall own the fencing that immediately surrounds Seller's
property or equipment unless otherwise specified. Buyer shall own all other
fencing on the site. In the event that the parties share a common fencing
location, the Buyer shall own the fence and provide the Seller with all
necessary access to Seller's property and equipment.

      2.4 The Parties agree to work cooperatively over time to supplement the
Separation Document, as necessary, and to take such other reasonable steps to
further clarify the delineation between the Purchased Assets and the Excluded
Assets.

                                    ARTICLE 3

                                   SITE ACCESS

      3.0 The Parties acknowledge that each has granted permanent Easements to
the other to access, and maintain facilities, systems, and equipment located on
or in the property or the facilities of the other.

      3.1 Each Party shall permit and provide access to all properties and
facilities as may be necessary to enable the other to maintain its respective
facilities, systems equipment, and property. Each Party shall provide or require
such access in a manner so as not to interfere with the ongoing business
operations, rights, and obligations of the other.

      3.2 Consistent with Article 3.5 below, Seller shall have the right to
enter Buyer's property and facilities at any time with or without notice to
Buyer to Maintain Seller's facilities, systems, equipment, and property as
necessary. However, Seller will not have the right to access, operate, modify or
otherwise disturb facilities, systems or equipment owned by the Buyer unless
otherwise provided for in this Agreement.

                                       6
<PAGE>   282

      3.3 Consistent with Article 3.5 below, Buyer shall have the right to enter
Seller's property and facilities at any time with or without notice to Seller to
Maintain Buyer's facilities, systems, equipment and property as necessary.
However, Buyer will not have the right to access, operate, modify or otherwise
disturb facilities, systems or equipment owned by the Seller unless otherwise
provided for in this Agreement.

      3.4 Each Party shall provide to the other all such keys, access codes, or
other access methods necessary to effectuate the rights of access contemplated
by this Article 3. Each Party shall limit access to energized areas the other's
facilities, systems, equipment and property to Qualified Personnel.

      3.5 Seller shall conform to Buyer's reasonable site security and safety
procedures before Seller's personnel enter Buyer's property facilities or for
routine measurements, inspections, meter reads and other non-disruptive work
that does not require system or equipment outages. Buyer shall conform to
Seller's reasonable site security and safety procedures before Buyer's personnel
enter Seller's facilities or property for routine measurements, inspections,
meter reads and other non-disruptive work that does not require system or
equipment outages. Except as provided in Article 14, for work that will require
system or equipment outages or that is reasonably expected to impact the
security or normal operation of Seller's electric system or Buyer's electric
generation activities, the Party desiring to perform the work shall provide the
other Party verbal or electronic advance notice at least three (3) business days
in advance of the date such work is to commence. Seller shall provide such
notice to Buyer's shift supervisor (or equivalent). Buyer shall provide such
notice to Seller's dispatch personnel (or equivalent). The Parties shall use
their best efforts to schedule their work so as not to interfere with the
operations of the other Party.

      3.6 Should either Party decide permanently to abandon the use of any
Easement or portion thereof, such Party shall give the other Party written
notice of such intent and shall cause a release of said Easement or any portion
thereof to be properly recorded.

      3.7 The Parties may mutually agree to relocate any or all of the Easement
locations provided, however, that the Party requesting the relocation shall: (i)
pay all reasonable costs and expenses associated with the relocation; and, (ii)
execute or obtain in a form reasonably satisfactory to the other Party and
suitable for recording, all instruments necessary to establish the new Easement
location. Both Parties agree to use their best efforts to establish a mutually
agreeable location if requested by a Party.

                                       7
<PAGE>   283

                                    ARTICLE 4

                                   MAINTENANCE

      4.0 Except as provided elsewhere in this Agreement or in the
Interconnection Agreement, each Party shall Maintain its own property (including
removal of waste and trash), systems, facilities equipment and points of access
regardless of location.

      4.1 Buyer shall be responsible for Routine Inspection and Maintenance of
all common use roadways and plant accesses in a safe and efficient manner and
pursuant to Good Utility Practice.

      4.2 Seller shall provide Routine Inspection and Maintenance for Buyer as
set forth in Schedule F to this Agreement.

      4.3 Buyer shall provide Routine Inspection and Maintenance for Seller's as
set forth in Schedule C to this Agreement.

      4.4 If the Routine Inspection and Maintenance to be performed will result
in a modification of the facility system or equipment or the construction of a
new facility, the Party desiring to perform such Routine Inspection and
Maintenance shall provide the other Party with the notice and description of the
planned work and otherwise comply with the provisions of set forth in Article 6.

      4.5 Where any ground grid, grounding, ductbanks, cable raceways, drains or
fences are jointly used, each Party is responsible for maintaining these jointly
used items that it owns for the mutual benefit of the parties. Both Parties will
share the cost of any improvements to such jointly used items initiated for the
benefit of both Parties on a pro rata basis.

                                    ARTICLE 5

                                EQUIPMENT TESTING

      5.0 Upon Seller's written request, Buyer shall, without cost to Seller,
test, calibrate, verify or validate the telemetering, data acquisition,
protective relay, fire protection, control equipment or systems, or other
equipment or software connected to or otherwise affecting the operation of
Seller's Transmission or Distribution System. Buyer shall conduct all such
tests, calibrations, verifications and validations in accordance with

                                       8
<PAGE>   284

Good Utility Practice and ESB756 and shall promptly provide Seller with copies
of the results of any such test, calibration, verification or validation. If
Buyer is unable or unwilling to conduct any such test, calibration, verification
or validation requested by Seller, Seller shall have the right to take any and
all actions, consistent with Good Utility Practice, to protect and ensure the
safe and reliable operation of its Transmission and Distribution Systems
including disconnecting Buyer's facility, systems or equipment from those
systems.

      5.1 This Article 5 shall not apply to the Interconnection Facility or such
equipment testing contemplated by Section 5.2 of the Interconnection Agreement.

                                    ARTICLE 6

                 NEW CONSTRUCTION. MODIFICATIONS OR ALTERATIONS

      6.0 Each Party shall use the best efforts to give the other Party at least
one (1) year's advance written notice of any plan to construct new facilities or
to modify or alter any facility, system or equipment that is the object of this
Agreement and to provide sufficient description (including all drawings and
specifications) of such plans as to enable the other Party to reasonably
determine whether the planned activity is likely to impact adversely its
operations. If the new construction, modification or alteration is the result of
a requirement or order of a government authority and one (1) year advance notice
cannot be given, and Party shall use its best effort to give the other Parties
such advance written notice as is reasonably possible.

      6.1 If a Party reasonably determines that the new construction,
modification or alteration planned by of the other Party is likely adversely to
impact its operations, it shall, within sixty (60) days of receipt of notice
under Article 6.0, give the other Party written notice of and the basis for that
conclusion. Upon delivery and receipt of such notice, the Parties shall
negotiate in good faith to mitigate the identified likely adverse impact of any
planned new construction modification, or alteration.

      6.2 The Parties acknowledge that it is the intent of this Agreement to
bring all facilities systems equipment, located and in use at the electric
generating station(s) to which this Agreement relates into full compliance, over
time, with ESB756. Accordingly, whenever a Party proceeds with a modification or
alteration to or new construction of any facilities systems equipment, it shall
implement such new construction modification, or alteration in full compliance
with ESB756. Seller shall have the right to review and accept or

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reject any such new construction modification, or alteration, or that might
reasonably be expected to affect its Transmission or Distribution System or the
Interconnection Facility.

      6.3 Each Party shall, promptly upon completion of any new construction of
or modification or alteration to any facility, system, or equipment shared with
the other Party, provide the other Party with all appropriate documentation in
the form of written test records, operation and maintenance procedures, material
lists or descriptions and a duplicate set of the most current drawings of such
newly constructed, modified or altered facility, equipment or systems which
could reasonably be expected to affect the operations of the other Party, and
including for shared use equipment only, at a minimum, one or more of the
following, as applicable:

            System One-Lines -        Single page format drawings used for
                                      dispatch and operation purposes.

            One-Line Drawings -       Prints which provide a higher level of
                                      detail than system one-line drawings and
                                      identify on a line basis current and
                                      voltage transformer locations, protection
                                      relay types, and meter and control
                                      connections.

            Three-Line Drawings -     Prints which provide the
                                      highest level of detail for the facilities
                                      in a three-line format with specific
                                      current and voltage transformer
                                      connections, relay and meter terminations.

            Schematic Drawings -      Prints which provide
                                      information on apparatus controls, switch
                                      developments, etc.

            Connection Wiring
              Drawings -              Prints which describe the physical layout,
                                      relay, terminal block and device
                                      locations, wiring and other construction
                                      details.

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<PAGE>   286

            Other Physical Drawings - Prints which include
                                      information on foundations, equipment,
                                      layouts grounding, panel constructions,
                                      etc.

      6.4 This Article 6 shall not apply to the Interconnection Facility.

                                    ARTICLE 7

                                   INSPECTIONS

      7.0 Each Party shall, at its own expense, have the right to inspect or
observe the maintenance activities, equipment tests, installation, construction,
or other modifications to the other Party's facilities, systems, or equipment
which might reasonably be expected to affect adversely the observing Party's
operations. The Party desiring to inspect or observe shall give the other Party
written notice of its desire to inspect or observe. When such notice is given,
the Parties shall coordinate their activities so as to reasonably accommodate
the noticing Party's right to inspect or observe.

      7.1 If the inspecting/observing Party identifies any deficiency or defect
which might reasonably be expected to impact adversely the operations of the
inspecting/observing Party, said Party shall notify the other Party of the
deficiency or defect. Upon receipt of such a notice of deficiency or defect, the
Party owning the facility, system or equipment shall, in good faith, make any
corrections necessitated by Good Utility Practice. If a Party is unable or
unwilling to make such corrections, necessitated by Good Utility Practice, the
other Party shall have the right to take such measures, consistent with Good
Utility Practice, necessary to ensure that its own facilities, systems and
equipment are secure and safe.

      7.2 This Article 7 shall not apply to the Interconnection Facility.

                                    ARTICLE 8

           TRANSMISSION. DISTRIBUTION AND TELECOMMUNICATION STRUCTURES

      8.0 The Parties acknowledge that certain structures located at the site
(including those associated with transmission, distribution and
telecommunications activities) are essential both to Buyer's generation
operations and Seller's distribution and transmission operations. The Party
owning such structures shall Maintain them pursuant to Good Utility Practice.
The Parties shall,

                                       11
<PAGE>   287

within ninety (90) days of the Closing, jointly undertake an initial inspection
of all such structures. After the initial inspection, the Parties shall
establish a mutually agreeable schedule for further regular inspections of such
structures.

      8.1 The Party owning such transmission, distribution or telecommunication
structures shall prepare a written report summarizing each inspection and
describing any loose hardware, foundation problems, guy, shield or ground wire
deficiencies, corrosion or other observed defects. A copy of each such report
shall be provided promptly to the other Party. The Parry owning the structure
shall be responsible for correcting any noted deficiency, corrosion, or observed
defects within 12 months of the date of the inspection during which the
deficiency, corrosion or defect was identified or in such shorter time as may be
dictated by Good Utility Practice.

      8.2 Each Party shall, after providing advance written notice to and
obtaining approval from the other Party, such approval not to be unreasonably
withheld, at its own expense, have the right to modify, add or upgrade
communication equipment including but not limited to antennae, wave guides and
cables on the other Party's transmission, distribution or telecommunication
structures, provided that said upgrades have no long term adverse impact upon
the other Party's operations and shall not require the other Party to incur any
costs, unless compensated.

      8.3 This Article 8 shall not apply to the Interconnection Facility.

                                    ARTICLE 9

                    INFORMATION REPORTING AND INVESTIGATIONS

      9.0 The Parties agree that from time to time Seller may request and Buyer
shall promptly provide accurate, complete, and reliable information needed by
Seller for the operation, maintenance, planning of its Transmission or
Distribution System. Such information may include, but may not be limited to,
metered values for MW, Mvar, voltage, current, amp, frequency, breaker status
indication, or any other information reasonably required by Seller for reliable
operation of its Transmission or Distribution System pursuant to Good Utility
Practice. Such information, reports or data shall be gathered for electronic
transmittal to Seller using the EMS where available.

      9.1 Buyer shall cooperate with Seller in the investigation of any
disturbance or misoperation to the Transmission or Distribution System that may
occur. Buyer shall provide equipment, operational data (such as relay targets),
fault recorder data, and other such data as is

                                       12
<PAGE>   288

needed to assist the Seller in determining the root cause of any such
disturbance or misoperation. Each Party shall be responsible for its own costs
related to any such investigation.

      9.2 Notwithstanding anything to the contrary in this Agreement, any
obligation set forth in this Agreement for Buyer to provide information,
reports, or data to Seller shall be subject to the following limitations: (i)
such information, reports, or data shall be subject to the confidentiality
provisions of the ASA; (ii) Buyer shall be required to provide such information,
reports or data only to the extent Seller reasonably requires such information
to operate, maintain, or plan its Transmission or Distribution System pursuant
to Good Utility Practice and to verify conformance with ESB 756; and (iii)
Seller shall use any information provided by Buyer pursuant to this Agreement
only for the purposes of operating, maintaining and planning its Transmission or
Distribution System pursuant to Good Utility Practice.

      9.3 If Buyer concludes that its obligation to provide any information,
report, or data requested by Seller is covered by any of the limitations set
forth in Article 9.2, Buyer shall promptly advise Seller in writing of that fact
and the basis for its conclusion. Buyer shall, nevertheless, provide Seller with
the requested information, report or data if Seller advises Buyer in writing
that such information, report or data: (i) comprises real time generating
information; (ii) is required as a result of, or to enable Seller in a timely
fashion, to respond to or prevent, any emergency condition; (iii) is required to
enable Seller in a timely fashion to maintain the safety and reliability of the
Transmission or Distribution System or to avoid endangering life or property; or
(iv) is otherwise required by Seller before a dispute between the Parties
regarding the appropriateness of Seller's request can be resolved in order for
Seller to operate, Maintain, or plan the Transmission or Distribution System
pursuant to Good Utility Practice. The Parties agree to cooperate in good faith
to expedite a mutually acceptable resolution of any dispute arising under this
Article.

                                   ARTICLE 10

                          NOTICE OF ALARMS OR PROBLEMS

      10.0 Buyer shall provide Seller with prompt notice of any alarms,
identified actual or potential problems, any safety issue or any other issue
that may have an immediate adverse effect on the Seller's facilities, system or
equipment located on or in Buyer's property or facility, the Interconnection
Facility as identified in the Interconnection Agreement or the switchyard

                                       13
<PAGE>   289

immediately serving the Buyer's equipment. This notice shall be verbal and
provided immediately upon identification by the Buyer of such an event.

                                   ARTICLE 11

                                 LOCAL SERVICES

      11.0 The Parties agree that, due to the integration of certain control
schemes, revenue metering applications, and communication networks, among other
things, it is cost effective to provide each other with certain local services
as set forth herein. The Parties shall use their best efforts to ensure that
such local services provided by one Party to the other Party shall be available
at all times and on the terms and conditions specified herein.

      11.1 Each Party agrees to provide the other with such current, potential,
metering and contact outputs as are required for the operation of protection and
control systems as set forth on Schedule C and F to this Agreement.

      11.2 Seller shall install, at Buyer's expense, revenue meters at all
Service Points.

      11.3 Unless otherwise provided for in this Agreement, Buyer and Seller
shall agree upon an equitable allocation of charges for electric service for all
Shared Use Equipment. Seller shall provide to Buyer such other service as set
forth in Schedule F to this Agreement.

      11.4 Buyer shall provide Seller with ac and dc service power in the
quantities, levels, and locations as exists prior to Closing and as set forth in
Schedule C to this Agreement.

      11.5 Buyer shall provide Seller with heating, ventilation, air
conditioning, lighting, and other building services for relay, control and
communications room, offices, control houses or other related transmission or
distribution areas or spaces within Buyer's facilities set forth in Schedule C
to this Agreement.

      11.6 Buyer shall provide Seller, at no cost to Seller, with uninterrupted,
dedicated cable connection and access for Seller's telecommunications equipment.

      11.7 Buyer shall provide Seller, with such office, storage and building
spaces as set forth in Schedule C to this Agreement.

      11.8 Buyer shall provide Seller and Maintain for Seller's benefit such
fire protection systems as exist at the Site at the time of Closing which are
required to protect Seller's assets located in Buyer's facilities, and water or
C02 systems, as applicable and in accordance with National Fire Protection
Association codes, up to Seller's property line or easement, whichever

                                       14
<PAGE>   290

is closer to Seller's equipment and facilities. Such systems shall include, but
not be limited to all necessary control and supply equipment so as to perform
as a fully functional system.

      11.9 Unless specified herein or otherwise agreed to, each of these
services will be provided on an actual cost basis. In each instance, Seller
shall have the right to audit Buyer's books and records to verify the cost
determination.

                                   ARTICLE 12

                          REMOTE TERMINAL UNITS (RTUs)

      12.0 Each Party shall make available to the other, at no cost, all data
from any on-Site RTU that the other Party requests.

      12.1 The Parties agree when replacement of an on-Site RTU is required due
to technical obsolescence, catastrophic failure, or otherwise by mutual
agreement, that: (i) Buyer shall be responsible for all hardware and
installation costs for RTUs used solely for the operation of Buyer's facilities;
(ii) Buyer shall be responsible for RTU hardware and installation costs for RTUs
owned by Seller that are used for interconnection data telemetry to the Seller's
EMS pursuant to ESB 756; and, (iii) Seller shall be responsible for all RTU
hardware and installation costs for RTUs owned by Seller which are used solely
for the operation of Seller's Transmission or Distribution System. Separate RTUs
shall be installed at Buyer's expense for each Party's use under (i) and (ii)
above.

      12.2 Each Party shall maintain their respective RTUs in good working
condition so as not to compromise the other Party's ability to obtain data
pursuant to Article 12.0 or to compromise the other Party's operational control
of its facilities, systems or equipment.

                                   ARTICLE 13

                                PROTECTION RELAYS

      13.0 On-Site protection relays required by E5B756 for over current, under
and over voltage, under and over frequency and other protection relays as may be
required by Seller shall be owned by the Buyer. If Seller reasonably determines
that a protection relay is needed and requests Buyer to install such a relay at
a location where one does not exist, Buyer shall do so promptly at its own cost.
Seller will provide Buyer with the required settings for all protection relays
and Buyer shall comply with the settings provided by Seller.

      13.1 This Article 13 shall not apply to the Interconnection Facility.

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<PAGE>   291

                                   ARTICLE 14

                              EMERGENCY PROCEDURES

      14.0 Seller shall provide Buyer with prompt verbal or electronic
notification of Transmission System or Distribution System emergencies which may
reasonably be expected to affect Buyer's immediate operation of its facilities.
[Note: Need to identify contact person.]

      14.1 Buyer shall provide Seller with prompt verbal or electronic
notification of generation equipment emergencies which may reasonably be
expected to affect Seller's operations. [Note: Need to identify contact person.]

      14.2 If, in the good faith judgment of a Party, an emergency endangers or
could endanger life or property, the Party recognizing the emergency shall take
such action as may be reasonable and necessary to prevent, avoid, or mitigate
injury, danger, or loss. If, however, the emergency involves electrical
equipment associated with the Transmission or Distribution System, Buyer shall
notify Seller's dispatch personnel (or equivalent) prior to performing any
switching operations.

                                   ARTICLE 15

                                     SAFETY

      15.0 Each Party shall be solely responsible for and assume all liability
for the safety and supervision of its own employees, agents, representatives,
and subcontractors.

      15.1 Each Party shall comply with the Switching and Tagging Rules and the
Testing and Grounding for Protection of Employees procedures at (i) all Primary
and Secondary System equipment interconnections or Service Points and on all of
Seller's facilities, systems, equipment and property to which Buyer or Seller
has access pursuant to this Agreement, and (ii) when operating the switch which
is the first means of disconnect on the Buyer's side of the Interconnection
Facility.

      15.2 Buyer shall be responsible for all switching, tagging and grounding
of Buyer's facilities, systems, equipment, and property. Seller shall Maintain
and be responsible for all switching, tagging and grounding of Seller's
facilities, systems, equipment and property.

      15.3 Each Party shall be responsible for and shall train, test, and
certify its own Qualified Personnel to perform relevant work under this
Agreement.

                                       16
<PAGE>   292

                                   ARTICLE 16

                            ENVIRONMENTAL PROCEDURES

      16.0 Each Party shall provide the other Party with immediate verbal
notification and then follow up by written notification within 24 hours of
occurrence of any Release of Hazardous Substances or any type of remediation
activity.

      16.1 If applicable, Buyer shall allow Seller to use at no cost existing
groundwater monitoring wells located at the Site for conducting Seller's
remediation and monitoring of environmental conditions on Seller's property.
Buyer shall be responsible for the repair and maintenance of existing
groundwater monitoring wells at the Site.

      16.2 Seller will have the right to discharge at no cost stormwater runoff
from Seller's property across Buyer's property under the authority of the
Buyer's SPDES permit where such permits exist.

      16.3 Each Party shall be responsible for the storage and off-site disposal
of all Hazardous Waste generated by the use, operation, maintenance, relocation
or removal of its equipment that are located on the property or at any facility
of the other Party.

      16.4 Neither Party shall make changes to the site topography or accesses,
including but not limited to grading or drainage, that could reasonably be
expected to affect the other Party's facilities or common use drainage or
pollution controls systems, without the prior written consent of the other
Party, such consent not to be unreasonably withheld.

      16.5 Buyer shall incorporate into its own emergency planning documents
including but not limited to SPCC and SWPPP plans, Hazardous Substances
contingency planning and emergency response contingencies relating to Seller's
facilities, systems and equipment which are located on Buyer's property or
within Buyer's facilities.

      16.6 Neither Party shall knowingly take any actions which might reasonably
be expected to have an adverse environmental impact upon the operations of the
other Party without prior written notification and agreement between the
Parties.

      16.7 Buyer shall grant to Seller an easement for drainage of stormwater
from land retained by Seller across Buyers' property. This easement shall
include the right to use Buyer's property (including trench drains, valves,
pipelines, leach fields, oil water separator, wastewater treatment facility, and
other fixtures), equipment or portions of the Buyer's property, as applicable,
for drainage, discharge, retention, or percolation of stormwater runoff.

                                       17
<PAGE>   293

      16.8 Seller shall comply with the requirements of: (i) Buyer's SPCC plan
that applies to discharges from Seller's retained properties; and (ii) Buyer's
SPDES permit that applies to discharges from Seller's retained land.

                                   ARTICLE 17

                                     AUDITS

      17.0 Upon written request, each Party shall have the right to audit the
other's accounts and records pertaining to transactions under this Agreement.
Any audit requested pursuant to this Article shall be conducted at a mutually
acceptable time at the offices where such accounts and records are maintained.
Any audit undertaken pursuant to this Article shall be limited to those portions
of such accounts and records of the audited Party that relate to services
provided to the auditing Party. Upon request, the auditing Party shall promptly
provide the audited Party with the audit report and all supporting materials. To
the extent that audited information includes information deemed confidential by
the audited Party, the auditing Party shall at its sole expense, retain an
independent auditor to perform the audit.

                                   ARTICLE 18

                  COST RESPONSIBILITIES AND BILLING PROCEDURES

      18.0 Each Party shall provide the other with an invoice for all payments
due for reimbursable services provided to the other Party under this Agreement
during the preceding calendar month on or before the 10th business day of the
calendar month. Unless services are provided on a lump sum basis, each invoice
shall describe the services performed or provided. Each invoice shall be paid
within thirty (30) days of the date of issuance. All payments shall be made in
U.S. dollars and in immediately available funds payable to the other Party, or
by wire transfer to a bank named by the invoicing Party. In the event that
payment is not received by the date due, that payment shall bear the interest at
the prime rate for U.S. currency as published from time to time under "Money
Rates" in The Wall Street Journal from and including the date on which payment
was due but excluding the date the payment is actually received. Payment of
invoices by either Party shall not relieve the paying Party from any
responsibilities or obligations it has under this Agreement; nor shall it
constitute a waiver of any claims arising hereunder.

      18.1 If either Party in good faith, disputes any part of an invoice issued
by the other Party, the disputing Party shall immediately notify the other Party
and provide a written

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<PAGE>   294

explanation of the basis for such dispute. The undisputed portion of the
invoiced amount shall be paid by the disputing Party by the due date of the
invoice. If any amount withheld under dispute is ultimately determined to be
due, it shall be paid within one (1) day of such determination with interest at
the prime rate for U.S. currency as published from time to time under "Money
Rates" in The Wall Street Journal, from and including the date any such
underpayment or overpayment was originally due but excluding the date on which
such underpayment or overpayment is paid. No payment obligation shall be subject
to this Article unless a notice of dispute is given with respect thereto within
30 days of the date payment of the invoice is due.

      18.2 This Article 18 shall not apply to the Interconnection Facility.

                                   ARTICLE 19

                                  DOCUMENTATION

      19.0 Each Party shall provide the other Party with all appropriate
documentation including but not limited to written test records, operation and
maintenance procedures, drawings, material lists, descriptions, or calibrations
whenever a Party makes an alteration, change, or modification to its property,
facilities, systems or equipment that could reasonably be expected to affect the
operations of the other Party.

      19.1 This Article 19 shall not apply to the Interconnection Facility.

                                   ARTICLE 20

                            SELLER'S RIGHT TO OPERATE

      20.0 Seller shall have the right to operate Buyer's dc power systems,
components of protection and metering circuits, EMS equipment, secondary circuit
components, communication equipment, and building facilities, software,
documentation, and structural components associated with the foregoing, as are
necessary for Seller, in Seller's reasonable determination, to operate and/or
maintain its Transmission and Distribution Systems if: Buyer or Buyer's
assignee, successor, transferee or other entity legally responsible for Buyer's
obligations shall cease operations at the Site or fail to comply with any
material obligations or duties set forth in this Agreement, which cessation or
failure has or reasonably threatens to have a material adverse affect on the
operation of Seller's Transmission or Distribution System. Before Seller may
exercise its rights under this Article, Seller shall give Buyer or Buyer's
assignee, successor,

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<PAGE>   295

transferee or other entity legally responsible for Buyer's obligations under
this Agreement written notice of Seller's intent to exercise its rights under
this Article. Such notice shall specify the actual or alleged failure of Buyer
or Buyer's assignee, successor, transferee's or other legally responsible entity
to comply with such obligations or duties. Seller shall then be entitled to
exercise its rights under this Article only if Buyer or Buyer's assignee,
successor transferee or other legally responsible entity fails remedy such
failure within (i) ten (10) days after the receipt of such notice, or (ii) such
longer period, not to exceed sixty (60) days after the receipt of such notice,
as is necessary to remedy the failure if the failure cannot be reasonably
remedied within ten (10) days and Buyer or Buyer's assignee, successor or
transferee commences action to remedy such failure within ten (10) days and
takes, or permits Seller to take, interim measures to minimize the adverse
impacts of the failure on the Transmission and/or Distribution System.
Notwithstanding the foregoing, if, in the Seller's judgment exercised pursuant
to Good Utility Practice, Seller concludes that the failure endangers life or
property or impair or create a significant risk to the safety, reliability,
stability, or integrity of the Transmission System or Distribution System, then,
consistent with Article 14, Seller may implement its rights under this Article
as necessary in its judgment to avert such condition.

                                   ARTICLE 21

              DAMAGE TO SYSTEMS, FACILITIES, EQUIPMENT AND PROPERTY

      21.0 Each Party shall be responsible to the other for any physical damage
or destruction it causes to the facilities, systems, equipment or property, of
the other Party.

      21.1 The Party causing physical damage to or destruction of shared use
cables, facilities, systems, or equipment or other shared use property shall be
responsible for all repair and/or replacement costs. If neither Party is
responsible for any such damage or destruction, all repair and/or replacement
costs shall be shared by both Parties on a pro rata basis based upon their usage
of said cables, facilities, systems, equipment or other shared use property.

      21.2 Degradation to or routine replacement of shared use cables,
facilities, systems equipment or other shared use property at the Site shall be
evenly divided between the Parties for replacement or corrective costs up to
$25,000 per incident. Costs in excess of $25,000 per incident shall be shared
pro rated between the Parties based upon usage of such shared use cables,
facilities, systems, equipment or other shared use property.

                                       20
<PAGE>   296

      21.3 The obligations under this Article shall not be limited in any way by
any limitation on either Party's insurance.

                                   ARTICLE 22

                        PERSONAL INJURY, INDEMNIFICATION

      22.0 The obligations under this Article shall not be limited in any way by
any limitation on either Party's insurance.

      22.1 To the fullest extent allowed by law, each Party shall indemnify,
defend, and save harmless the other party, its agents and employees, from and
against any loss, damage, liability, cost, suit, charge, expense, or cause of
action, whether unconditionally certain or otherwise, as they exist on the
effective date of this Agreement or arise at any time thereafter, (including but
not limited to fees and disbursements of counsel incurred by the indemnified
Party in any action or proceeding between the Party indemnifying and the
indemnified Party or between the indemnified Party and any third party or
otherwise) arising out of any damage or injury to its property or property of
third parties (including real property, personal property and environmental
damages), or persons, (including injuries resulting in death), directly or
indirectly caused by or arising out of or in any way connected with this
Agreement, or the work performed hereunder, or any facilities, systems,
equipment or property used by the other Party, its agents, employees,
contractors, and suppliers; provided however, each Party shall be liable for all
claims of the Party's own employees arising out of any provision of the Workers'
Compensation Law.

      22.2 In the event that the claims, damages, losses, judgments, or
settlements are the result of the negligence of both Parties, each Party shall
be liable to the extent or degree of their respective negligence, as determined
by mutual agreement of both Parties, or in the absence thereof, as determined by
adjudication of comparative negligence.

      22.3 The indemnifying Party shall take prompt action to defend and
indemnify the other Party against claims, actual or threatened, but in no event
later than notice by the indemnified Party to the indemnifying Party of the
service of a notice, summons, complaint, petition or other service of a process
against the indemnified Party alleging damage, injury, liability, or expenses
attributed in any way to this Agreement, the work, acts, fault, negligence,
equipment, materials, systems, facilities, personnel, or property of the
indemnifying Party, it's agents, employees, contractors or suppliers. The
indemnifying Party shall defend any such claim

                                       21
<PAGE>   297

or threatened claim, including as applicable, engagement of legal counsel, to
respond to, defend, settle, or compromise any claim or threatened claim.

      22.4 The indemnifying Party understands and agrees that it is responsible
for any and all costs and expenses incurred by indemnified Party to enforce this
indemnification provision.

      22.5 The obligations set forth in this Article 22 shall survive completion
of any work, labor or services which is the subject matter of this Agreement and
shall survive the termination or expiration of this Agreement.

                                   ARTICLE 23

                                    INSURANCE

      23.0 Each Party shall maintain at its own cost and expense, fire,
liability, worker's compensation, and other forms of insurance relating to their
property, facilities, systems, equipment in the manner, and amounts, and for the
durations set forth in Schedule L to this Agreement.

      23.1 Each Party shall promptly provide the other Party with either a
Certificate of Insurance or Evidence of Insurance letter for all coverages as
set forth in Schedule L to this Agreement, at the following address:

                  For Niagara Mohawk Power Corporation:
                        Attn: Risk Management, Bldg. A-1
                        300 Erie Boulevard West
                        Syracuse, NY 13202

                  For Buyer:

Such certificates or letters, and any renewals or extensions thereof, shall
provide that at least ninety (90) days prior written notice shall be given to
the other Party in the event of any cancellation or diminution of coverage and
shall outline the amount of deductibles or self-insured retention which shall be
for the account of that Party. Any waiver of right of subrogation
responsibilities should be noted on the certificate.

      23.2 Each Party shall be named as additional insureds on the general
liability insurance policies set forth in Schedule L to this Agreement as
regards liability under this Agreement; and each Party shall on behalf of
itself, its parents, affiliates, overseers, and assigns, waive its rights of
recovery against the other for any loss or damage covered by such policy.

                                       22
<PAGE>   298

      23.3 The failure of either Party to comply with the requirements of this
Article 23, or the complete or partial failure of an insurance carrier to
protect or indemnify fully the other Party, or the inadequacy of the insurance,
shall not in any way lessen or affect the obligations or liabilities of each
Party to the other.

      23.4. In the event either Party uses contractors or sub-contractors in
connection with this Agreement, the using Party shall require all such
contractors and sub-contractors to provide the same insurance coverages as
required in Schedule L to this Agreement.

      23.5 If any insurance coverage required in Schedule L to this Agreement is
not secured, maintained or is canceled before expiration of this Agreement, and
the Party obligated by this Agreement to obtain and/or to maintain such
insurance fails immediately to procure other insurance, the other Party has the
right to procure such insurance and to charge the cost thereof to Party failing
to obtain, maintain or replace such insurance.

      23.6 Each Party shall furnish the other's Risk Management department with
copies of any accident or incident report(s) it receives from any insurance
carrier covering accidents or incidents occurring in connection with, as a
result of, or arising out of this Agreement.

      23.7 Nothing contained in this Article 23 shall be construed as limiting
the extent of the either Party's responsibility for payment of damages resulting
from this Agreement, or limiting, diminishing, or waiving either Party's
obligation to indemnify, defend, and save harmless the other Party as provided
by this Agreement.

      23.8 As set forth in Schedule L, each Party may elect to self-insure
specified portions of the insurance obligations set forth in Schedule L to this
Agreement provided such Party meets and complies with the requirements for
self-insurance set forth in Schedule L.

                                   ARTICLE 24

                                     CLAIMS

      24.1 Buyer shall provide reasonable assistance and cooperation to Seller
in the investigation, processing and disposition of any and all claims, actions
and lawsuits, known or unknown, that relate to the Purchased Assets as of the
date of Closing. Such claims shall include claims arising out of actions or
activities occurring at the Purchased Assets prior to Closing, which have been
instituted against Seller within the applicable statue of limitations under New
York Law. Seller's assistance and cooperation shall include, but shall not be

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<PAGE>   299

limited to, participation in pre-trial discovery, inspections, document
production, pre-trial testimony and testimony at trial.

                                   ARTICLE 25

                                  FORCE MAJEURE

      25.0 Notwithstanding anything in this Agreement to the contrary, Buyer and
Seller shall not be liable in damages or otherwise or responsible to the other
for its failure to carry out any of its obligations under this Agreement if and
only to the extent that they are unable to so perform or are prevented from
performing by an event of force majeure. A Party's year 2000 computer compliance
failure shall not constitute force majeure.

      25.1 The term "force majeure" as used herein, means those causes beyond
the reasonable control of the Party affected, which by the exercise of
reasonable diligence that Party is unable to prevent, avoid, mitigate, or
overcome, including the following: any act of God, labor disturbance, act of the
public enemy, war, insurrection, riot, fire, storm or flood, explosion, breakage
or accident to machinery or equipment, order, regulation or restriction imposed
by governmental military or lawfully established civilian authorities, or any
other cause of a similar nature beyond a Party's reasonable control.

      25.2 If a Party shall rely on the occurrence of an event or condition
described above as a basis for being excused from performance of its obligations
under this Agreement, then the Party relying on the event or condition shall:
(i) provide prompt written notice of such force majeure event to the other Party
giving an estimation of its expected duration and the probable impact on the
performance of its obligations hereunder; (ii) exercise all reasonable efforts
to continue to perform its obligations under this Agreement, (iii) expeditiously
take action to correct or cure the event or condition excusing performance;
provided that settlement of strikes or other labor disputes will be completely
within the sole discretion of the Party affected by such strike or labor
dispute; (iv) exercise all reasonable efforts to mitigate or limit damages to
the other Party; and (v) provide prompt notice to the other Party of the
cessation of the event or condition giving rise to its excuse from performance.
All performance obligations hereunder, shall be extended by a period equal to
the term of the resultant delay.

                                       24
<PAGE>   300

                                   ARTICLE 26

                             GOVERNING LAW, DISPUTES

      26.0 This Agreement and the rights, duties and obligations of the Parties
hereunder shall be governed by and construed, enforced and performed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of law. Any law suits arising under this Agreement shall be
instituted in the Federal and State courts of New York located in the City of
Syracuse, County of Onondaga and each party hereby irrevocably submits to the in
personam jurisdiction of such courts. Each Party herein waives its respective
right to a jury trial with respect to any litigation between the Parties arising
under or in connection with this Agreement.

                                   ARTICLE 27

                     ASSIGNMENT/CHANGE IN CORPORATE IDENTITY

      27.0 This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the Parties hereto and their respective successors
and permitted assigns, but neither this Agreement nor any of the rights,
interests, or obligations hereunder shall be assigned without the prior written
consent of the other Party, said consent not to be unreasonably withheld. Any
assignment of this Agreement in violation of the foregoing shall be, at the
option of the non-assigning Party, void. Notwithstanding the foregoing, Buyer or
its permitted assignee may assign, transfer, pledge or otherwise dispose of its
right and interests hereunder to a trustee or lending institution (s) for the
purposes of financing or refinancing the Purchased Assets, including upon or
pursuant to the exercise of remedies under such financing or refinancing, or by
way of assignments, transfers, conveyances of dispositions in lieu thereof;
provided, however, that no such assignment or disposition shall relieve or in
any way discharge Buyer or such assignee from the performance of its duties and
obligations under this Agreement. Seller agrees to execute and deliver such
documents as may be reasonably necessary to accomplish any such assignment,
transfer, conveyance, pledge or disposition of rights hereunder for purposes of
the financing or refinancing of the Purchased Assets, so long as Seller's rights
under this Agreement are not thereby altered, amended, diminished or otherwise
impaired.

      27.1 Except as set forth in this Article 27, no assignment or transfer of
rights or obligations under this Agreement by Buyer shall relieve Buyer from
full liability and financial responsibility for the performance thereof after
any such transfer or assignment unless and until

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<PAGE>   301

the transferee or assignee shall agree in writing to assume the obligations and
duties of Buyer under this Agreement and Seller has consented in writing to such
assumption; said consent not to be unreasonably withheld.

      27.2 Except as set forth in this Article 27, no assignment or transfer of
rights or obligations under this Agreement by Seller shall relieve Seller from
full liability and financial responsibility for the performance after any such
transfer or assignment unless and until the transferee or assignee shall agree
in writing to assume the obligations and duties of Seller under this Agreement
and Buyer has consented in writing to such assumption; said consent not to be
unreasonably withheld.

      27.3 If either Party terminates its existence as a corporate entity, and
by merger, acquisition, sale, consolidation, or otherwise, or if all or
substantially all of such Party's assets are transferred to another person or
business entity without complying with this Article 27, the other Party shall
have the right, enforceable in a court of competent jurisdiction, to enjoin the
Party's successor from using the property in any manner that interferes with,
impedes, or restricts such other Party's ability to carry out its ongoing
business operations, rights, and obligations.

                                   ARTICLE 28

                         CONTRACTORS AND SUBCONTRACTORS

      28.0 Nothing in this Agreement shall prevent the Parties from utilizing
the services of contractors and subcontractors as they deem appropriate,
provided, however, the Parties agree that, where applicable, all said
subcontractors shall comply with the terms and conditions of this Agreement.

      28.1 The creation of any subcontract relationship shall not relieve the
hiring Party of any of its obligations under this Agreement. Each Party shall be
fully responsible to the other Party for the acts and/or omissions of any
contractor or subcontractor it hires as if no contract or subcontract had been
made. Any obligation imposed by this Agreement upon the Parties, where
applicable, shall be equally binding upon and shall be construed as having
application to any contractor or subcontractor.

      28.2 No contractor or subcontractor is intended to be or shall be deemed a
third-Party beneficiary of this Agreement.

      28.3 To the fullest extent permitted by law, Buyer shall require its
contractor and subcontractors to indemnify and hold harmless and defend Seller,
its parent and affiliates and

                                       26
<PAGE>   302

their officers, directors, employees, agents, and assigns from and against any
and all claims and/or liability for damage to property, injury to or death of
any person, including Seller's employees, Buyer's employees and their
affiliates' employees, or any other liability incurred by Seller or its parent
or affiliates including all expenses, legal or otherwise, to the extent caused,
by any act or omission, negligent or otherwise, by said contractor or
subcontractor and/or its officers, directors, employees, agents, and assigns
arising out of or connected with the operation of Seller's and its affiliates or
Buyer's and its affiliates' facilities, equipment, and property described in
this Agreement, regardless of whether caused in part by a Party indemnified
hereunder.

      28.4 To the fullest extent permitted by law, Seller shall require its
contractors and subcontractors to indemnify and hold harmless and defend Buyer,
its parent and affiliates and their officers, directors, employees, agents, and
assigns from and against any and all claims and/or liability for damage to
property, injury to or death of any person, including Seller's employees,
Buyer's employees and their affiliates' employees, or any other liability
incurred by Buyer or its parent or affiliates including all expenses, legal or
otherwise, to the extent caused, by any act or omission, negligent or otherwise,
by said contractor or subcontractor and/or its officers, directors, employees,
agents, and assigns arising out of or connected with the operation of Seller's
and its affiliates or Buyer's and its affiliates' facilities, equipment, and
property described in this Agreement, regardless of whether caused in part by a
Party indemnified hereunder.

      28.5 The obligations under this Article 27 shall not be limited in any way
by any limitation on any such contractor's or subcontractor's insurance.

                                   ARTICLE 29

                                 LABOR RELATIONS

      29.0 Each Party agrees immediately to notify the other verbally and then
in writing, of any labor dispute or anticipated labor dispute which may
reasonably be expected to affect the operations of the other Party.

                                       27
<PAGE>   303

                                   ARTICLE 30

                          INDEPENDENT CONTRACTOR STATUS

      30.0 Nothing in this Agreement shall be construed as creating any
relationship between Seller and Buyer other than that of independent
contractors.

                                   ARTICLE 31

                             LIMITATION OF LIABILITY

      31.0 To the fullest extent permitted by law and notwithstanding any other
provision of this Agreement, except for any third-party indemnity obligations
set forth in Article 22, neither Seller nor Buyer, nor their respective
officers, directors, agents, or employees, successors or assigns, shall be
liable to the other Party or its parent, subsidiaries, affiliates, officers,
directors, agents, employees, successors or assigns, for claims, suits, actions
or causes of action for incidental, punitive, special, indirect, multiple or
consequential damages (including attorney's fees or litigation costs) connected
with or resulting from performance or non-performance of this Agreement, or any
actions undertaken in connection with or related to this Agreement, including
without limitation any such damages which are based upon causes of action for
breach of contract, tort (including negligence and misrepresentation), breach of
warranty, strict liability, statute, operation of law, or any other theory of
recovery. The provisions of this Article 31 shall apply regardless of fault and
shall survive termination, cancellation, suspension, completion or expiration of
this Agreement.

      31.1 The remedies set forth in this Agreement are the exclusive remedies
for the liabilities of each Party arising out of or in connection with this
Agreement.

                                   ARTICLE 32

                                     NOTICES

      32.1 Unless otherwise provided in is Agreement, all notices, requests,
claims, demands and other communications hereunder shall be in writing and shall
be given (and will be deemed to have been duly given if so given) by hand
delivery, cable, telecopy (confirmed in writing) or telex, or by mail
(registered or certified, postage prepaid) to the respective Party as follows:

                  For Seller:

                                      28

<PAGE>   304

                         Niagara Mohawk Power Corporation
                         300 Erie Boulevard West
                         Syracuse, New York 13202
                         Attention:

                         Facsimile: (315) _________

                  For Buyer:

                         [Address]

                         Facsimile:

or such other address as is furnished in writing by such Party. Unless otherwise
provided in this Agreement, notice is deemed to have been given as of the date
so mailed.

                                   ARTICLE 33

                                    HEADINGS

      33.0 The descriptive headings of the Articles of this Agreement are
inserted for convenience only and shall not affect the meaning or interpretation
of this Agreement.

                                   ARTICLE 34

                                     WAIVER

      34.0 Except as otherwise provided in this Agreement, any failure of a
Party to comply with any obligation, covenant, agreement, or condition herein
may be waived by the Party entitled to the benefits thereof only by a written
instrument signed by the Party granting such waiver, but such waiver or failure
to insist upon strict compliance with such obligation, covenant, agreement, or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.

                                   ARTICLE 35

                                  COUNTERPARTS

      35.0 This Agreement may be executed in two or more counterparts, all of
which will be considered one and the same Agreement and each of which will be
deemed an original.

                                       29
<PAGE>   305

                                   ARTICLE 36

                                  SEVERABILITY

      36.0 In the event that any of the provisions of this Agreement are held to
be unenforceable or invalid by any court of competent jurisdiction, the Parties
shall, to the extent possible, negotiate an equitable adjustment to the
provisions of this Agreement, with a view toward effecting the purpose of this
Agreement, and the validity and enforceability of the remaining provisions
hereof shall not be affected thereby.

                                   ARTICLE 37

                                    AMENDMENT

      37.0 This Agreement may be amended, modified, or supplemented only by
written agreement of both Seller and Buyer.

                                   ARTICLE 38

                                ENTIRE AGREEMENT

      38.0 This Agreement and the Schedules attached thereto, constitute the
entire understanding between the Parties, and supersede any and all previous
understandings, oral or written, which pertain to the subject matter contained
herein or therein. If there is any conflict between this Agreement and either
the Interconnection Agreement or the ASA, both the Interconnection Agreement and
the ASA have precedence over this Agreement.

                                   ARTICLE 39

                                 CONFIDENTIALITY

      39.0 [The parties will agree upon appropriate confidentiality language to
protect proprietary information of Buyer]

      IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be
signed by their respective duly authorized officers as of the date first above
written.

Acquisition Corporation                 Niagara Mohawk Power Corporation

By:________________________________     By: ____________________________________
Name:______________________________     Name:___________________________________
Tide: _____________________________     Title: _________________________________

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<PAGE>   306

                          List of Schedules to be Attached

Schedule A  Marked-up drawings and descriptions - points of interconnection.
            Buyer's equipment located on Seller's property or easement. Seller's
            equipment located on (in) Buyer's property. Storage space provided
            by Buyer.

Schedule B  ESB 756
Schedule C  Buyer provided services.
Schedule D  Deleted
Schedule E  Deleted
Schedule F  Seller provided services.
Schedule G  Deleted
Schedule H  Switching and Tagging Rules.
Schedule I  Testing and Grounding for the Protection of Employees.
Schedule J  Deleted
Schedule K  Deleted
Schedule L  Insurance Requirements.

                                       31
<PAGE>   307

Schedules to Site Agreement located at tab 3.

<PAGE>   308

                       TRANSITION POWER PURCHASE AGREEMENT

                                     (Hydro)

      This Transition Power Purchase Agreement (the "Agreement) is entered into
as of this ______ day of_____________, 1999 between Niagara Mohawk Power
Corporation ("Niagara Mohawk"), a New York Corporation, and Erie Boulevard
Hydropower, L.P., a Delaware Limited Partnership ("Producer") (each individually
a "Party", or collectively the "Parties").

      WHEREAS in November 1997 and on March 6, 1998 Niagara Mohawk filed its
Plan for Divestiture of its Non-Nuclear Electric Generating Facilities (the
"Plan") with the New York State Public Service Commission;

      WHEREAS on May 6, 1998 the New York State Public Service Commission
approved the Plan subject to certain conditions;

      WHEREAS Niagara Mohawk has conducted a Non-Nuclear Generation Divestiture
Auction ("Auction") to divest itself of its non-nuclear electrical generating
facilities, including seventy-two of its hydroelectric generating facilities;

      WHEREAS Producer has entered into an agreement ("Asset Sales Agreement, or
ASA") to acquire certain facilities from Niagara Mohawk, consisting of the
hydroelectric generating facilities (the "Units") listed in the ASA;

      WHEREAS Producer, will enter into an interconnection agreement with
NIAGARA MOHAWK on the Closing Date for the interconnection of the facilities
under this agreement; and

      WHEREAS pursuant to the ASA Niagara Mohawk and Producer agreed to enter
into Transition Power Purchase Agreements pursuant to which, for a certain
period of time, Niagara Mohawk is to purchase from Producer certain quantities
of capacity and electricity generated by the Units;

      NOW THEREFORE, in consideration of the mutual representations, covenants
and agreements set forth herein, and intending to be legally bound hereby, the
Parties agree as follows:

                                   ARTICLE 1.
                                   DEFINITIONS

      Whenever used in this Agreement with initial capitalization, the following
terms shall have the meanings specified or referred to in this Article 1.

                                       1
<PAGE>   309

      "Agreement" shall mean this Transition Power Purchase Agreement dated as
of _______________, 1999, between Niagara Mohawk Power Corporation and Erie
Boulevard Hydropower, L.P. and all attached schedules.

      "Asset Sales Agreement" or "ASA" shall mean the Asset Sales Agreement
dated as of December 2, 1998, between Niagara Mohawk Power Corporation and Erie
Boulevard Hydropower, L.P.

      "Business Day" shall mean any day other than Saturday, Sunday and any day
which is a legal holiday or a day on which baking institutions in New York City
are authorized by law or other governmental action to close; and a Business Day
shall open at 8:00 a.m. and close at 5:00 p.m. Eastern Standard (or Daylight)
time.

      "Calendar Quarter" shall include four time periods, each of the calendar
months of (i) January, February, and March, (ii) April, May, and June, (iii)
July, August, and September, (iv) October, November, and December.

      "Closing" shall mean the closing of the transactions contemplated by the
ASA.

      "Closing Date" shall mean the date and time at which the Closing actually
occurs.

      "Delivery Point" shall mean the point at which the interconnection
facility is connected to the transmission system as is indicated on a one-line
diagram included as part of Exhibit A of the Interconnection Agreement, or, as
provided herein, the interconnection facility between Carr Street Generating
Station, L.P.'s electric generation facility in East Syracuse, New York and
Niagara Mohawk's transmission system.

      "Force Majeure" means (with respect to Firm Transactions) an event not
anticipated as of the Effective Date which is not within the reasonable control
of the Party claiming Force Majeure (the "Claiming Party"), and which, by the
exercise of due diligence, the Claiming Party, is unable to overcome or avoid or
cause to be avoided, Force Majeure includes, but is not restricted to: acts of
God; fire; civil disturbance; labor dispute, labor or material shortage;
sabotage; action or restraint by court order to public or governmental authority
(so long as the Claiming Party has not applied for or assisted in the
application for, and has opposed where and to the extent reasonable, such
government action); provided, however, that an event of Force Majeure shall not
include (i) the loss of Niagara Mohawk's power markets; (ii) Niagara Mohawk's
inability economically to use or resell Power purchased hereunder, (iii) the
loss or failure of Producer's Power Supply; (iv) Producer's ability to sell
Power to a market at a more advantageous price. A party's year 2000 computer
compliance failure shall not constitute fore majeure.

      "Good Utility Practice" shall mean any of the practices, methods and acts
engaged in or approved by a significant portion of the electric utility industry
during the relevant time period, or any of the practices, methods and acts
which, in the exercise of reasonable judgment in light of the facts known at the
time the decision was made, could have been expected to accomplish the desired

                                       2
<PAGE>   310

result at the lowest reasonable cost consistent with good business practices,
reliability, safety and expedition. Good Utility Practice is not intended to be
limited to the optimum practice, method, or act, to the exclusion of all others,
but rather to be acceptable practices, methods, or acts generally accepted in
the region and consistently adhered to by Niagara Mohawk. Good Utility Practices
shall include, but not be limited to North American Electric Reliability Council
("NERC") Criteria & Guidelines, Northeast Power Coordinating Council ("NPCC")
Criteria & Guidelines, New York State Reliability Council ("NYSRC") if any, and
New York Power Pool ("NYPP") criteria, rules and standards, as they may be
amended from time to time including the rules, guidelines and criteria of any
successor organization to the foregoing entities.

      "Interconnection Agreement" shall mean a separate Interconnection
Agreement dated as of the Closing Date between Niagara Mohawk Power Corporation
and Erie Boulevard Hydropower, L.P.

      "Interest Rate" means, for any date, the interest equal to the prime rate
of Citibank as may from time to time be published in The Wall Street Journal
under "Money Rates".

      "New York Independent System Operator" or NYISO" shall mean an
organization formed in accordance with orders of the Federal Energy Regulatory
Commission to administer the operation of the transmission system of New York
State, to provide equal access to the bulk power-transmission system and to
maintain the reliability of the transmission system of New York State.

      "Power" means electric capacity as measured in MW or KW and/or energy as
measured in MWh or KWh. Energy purchased hereunder will include applicable
reserves (operating capacity), unless the Parties expressly agree otherwise.

      "Price" means the price to be paid per unit as specified by Niagara Mohawk
to Producer for the purchase of Power, including the energy price, demand
charges, transmission charges and any other charges pursuant to Article 2.

      "Quantity" means that quantity of Power that Producer agrees to make
available or sell and deliver, or cause to be delivered, to Niagara Mohawk, and
that Niagara Mohawk agrees to purchase and receive, or cause to be received,
from Producer pursuant to Article 3.

      "Replacement Price" means the locational based marginal price as defined
by the NYISO for the load zone 'E' which includes Niagara Mohawk's Northern
Operating Region.

      "Scheduling" or "Schedule" means the acts of Producer, Niagara Mohawk
and/or their designated representatives, including each Party's Transmission
Providers, if applicable, of notifying, requesting and confirming to each other
the quantity and type of Power to be delivered on a given hour, day or days at a
specified Delivery Point.

      "Transmission Providers" means the entity or entities transmitting or
transporting the Power on behalf of Producer or Niagara Mohawk from the Delivery
Point.

                                       3
<PAGE>   311

                                   ARTICLE 2.
                                  TRANSACTIONS

2.1. Term of Agreement. Term of Agreement will begin upon the Closing Date of
the ASA (the Effective Date) and will end on September 30, 2001.

2.2. Compensation. For each month during the term, Niagara Mohawk shall pay
Producer a Fixed Payment equal to one twelfth of the applicable Annual Fixed
Payment (as set forth in Schedule A), (one third of the applicable payment in
the first period set forth in Schedule A). For each Calendar Quarter during the
term, Niagara Mohawk shall pay Producer a Variable Payment calculated by
multiplying the applicable Variable Price (as set forth in Schedule A) by the
amount of energy delivered during the Calendar Quarter that is in excess of the
First Tier Quantity set forth in Schedule B for the applicable Calendar Quarter.

2.3 Compensation Adjustment. In the event Producer fails to deliver the First
Tier amount during any Calendar Quarter as set forth in Schedule B, Niagara
Mohawk shall reduce the Fixed Payment due by an amount of the product of (X) the
difference between the First Tier amount and the amount actually delivered (the
"Delivery Shortfall"), times (Y) the average Replacement Price for the
respective Calendar Quarter; provided, however Producer shall have the option
to supply the Delivery Shortfall from Carr Street Electric Generating Station,
L.P.'s electric generating facility in East Syracuse, New York, subject to the
limitations: (i) that on-peak deliveries in MWh are equal to off peak deliveries
in MWh, (iii) Niagara Mohawk is physically capable of receiving such energy and
(iii) Producer agrees to pay any incremental transmission and distribution costs
incurred by Niagara Mohawk as a result of such deliveries. Niagara Mohawk shall
have the right to schedule any such make-up deliveries by Producer. Niagara
Mohawk shall not be entitled to any other relief due to Producer's failure to
deliver the First Tier amount during any Calender Quarter.

      In the event Producer does not use Good Utility Practice and fails to
provide energy and ancillary services to Niagara Mohawk relative to historic
capability and operation of the Units, per Article 3.2, the Producer shall pay
Niagara Mohawk the product of (X) the difference between the actual energy and
ancillary services delivered to Niagara Mohawk and what would have been
delivered based upon historic capability, times (Y) the Replacement Price.
Schedule C sets forth the historical energy production shape of the Units for
purposes of this Section 2.3.

      Niagara Mohawk shall reimburse Producer for payments Producer incurs to
Niagara Mohawk for electric service under Niagara Mohawk's Service
Classification Tariff during hours in which Niagara Mohawk requests the Producer
to synchronize its generating Units without generating electricity ("Motor") to
provide voltage support. Producer shall provide such invoices to Niagara Mohawk
in accordance with Article 4.

2.4 Ancillary Service. Niagara Mohawk may request and Producer must commit
Unit(s) to be utilized for ancillary services to the NYISO. Producer may receive
ancillary service payments from the NYISO for such services, or for other
ancillary services it provides. Fixed Payments due from Niagara Mohawk to
Producer in accordance with paragraph 2.2 above shall be reduced by the

                                       4
<PAGE>   312

amount of all payments Producer receives from the NYISO for such services during
the applicable month. At the request of Niagara Mohawk, Producer must supply
supporting documentation illustrating such payments. Niagara Mohawk shall have
the right to audit Producer's payments from the NYISO.

2.5 Sell-All. Producer will sell and Niagara Mohawk will purchase all of the
electric capacity and all associated energy output and ancillary services of the
hydro generating Units operated by Producer. Niagara Mohawk shall have the right
to claim the capacity.

2.6 Delivery Point. Producer will make all of the capacity, energy, and
ancillary services of the Units available to Niagara Mohawk at the Delivery
Point.

                                   ARTICLE 3.
                                   SCHEDULING

3.1 Scheduling. Niagara Mohawk shall have the right during the term of the
Agreement to commit, schedule, and designate for dispatch (if the Unit is
capable of receiving base points from the NYISO) any and all of the Units.
Niagara Mohawk shall have the right to require Unit(s) be available for economic
dispatch for purposes of providing ancillary services to the NYISO and may rely
on Unit(s) to provide voltage support, load following, regulation, reserves, and
other similar ancillary services.

3.2 Scheduling. Niagara Mohawk shall provide to Producer, its projection of
hourly energy prices at least 10 Business Hours prior to the time the day ahead
bids and schedule requests are due to the NYISO. Business Hours shall mean the
hours between 8:00 AM and 5:00 PM (EST) Monday through Friday. Producer shall be
obligated to schedule the hydro Units, consistent with historic usage, to
minimize to the extent possible (recognizing operating constraints), the power
costs, including ancillary services, of Niagara Mohawk. This shall be completed
on a timely basis, in accordance with Good Utility Practice such that Niagara
Mohawk shall have the schedule 4 Business Hours prior to the day ahead bids and
schedule requests to the NYISO. At the request of Niagara Mohawk, Producer must
provide documentation supporting the process used to assure Producer has
developed schedules, consistent with historical energy production shape to
minimize the production cost, including ancillary services, of Niagara Mohawk.
In the event Producer does not use Good Utility Practice and fails to provide
schedule consistent with historic usage, Niagara Mohawk shall be compensated in
accordance with Article 2.3.

3.3 Scheduling Updates. Niagara Mohawk and Producer shall update the schedule at
the request of NIAGARA MOHAWK to accommodate the "Balancing Market Evaluation
for the Real Time Market" described in the NYISO tariff filed with Federal
Energy Regulatory Commission.

                                       5
<PAGE>   313

                                   ARTICLE 4.
                                     PAYMENT

4.1 Payment. Producer shall provide Niagara Mohawk with an invoice setting forth
the quantity of power which was delivered to Niagara Mohawk, (unless otherwise
specified for any applicable Transaction(s)), during the preceding month, the
total amount due from Niagara Mohawk including any applicable Variable Payment
and Compensation Adjustment, net of ancillary service payments received by
Producer from the NYISO, and any applicable supporting documentation. Niagara
Mohawk shall remit the amount due by wire transfer, or as otherwise agreed,
pursuant to Producer's invoice instructions, on the later of fifteen days from
receipt of Producer's invoice or the twenty-fifth (25th) day of the calendar
month in which the invoice is rendered.

4.2 Overdue Payments. Overdue payments shall accrue interest at the Interest
Rate from, and including, the due date to, but excluding, the date of payment.

4.3 Billing Dispute. If Niagara Mohawk, in good faith, disputes an invoice,
Niagara Mohawk shall immediately notify Producer of the Basis for the dispute
and pay the portion of such statement conceded to be correct no later than the
due date. If any amount withheld under dispute by Niagara Mohawk is ultimately
determined (under the terms herein) to be due to Producer, it shall be paid
within one (1) day of such determination along with interest accrued at the
Interest Rate until the date paid. Inadvertent overpayments shall be returned by
Producer upon request or deducted by Producer from subsequent payments, with
interest accrued at the Interest Rate until the date paid or deducted.

                                   ARTICLE 5.
                                  FORCE MAJEURE

5.1 Performance Excused. If either Party is rendered unable by an event of Force
Majeure to carry out, in whole or part, its obligations under the Agreement,
then, for only the pendency of such Force Majeure, the Party affected by the
event (other than the obligation to make payments then due or becoming due with
respect to performance which occurred prior to the event) shall be temporarily
relieved of its obligations insofar as they are affected by Force Majeure but
for no longer period. The Party affected by an event of Force Majeure shall
provide the other Party with written notice setting forth the full details
thereof within two (2) business days after the occurrence of such event and
shall take all reasonable measures to mitigate or minimize the effects of such
event of Force Majeure; provided, however, that this provision shall not require
Producer to deliver, or Niagara Mohawk to receive, Power at points other than
the Delivery Point.

                                       6
<PAGE>   314

                                   ARTICLE 6.
                            TITLE TRANSFER; LIABILITY

6.1 Title and Risk of Loss. Title to and risk of loss related to the Quantity
shall transfer from Producer to Niagara Mohawk at the Delivery Point. Producer
warrants that it will deliver to Niagara Mohawk the Quantity free and clear of
all liens, claims and encumbrances arising prior to the Delivery Point.

6.2 Indemnity. Each Party shall indemnify, defend and hold harmless the other
Party from any Claims arising from any act or incident occurring during the
period when control and title to Power is vested, as between the Parties as
provided in Article 7.1, in the indemnifying Party. "Claims" means all claims or
actions, threatened or filed and, whether groundless, false or fraudulent, that
directly or indirectly relate to the subject matter of an indemnity, and the
resulting losses, damages, expenses, attorneys' fees and court costs, whether
incurred by settlement or otherwise, and whether such claims or actions are
threatened or filed prior to or after the termination of this Agreement.

6.3 Duty to Mitigate. Each Party agrees that it has a duty to mitigate damages
and covenants and that it will use commercially reasonable efforts to minimize
any damages it may incur as a result of the other Party's performance or
non-performance of this Agreement.

                                   ARTICLE 7.
                                       LAW

7.1 Governing Law and Jurisdiction. THIS AGREEMENT AND THE RIGHTS AND DUTIES OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED, ENFORCED AND PERFORMED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. Except as provided in Article 9.2, any law suits
arising under this AGREEMENT shall be instituted in the Federal or State courts
of New York located in the City of Syracuse and each party hereby irrevocably
submits to the in personam jurisdiction of such courts. Each party herein waives
its respective right to a jury trial with respect to any litigation arising
under or in connection with this Agreement or any Transaction.

                                   ARTICLE 8.
                                  MISCELLANEOUS

8.1 Assignment. Neither Party shall assign this Agreement or its rights
hereunder without the prior written consent of the other Party; provided,
however, either Party may, without the consent of the other Party (and without
relieving itself from liability hereunder), (i) transfer, sell, pledge, encumber
or assign this Agreement or the accounts, revenues or proceeds hereof in
connection with

                                       7
<PAGE>   315

any financing or other financial arrangements, (ii) transfer or assign this
Agreement to an affiliate of such Party which affiliate's creditworthiness is
not materially different than that of such Party, or (iii) transfer or assign
this Agreement to any person or entity succeeding to all or substantially all of
the assets of such Party; provided, however, that in each such case, any such
assignee shall agree to in writing be bound by the terms and conditions hereof
and creditworthiness is not materially different than that of such Party.

8.2 Notices. Set for the in the:

to Niagara Mohawk:

NOTICES & CORRESPONDENCE                  SCHEDULING:
Niagara Mohawk Power Corporation          (315) 460-2468
Supply Services - HCB#3                   (315) 460-2425
300 Erie Boulevard West                   Fax - (315) 460-2122
Syracuse, New York 13202-4250
Phone: (315) 460-2341                     DISPATCHERS:
Phone: (315) 460-2271                     (315) 460-2120
Fax: (315) 460-2660                       (315) 460-2130
                                          Fax - (315) 460-2197
INVOICES:
Niagara Mohawk Power Corporation          CHECK PAYMENTS:
Power Scheduling and Billing - HCB#3      Niagara Mohawk Power Corporation
300 Erie Boulevard West                   Misc. Accounts Receivable C-3
Syracuse, New York 13202-4250             300 Erie Boulevard West
Phone: (315)460-2190                      Syracuse, New York 13202-4250
Fax: (315) 460-2494
                                          PAYMENTS BY WIRE:
                                          Citibank New York
                                          Account #: 40662754
                                          ABA Routing #: 021000089
                                          Credit To: Niagara Mohawk Power Corp.

                                       8
<PAGE>   316

to Producer:

NOTICES & CORRESPONDENCE:                 PAYMENTS:
Erie Boulevard Hydropower, L.P            ______________________________________
c/o Orion Power Holdings, Inc.
111 Market Place, Suite 250               ______________________________________
Baltimore, MD 21202
Attn: ______________________              ______________________________________
Fax: _______________________
Phone: 410-468-3680                       ABA Routing # ________________________

INVOICES:                                 Confirmation: ________________________

Attn:______________________________       Credit & Collections

                                          (____)____ -_________________
Fax No.:   (____)____ -____________
Phone No.: (____)____ -____________       SCHEDULING:

___________________________________       Attn:_________________________________

                                          Fax No.:   (____)____ -____________
                                          Phone No.: (____)____ -____________

8.3 General. This Transition Power Agreement (including the Exhibit hereto) as
well as the ASA constitutes the entire Agreement between the Parties to the
subject matter contemplated by this Agreement. The Agreement shall be considered
for all purposes as prepared through the joint efforts of the Parties and shall
not be construed against one party or the other as a result of the preparation,
substitution, submission or other event of negotiation, drafting or execution
hereof. No amendment or modification to this Transition Power Agreement shall be
enforceable unless reduced to writing and executed by both Parties. This
Transition Power Agreement shall not impact any rights enforceable by any third
party (other than a permitted successor or assignee bound to this Agreement). No
waiver by a Party of any default by the other Party shall be construed as a
waiver of any other default. Any provision declared or rendered unlawful by any
applicable court of law or regulatory agency or deemed unlawful because of a
statutory change will not otherwise affect the remaining lawful obligations that
arise under this Agreement. The term "including" when used in this Agreement
shall be by way of example only and shall not be considered in any way to be in
limitation. The headings used herein are for convenience and reference purposes
only. All indemnity and audit rights shall survive the termination of this
Agreement for six years.

8.4 Audit. If requested, a Party shall provide to the other Party statements
evidencing the quantities of Power delivered at the Delivery Point. If any such
examination reveals any inaccuracy in any statement, the necessary adjustments
in such statement and the payments thereof will be made promptly and shall bear
interest calculated at the Interest Rate from the date the overpayment or
underpayment was made until paid; provided, however, that no adjustment for any
statement or

                                       9
<PAGE>   317

payment will be made unless objection to the accuracy thereof was made prior to
the lapse of one (1) year from the rendition thereof.

      The Parties have executed this Master Power Agreement in multiple
counterparts to be construed as one effective as of the Effective Date.

Erie Boulevard Hydropower, L.P.         Niagara Mohawk Power Corporation

By:________________________________     By:_____________________________________

Name: Jack Fusco                        Name: Clement E. Nadeau

Title: Chief Operating Officer          Title: Vice President Marketing and
                                               Planning

Date:______________________________     Date:___________________________________

                                       10<PAGE>   1
                                                                    Exhibit 10.6

                                                                  CONFORMED COPY

                            ASSET PURCHASE AGREEMENT

                                 by and between

                       DUQUESNE LIGHT COMPANY, as SELLER,

                      ORION POWER HOLDINGS, INC., as BUYER,

                                       AND

                   THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

                               OHIO EDISON COMPANY

                                       AND

                           PENNSYLVANIA POWER COMPANY

                         Dated as of September 24, 1999
<PAGE>   2
                            ASSET PURCHASE AGREEMENT

         ASSET PURCHASE AGREEMENT, dated as of September 24, 1999 (this
"Agreement"), by and among Duquesne Light Company, a Pennsylvania corporation
("Seller"), Orion Power Holdings, Inc., a Delaware corporation ("Buyer"), and
Ohio Edison Company, an Ohio corporation ("OEC"), Pennsylvania Power Company, a
Pennsylvania corporation ("PPC"), and The Cleveland Electric Illuminating
Company, an Ohio corporation ("CEIC"). Each of CEIC, OEC and PPC is a subsidiary
(direct or indirect) of FirstEnergy Corp., an Ohio corporation ("FE"), (each
such subsidiary, an "FE Subsidiary" and collectively the "FE Subsidiaries").
Seller, Buyer and each of the FE Subsidiaries are referred to individually as a
"Party," and collectively as the "Parties."

                               W I T N E S S E T H

         WHEREAS, Seller owns four electric generating facilities located in
Pennsylvania (described herein as the "DLC Plants") and certain facilities and
other assets associated therewith and ancillary thereto;

         WHEREAS, Seller has acquired from the FE Subsidiaries beneficial
ownership of three electric generating facilities located in Pennsylvania and
Ohio (described herein as the "FE Plants") and certain facilities and other
assets associated therewith and ancillary thereto pursuant to that certain
Generation Exchange Agreement by and among Seller and the FE Subsidiaries, dated
as of March 24, 1999 (the "Exchange Agreement");

         WHEREAS, Buyer desires to purchase and assume, and Seller desires to
sell and assign, the Purchased Assets (as defined in Sections 2.1 and 2.1A
below) and certain associated liabilities, upon the terms and conditions
hereinafter set forth in this Agreement; and

         WHEREAS, pursuant to this Agreement, Seller desires and directs the FE
Subsidiaries to transfer and deliver the Purchased FE Assets directly to Buyer.

         NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements hereinafter set forth, and intending
to be legally bound hereby, the Parties agree as follows:

                                        1
<PAGE>   3
                                    ARTICLE I

                                   DEFINITIONS

                  1.1 Definitions. As used in this Agreement, the following
terms have the meanings specified in this Section 1.1.

                  (1) "Accrued FE Liabilities" has the meaning set forth in
         Section 2.3(g).

                  (2) "Accrued Liabilities" means, with respect to a Party, the
         aggregate amount of the liabilities of such Party that are fixed or
         determinable as of the Auction Closing Date and that arise out of any
         of the following obligations incurred by such Party prior to the
         Auction Closing Date, except to the extent that any such obligation is
         allocable to the right of such Party to receive property, services or
         other benefit after the Auction Closing Date: (A) any obligation to
         repay money advanced to or for the benefit of such Party; (B) any
         obligation to make an expenditure that is includible in the basis of
         any asset of such Party for income tax purposes as of the Auction
         Closing Date; (C) any obligation to make an expenditure that is
         deductible by such Party and is not includible in such basis; and (D)
         any obligation to make any expenditure that is not described in clauses
         (B) or (C).

                  (3) "Affiliate" has the meaning set forth in Rule 12b-2 of the
         General Rules and Regulations under the Securities Exchange Act of
         1934, as amended.

                  (4) "Agreement" means this Asset Purchase Agreement together
         with the Schedules and Exhibits attached hereto, as the same may be
         from time to time amended.

                  (5) "Ancillary Agreements" means the Connection Agreements,
         the Easement and Attachment Agreements, the Must-Run Agreements, the
         DLC Assignment and Assumption Agreement, and the FE Assignment and
         Assumption Agreement.

                  (5A) "Asset Material Adverse Effect" means any change in, or
         effect on, the DLC Plants and the FE Plants, from or after the date
         hereof, that is materially adverse to the operations or condition
         (financial or otherwise) of such Plants, taken as a whole, other than:
         (a) any change affecting the international, national, regional or local
         electric industry as a whole and not specific and exclusive to such
         Plants; (b) any change or effect resulting from changes in
         international, national, regional or local wholesale or retail markets
         for

                                       2
<PAGE>   4
         electric power; (c) any change or effect resulting from changes in the
         international, national, regional or local markets for any fuel used in
         connection with such Plants; (d) any change or effect resulting from
         changes in the North American, national, regional or local electric
         transmission systems or operations thereof; (e) any material adverse
         change in or effect on such Plants which is cured (including by the
         payment of money) by the FE Subsidiaries or Seller, as the case may be,
         before the Termination Date; (f) any order of any court or Governmental
         Authority applicable to providers of generation, transmission or
         distribution of electricity generally that imposes restrictions,
         regulations or other requirements thereon, including any order with
         respect to an independent system operator or retail access in
         Pennsylvania or Ohio; and (g) any change or effect resulting from the
         matter of Allegheny Energy, Inc. v. DQE, Inc., Civil Action No. 98-1639
         (W.D.Pa.), which change or effect is specifically addressed in Section
         10.1(j) hereof.

                  (6) "Assigned Agreements" means, with respect to Seller, the
         DLC Agreements, and with respect to the FE Subsidiaries, the FE
         Agreements.

                  (7) "Assumed DLC Liabilities" has the meaning set forth in
         Section 2.3.

                  (8) "Assumed FE Liabilities" has the meaning set forth in
         Section 2.3A.

                  (9) "Assumed Liabilities" means the Assumed DLC Liabilities
         and the Assumed FE Liabilities, as applicable.

                  (10) "Auction Closing" has the meaning set forth in Section
         3.1.

                  (11) "Auction Closing Date" means one minute after 11:59 p.m.
         on the date which is fifteen (15) Business Days following the date on
         which the last of the conditions precedent to the Auction Closing set
         forth in Article VIII of this Agreement have been either satisfied or
         waived by the Party for whose benefit such conditions precedent exist
         or such other date as the Parties may mutually agree.

                  (12) "Avon Lake" means all generating units and related assets
         located at the generating station known as Avon Lake, as more fully
         identified on Schedule 2.1A attached hereto.

                  (13) "Benefit Plans" means with respect to each Party, each
         deferred compensation and each bonus or other incentive compensation,
         stock purchase, stock option and other equity compensation plan,
         program, agreement or arrangement; each severance or termination pay,
         medical, surgical, hospitalization, life insurance and other "welfare"
         plan, fund or program (within the meaning of Section 3(1) of ERISA)
         each

                                       3
<PAGE>   5
         profit-sharing, stock bonus or other "pension" plan, fund or program
         (within the meaning of Section 3(2) of ERISA); each employment,
         termination or severance agreement; and each other employee benefit
         plan, fund, program, agreement or arrangement, in each case, that is
         sponsored, maintained or contributed to or required to be contributed
         to by such Party or by any ERISA Affiliate and that are identified on
         Schedules 4.8 and 5.8(a).

                  (14) "Bills of Sale" means the Bills of Sale, substantially in
         the form of Exhibit A attached hereto, to be delivered at the Auction
         Closing by each of Seller and the FE Subsidiaries, with respect to
         their Tangible Personal Property included in the Purchased Assets
         transferred to Buyer.

                  (15) "Bond Counsel" has the meaning set forth in Section
         7.14(b).

                  (16) "Brunot Island" means all generating units and related
         assets located at the generating station known as Brunot Island, as
         more fully identified on Schedule 2.1 attached hereto.

                  (17) "Business Day" means any day other than Saturday, Sunday
         and any day which is a day on which banking institutions in the
         Commonwealth of Pennsylvania or the State of Ohio are authorized by law
         or other governmental action to close.

                  (18) "Buyer" has the meaning set forth in the Preamble.

                  (19) "Buyer Indemnifiable Loss" has the meaning set forth in
         Section 9.3.

                  (20) "Buyer Indemnitee" has the meaning set forth in Section
         9.3.

                  (21) "Buyer Material Adverse Effect" has the meaning set forth
         in Section 6.3(a).

                  (22) "Buyer Required Regulatory Approvals" means the Required
         Regulatory Approvals set forth in Schedule 6.3(b).

                  (23) "CEIC" means The Cleveland Electric Illuminating Company,
         a subsidiary of FE and an Ohio corporation.

                  (24) "CERCLA" means the federal Comprehensive Environmental
         Response, Compensation, and Liability Act, 42 U.S.C. Section 9601 et
         seq., as amended.

                                       4
<PAGE>   6
                  (25) "Cheswick" means all generating units and related assets
         located at the generating station known as Cheswick, as more fully
         identified on Schedule 2.1 attached hereto.

                  (26) "COBRA" means the Consolidated Omnibus Budget
         Reconciliation Act of 1984.

                  (27) "COBRA Continuation Coverage" means the requirements of
         Section 4980B(f) of the Code.

                  (28) "Code" means the Internal Revenue Code of 1986, as
         amended.

                  (29) "Commercially Reasonable Efforts" means efforts by a
         Party which are reasonably within the contemplation of the Parties at
         the time of executing this Agreement and which do not require the
         performing Party to expend any funds other than expenditures which are
         customary and reasonable in transactions of the kind and nature
         contemplated by this Agreement in order for the performing Party to
         satisfy its obligations hereunder.

                  (30) "Computer Systems" means hardware, software, and firmware
         product (including embedded microcontrollers in non-computer
         equipment).

                  (31) "Connection Agreements" means the DLC Connection
         Agreements and the FE Connection Agreements.

                  (32) "Continuation Period" means DLC Continuation Period or FE
         Continuation Period, as applicable.

                  (33) "Direct Claim" means any claim by an Indemnitee on
         account of an Indemnifiable Loss that does not result from a Third
         Party Claim.

                  (34) "DLC" means Duquesne Light Company, a Pennsylvania
         corporation.

                  (35) "DLC Agreements" means any contracts, agreements,
         licenses and personal property leases entered into by DLC or one of its
         Affiliates with respect to the ownership, operation or maintenance of
         the Purchased DLC Assets, whether or not disclosed on Schedule 4.11(a),
         including without limitation, the IBEW CBA to the extent applicable to
         the employees employed at the DLC Plants, the QF Contracts and the
         Power Sales Contract, but excluding the DLC Real Property Leases, and
         specifically excluding

                                       5
<PAGE>   7
         all contractual arrangements associated with the Central Area Power
         Coordination Group ("CAPCO").

                  (36) "DLC Assignment and Assumption Agreement" means the
         Assignment and Assumption Agreement between Seller and Buyer
         substantially in the form of Exhibit B.1 attached hereto.

                  (37) "DLC Capital Expenditures" means capital additions to or
         replacements of property, plants and equipment included in the
         Purchased DLC Assets and other expenditures or repairs on property,
         plants and equipment included in the Purchased DLC Assets that would be
         capitalized by Seller in accordance with its normal accounting
         policies.

                  (38) "DLC Capital Spare Parts" means any major equipment items
         of significant cost that are essential to the operation of a Purchased
         DLC Asset. Such equipment is generally a long lead-time item and,
         consistent with past practice, has been assigned to the capital base of
         the Purchased DLC Asset upon delivery and prior to its placement in
         service. The DLC Capital Spare Parts are set forth on Schedule 1.1(38).

                  (39) "DLC Connection Agreements" means the Connection and Site
         Agreements to be entered into by Seller and Buyer with respect to
         Brunot Island, Cheswick, Elrama and Phillips, as the case may be,
         substantially in the form of Exhibit C.1 hereto, as of the date hereof.

                  (40) "DLC Continuation Period" has the meaning set forth in
         Section 7.11(e)(ii).

                  (41) "DLC Easements" means the easements and access rights to
         be granted by Buyer to Seller pursuant to the DLC Easement and
         Attachment Agreement, including, without limitation, easements
         authorizing access, use, maintenance, construction, repair, replacement
         and other activities with respect to certain of the Purchased DLC
         Assets, as further described in the DLC Easement and Attachment
         Agreement.

                  (42) "DLC Easement and Attachment Agreement" means the
         Easement, License and Attachment Agreement to be entered into by Buyer
         and Seller, substantially in the form of Exhibit D.1 hereto.

                  (43) "DLC Emission Reduction Credits" means the Emission
         Reduction Credits related to any of the DLC Plants.

                                       6
<PAGE>   8
                  (44) [Intentionally omitted.]

                  (45) "DLC Environmental Permits" means any permits,
         registrations, certificates, certifications, licenses and
         authorizations, consents and approvals of Governmental Authorities
         issued under Environmental Laws held by Seller with respect to the
         Purchased DLC Assets.

                  (46) "DLC Environmental Reports" has the meaning set forth in
         Section 4.6.

                  (47) "DLC Estimated Adjustment" has the meaning set forth in
         Section 3.3(b).

                  (48) "DLC Estimated Closing Statement" has the meaning set
         forth in Section 3.3(b).

                  (49) "DLC Fuel Supplies" has the meaning set forth in Section
         2.6(a).

                  (50) "DLC Governmental Orders" has the meaning set forth in
         Section 2.3(h).

                  (51) "DLC Indemnifiable Loss" has the meaning set forth in
         Section 9.1(a).

                  (52) "DLC Indemnitee" has the meaning set forth in Section
         9.1(a).

                  (53) "DLC Intellectual Property" has the meaning set forth in
         Section 2.1(l).

                  (54) "DLC Inventories" means materials, spare parts,
         consumable supplies and chemical inventories relating to the operation
         of any DLC Plant, provided that "DLC Inventories" shall not include DLC
         Capital Spare Parts, DLC Fuel Supplies, DLC SO2 Emission Allowances or
         DLC NOx Emission Allowances.

                  (55) "DLC Must-Run Agreement" means the Must-Run Agreements
         entered into by DLC and the Buyer with respect to Cheswick and Elrama,
         as the case may be, substantially in the form of Exhibit E hereto.

                  (56) "DLC Non-Qualifying Offer" means an offer to DLC
         Transferred NonUnion Employees that is either less than 100% of such
         employee's current total annual cash compensation at the time the offer
         was made (consisting of base salary and target incentive bonus) or
         requires, as a condition of acceptance, a relocation of residence as
         described in Section 7.11(g).

                                       7
<PAGE>   9
                  (57) "DLC Non-Union Employees" has the meaning set forth in
         Section 7.11(c).

                  (58) "DLC NOx Emission Allowances" means NOx Emission
         Allowances allocated to any of the DLC Plants (but not purchased by
         DLC) by a Governmental Authority pursuant to a NOx Budget Program.

                  (59) "DLC Permits" means any permits, licenses, registrations,
         franchises and other authorizations, consents and approvals of
         Governmental Authorities held by Seller with respect to the Purchased
         DLC Assets.

                  (60) "DLC Plans" means any Benefit Plan of Seller or any ERISA
         Affiliate of Seller or to which Seller or any ERISA Affiliate of Seller
         contributed thereunder, including any multi-employer plan, that are
         listed on Schedule 4.8.

                  (61) "DLC Plants" means Brunot Island, Cheswick, Elrama and
         Phillips.

                  (62) "DLC Post-Closing Adjustment" has the meaning set forth
         in Section 3.3(c).

                  (63) "DLC Qualifying Offer" means an offer to a DLC
         Transferred NonUnion Employee of the same or similar job that is at
         least 100% of such employees current total cash compensation at the
         time the offer was made (consisting of base salary and target incentive
         bonus) and does not require, as a condition of acceptance, a relocation
         of residence as described in Section 7.11(g).

                  (64) "DLC Real Property" has the meaning set forth in Section
         2.1(a). Any reference to the DLC Real Property includes, by definition,
         Seller's right, title and interest in and to the surface and subsurface
         elements, including the soils and groundwater present at the DLC Real
         Property, and any reference to items "at the DLC Real Property"
         includes all items "at, on, in, upon, over, across, under and within"
         the DLC Real Property.

                  (65) "DLC Real Property Leases" has the meaning set forth in
         Section 4.5.

                  (66) "DLC Required Regulatory Approvals" means the Required
         Regulatory Approvals set forth in Schedule 4.3(b).

                  (67) "DLC Savings Plan" has the meaning set forth in Section
         7.11(e)(ii)(E).

                                       8
<PAGE>   10
                  (68) "DLC SEC Reports" has the meaning set forth in Section
         4.21.

                  (69) "DLC SO2 Emission Allowances" means SO2 Emission
         Allowances allocated to any of the DLC Plants (but not purchased by
         DLC) by the USEPA pursuant to the federal Clean Air Act.

                  (70) "DLC Tangible Personal Property" has the meaning set
         forth in Section 2.1(c).

                  (71) "DLC Transferable Permits" means those DLC Permits and
         DLC Environmental Permits with respect to the Purchased DLC Assets
         which may be transferred to Buyer without a filing with, notice to,
         consent of or approval of any Governmental Authority, as set forth in
         Schedule 1.1(71).

                  (72) "DLC Transferred Employee Records" means records related
         to Seller's employees who become employees of Buyer but only to the
         extent such records pertain to (A) skill and development training and
         biographies, (B) seniority histories, (C) salary and benefit
         information, (D) Occupational, Safety and Health Administration
         reports, or (E) active medical restriction forms.

                  (73) "DLC Transferred Employees" means DLC Transferred
         Non-Union Employees and DLC Transferred Union Employees.

                  (74) "DLC Transferred Non-Union Employees" has the meaning set
         forth in Section 7.11.

                  (75) "DLC Transferred Union Employees" has the meaning set
         forth in Section 7.11.

                  (76) "DLC Transmission Assets" means all Transmission Assets
         of Seller or any of its Affiliates located on or forming a part of DLC
         Real Property.

                  (77) "DLC Union Employees" has the meaning set forth in
         Section 7.11(b).

                  (78) "Easement and Attachment Agreements" means the DLC
         Easement and Attachment Agreement and the FE Easement and Attachment
         Agreement.

                  (79) "Easements" means DLC Easements or FE Easements, as
         applicable.

                                       9
<PAGE>   11
                  (80) "Elrama" means all generating units and related assets
         located at the generating station known as Elrama, as more fully
         identified on Schedule 2.1 attached hereto.

                  (81) "Emission Reduction Credits" means credits, in units that
         are established by the Governmental Authority with jurisdiction over
         the relevant Plant that has obtained the credits, resulting from
         reductions in the emissions of air pollutants from an emitting source
         or facility (including, without limitation, and to the extent allowable
         under applicable law, reductions resulting from shutdowns or control of
         emissions beyond that required by applicable law) that: (a) have been
         identified by the PaDEP as complying with applicable Pennsylvania law
         governing the establishment of such credits (including, without
         limitation, that such emissions reductions are enforceable, permanent,
         quantifiable and surplus) and listed in the Emissions Reduction Credit
         Registry maintained by the PaDEP or with respect to which such
         identification and listing are pending; or (b) have been certified by
         any other applicable Governmental Authority as complying with the law
         and regulations governing the establishment of such credits (including,
         without limitation, certification that such emissions reductions are
         enforce able, permanent, quantifiable and surplus). The term includes
         Emission Reduction Credits that have been approved by the PaDEP and are
         awaiting USEPA approval. The term also includes certified air emissions
         reductions, as described above, regardless as to whether the
         Governmental Authority certifying such reductions designates such
         certified air emissions reductions by a name other than "emission
         reduction credits."

                  (82) "Encumbrances" means any mortgages, pledges, liens,
         security interests, conditional and installment sale agreements,
         activity and use limitations, conservation easements, deed
         restrictions, encumbrances and charges of any kind.

                  (83) "Environmental Claim" means any and all pending and/or
         threatened administrative or judicial actions, suits, orders, claims,
         liens, notices, notices of violations, investigations, complaints,
         requests for information, proceedings, or other written communication,
         whether criminal or civil, pursuant to or relating to any applicable
         Environmental Law or pursuant to a common law theory, by any Person
         (including, but not limited to, any Governmental Authority, private
         person and citizens' group) based upon, alleging, asserting, or
         claiming any actual or potential (a) violation of, or liability under
         any Environmental Law, (b) violation of any Environmental Permit, or
         (c) liability for investigatory costs, cleanup costs, removal costs,
         remedial costs, response costs, natural resource damages, property
         damage, personal injury, fines, or penalties arising out of, based on,
         resulting from, or related to any Environmental Condition or any
         Release or threatened Release into the environment of any Regulated
         Substances at any location related to the Purchased Assets, including,
         but not limited to, any Off-Site Location to

                                       10
<PAGE>   12
         which Regulated Substances, or materials containing Regulated
         Substances, were sent for handling, storage, treatment, or disposal.

                  (84) "Environmental Condition" means the presence or Release
         of a Regulated Substance (other than a naturally-occurring substance)
         on or in environmental media, or structures on Real Property, at an
         Off-Site Location or other property (including the presence in surface
         water, groundwater, soils or subsurface strata, or air), including the
         subsequent migration of any such Regulated Substance, regardless of
         when such presence or Release occurred or is discovered.

                  (85) "Environmental Laws" means all federal, state, local
         provincial, foreign and international civil and criminal laws,
         regulations, rules, ordinances, codes, decrees, judgments, directives,
         or judicial or administrative orders relating to pollution or
         protection of the environment, natural resources or human health and
         safety, including, without limitation, laws relating to Releases or
         threatened Releases of Regulated Substances (including, without
         limitation, Releases to ambient air, surface water, groundwater, land,
         surface and subsurface strata) or otherwise relating to the
         manufacture, processing, distribution, use, treatment, storage,
         Release, transport, disposal or handling of Regulated Substances.
         "Environmental Laws" include: (a) with respect to federal law, CERCLA,
         the Hazardous Materials Transportation Act (49 U.S.C. Sections
         1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C.
         Sections 6901 et seq.), the Federal Water Pollution Control Act
         (33 U.S.C. Sections 1251 et seq.), the Clean Air Act (42 U.S.C.
         Sections 7401 et seq.), the Toxic Substances Control Act (15
         U.S.C. Sections 2601 et seq.), the Oil Pollution Act (33 U.S.C.
         Sections 2701 et seq.), the Emergency Planning and Community
         Right-to-Know Act (42 U.S.C. Sections 11001 et seq.), the
         Occupational Safety and Health Act (29 U.S.C. Sections 651 et
         seq.), the Safe Drinking Water Act (42 U.S.C. Section 300f et. seq.),
         the Surface Mine Conservation and Reclamation Act (30 U.S.C.
         Sections 1251-1279), and regulations adopted pursuant thereto,
         and counterpart state and local laws, regulations adopted pursuant
         thereto; (b) with respect to Pennsylvania law, the Pennsylvania Clean
         Streams Law (35 P.S. Section 691.1 et seq.), the Pennsylvania Air
         Pollution Control Act (35 P.S. Section 4001 et seq.), the Pennsylvania
         Solid Waste Management Act (35 P.S. Section 6018.101 et seq.), the
         Pennsylvania Storage Tank and Spill Prevention Act (35 P.S.
         Section 6021.101 et seq.), the Pennsylvania Safe Drinking Water Act (35
         P.S. Section 721.1 et seq.), the Pennsylvania Sewage Facilities Act (35
         P.S. Section 750.1 et seq.), the Pennsylvania Hazardous Sites Cleanup
         Act (35 P.S. Section 6020.101 et seq.), the Pennsylvania Land Recycling
         and Environmental Remediation Standards Act (35 P.S. Section 6026.101
         et seq.), the Pennsylvania Surface Mining Conservation and Reclamation
         Act (52 P.S. Section 1396.1 et seq.), the Coal Refuse Disposal Control
         Act (52 P.S. Section 30.51 et seq.); the Non-Coal Surface Mining and
         Reclamation Act, (52 P.S. Section 3301 et seq.), the Pennsylvania
         Worker and Community Right-to-Know Act, (35 P.S. Section 7301 et seq.),
         the Pennsylvania Hazardous Material Emergency Planning and

                                       11
<PAGE>   13
         Response Act, (35 P.S. Section 6022.101 et seq.), and regulations
         adopted pursuant thereto; and (c) with respect to Ohio law, the Ohio
         Rev. Code Ann. Section 1501.30 et seq. (Diversion of Waters), Ohio Rev.
         Code Ann. Section 1506.01 et seq. (Coastal Management), Ohio Rev. Code
         Ann. Section 1509.01 et seq. (Oil and Gas); Ohio Rev. Code Ann. Section
         1513.01 et seq. (Coal Surface Mining), Ohio Rev. Code Ann. Section
         1520.01 et seq. (Canal Lands), Ohio Rev. Code Ann. Section 3704.01 et
         seq. (Air Pollution Control); Ohio Rev. Code Ann. Section 3710.01 et
         seq. (Asbestos Abatement), Ohio Rev. Code Ann. Section 3714.01 et seq.
         (Construction and Demolition Debris), Ohio Rev. Code Ann. Section
         3734.01 et seq. (Solid and Hazardous Wastes), Ohio Rev. Code Ann.
         Section 3737.87 et seq. (Petroleum Underground Storage Tanks), Ohio
         Rev. Code Ann. Section 3742.01 et seq. (Lead Abatement and Testing),
         Ohio Rev. Code Ann. Section 3746.01 et seq. (Voluntary Cleanup of
         Contamination Property), Ohio Rev. Code Ann. Section 3747.01 et seq.
         (Low-Level Radioactive Waste), Ohio Rev. Code Ann. Section 3748.01 et
         seq.(Radioactive Control), Ohio Rev. Code Ann. Section 3750.01 et seq.
         (Emergency Planning), Ohio Rev. Code Ann. Section 3751.01 et seq.
         (Hazardous Substances); Ohio Rev. Code Ann. Section 3752.01 et seq.
         (Cessation of Chemical Handling Operations), Ohio Rev. Code Ann.
         Section 3767.01 et seq. (Nuisances); Ohio Rev. Code Ann. Section
         4913.01 et seq. (Public Utilities Commission - Acid Rain Control), Ohio
         Rev. Code Ann. Section 6109.01 et seq. (Safe Drinking Water); Ohio Rev.
         Code Ann. Section 6111.01 et seq. (Water Pollution Control), and
         regulations adopted pursuant thereto.

                  (86) "Environmental Permits" means any permits, registrations,
         certificates, certifications, licenses and authorizations, consents and
         approvals of Governmental Authorities required under Environmental
         Laws.

                  (87) "Environmental Reports" means the DLC Environmental
         Reports and the FE Environmental Reports.

                  (88) "ERISA" means the Employee Retirement Income Security Act
         of 1974, as amended.

                  (89) "ERISA Affiliate" means a trade or business, whether or
         not incorporated, that together with a Party would be deemed a "single
         employer" within the meaning of Section 4001(b) of ERISA.

                  (90) "Estimated Closing Statement" means the DLC Estimated
         Closing Statement or an FE Estimated Closing Statement, as the case may
         be.

                  (91) "Exchange Agreement" has the meaning set forth in the
         Recitals.

                                       12
<PAGE>   14
                  (92) "Exchange Closing" means all conditions to the
         consummation of the Exchange Agreement shall have been satisfied or
         waived and the transactions contemplated thereby have been completed.

                  (93) "Excluded DLC Assets" has the meaning set forth in
         Section 2.2.

                  (94) "Excluded DLC Liabilities" has the meaning set forth in
         Section 2.4.

                  (95) "Excluded FE Assets" has the meaning set forth in Section
         2.2A.

                  (96) "Excluded FE Liabilities" has the meaning set forth in
         Section 2.4A.

                  (97) "Exempt Facilities" means, with respect to the Purchased
         DLC Assets, those facilities listed on Schedule 7.14 and identified
         thereon as "DLC Exempt Facilities" and, with respect to the Purchased
         FE Assets, those facilities listed on Schedule 7.14 and identified
         thereon as "FE Exempt Facilities".

                  (98) "Facilities Act" has the meaning set forth in Section
         11.13.

                  (99) "FE" means FirstEnergy Corp., an Ohio corporation and
         parent company of the FE Subsidiaries.

                  (100) "FE (Accrued Liability) Assignment and Assumption
         Agreements" means the FE (Accrued Liability) Assignment and Assumption
         Agreements between Seller and the applicable FE Subsidiaries, as
         contemplated by the Exchange Agreement.

                  (101) "FE Agreements" means any contracts, agreements,
         licenses and personal property leases entered into by an FE Subsidiary
         or an Affiliate thereof with respect to the ownership, operation or
         maintenance of the Purchased FE Assets, whether or not disclosed on
         Schedule 5.11(a), including, without limitation, the Local 140 CBA to
         the extent applicable to the employees employed at the FE Plants (as
         provided in Section 7.11A hereof), but excluding the FE Real Property
         Leases and FE Intellectual Property and specifically excluding all
         contractual arrangements associated with the Central Area Power
         Coordination Group ("CAPCO").

                  (102) "FE Assignment and Assumption Agreements" means the
         Assignment and Assumption Agreements between the applicable FE
         Subsidiary and Buyer substantially in the form of Exhibit B.2 attached
         hereto.

                                       13
<PAGE>   15
                  (103) "FE Capital Expenditures" means capital additions to or
         replacements of property, plants and equipment included in the
         Purchased FE Assets and other expenditures or repairs on property,
         plants and equipment included in the Purchased FE Assets that would be
         capitalized by the FE Subsidiary making such expenditure in accordance
         with its normal accounting policies.

                  (104) "FE Capital Spare Parts" means any major equipment items
         of significant cost that are essential to the operation of a Purchased
         FE Asset. Such equipment is generally a long lead-time item and is
         assigned to the capital base of the Purchased FE Asset upon delivery
         and prior to its placement in service. The FE Capital Spare Parts are
         set forth on Schedule 1.1(104).

                  (105) "FE Closing Payments" has the meaning set forth in
         Section 3.2(b).

                  (106) "FE Connection Agreements" means the Connection and Site
         Agreements to be entered into by each applicable FE Subsidiary and
         Buyer with respect to Avon Lake, New Castle and Niles, as the case may
         be, substantially in the form of Exhibit C.2 hereto, as of the date
         hereof.

                  (107) "FE Continuation Period" has the meaning set forth in
         Section 7.11A(e)(ii).

                  (108) "FE Easements" means the easements and access rights to
         be granted by Buyer to the applicable FE Subsidiaries pursuant to the
         FE Easement and Attachment Agreements, including, without limitation,
         easements authorizing access, use, maintenance, construction, repair,
         replacement and other activities with respect to certain of the
         Purchased FE Assets, as further described in the FE Easement and
         Attachment Agreements.

                  (109) "FE Easement and Attachment Agreements" means the
         Easement, License and Attachment Agreements to be entered into by Buyer
         and each applicable FE Subsidiary, substantially in the form of Exhibit
         D.2 hereto.

                  (110) "FE Emission Reduction Credits" means the Emission
         Reduction Credits relating to any of the FE Plants.

                  (111) [Intentionally omitted.]

                  (112) "FE Environmental Permits" means the permits,
         registrations, certificates, certifications, licenses and
         authorizations, consents and approvals of

                                       14
<PAGE>   16
         Governmental Authorities issued under Environmental Laws held by each
         FE Subsidiary with respect to its Purchased FE Assets.

                  (113) "FE Environmental Reports" has the meaning set forth in
         Section 5.6.

                  (114) "FE Estimated Closing Payment" has the meaning set forth
         in Section 3.3(b).

                  (115) "FE Estimated Closing Statement" has the meaning set
         forth in Section 3.3(b).

                  (116) "FE Fuel Supplies" has the meaning set forth in Section
         2.6(b).

                  (117) "FE Governmental Orders" has the meaning set forth in
         Section 2.3A(g).

                  (118) "FE Indemnifiable Loss" has the meaning set forth in
         Section 9.2(a).

                  (119) "FE Indemnitee" has the meaning set forth in Section
         9.2(a).

                  (120) "FE Intellectual Property" has the meaning set forth in
         Section 2.1A(k).

                  (121) "FE Inventories" means materials, spare parts,
         consumable supplies and chemical inventories relating to the operation
         of any FE Plant, provided that "Inventories" shall not include FE
         Capital Spare Parts, FE Fuel Supplies, FE SO2 Emission Allowances or FE
         NOx Emission Allowances.

                  (122) "FE Must-Run Agreement" means the Must-Run Agreements to
         be entered into by each FE Subsidiary and the Buyer with respect to
         Avon Lake, Niles or New Castle, as the case may be, substantially in
         the form of Exhibit E hereto.

                  (123) "FE Non-Qualifying Offer" means an offer to FE
         Transferred NonUnion Employees that is either less than 100% of such
         employee's current total annual cash compensation at the time the offer
         was made (consisting of base salary and target incentive bonus) or
         requires, as a condition of acceptance, a relocation of residence as
         described in Section 7.11A(f)(iii).

                  (124) "FE Non-Union Employees" has the meaning set forth in
         Section 7.11A(c).

                                       15
<PAGE>   17
                  (125) "FE NOx Emission Allowances" means NOx Emission
         Allowances allocated to any of the FE Plants (but not purchased by an
         FE Subsidiary) by a Governmental Authority pursuant to a NOx Budget
         Program.

                  (126) "FE Permits" means any permits, licenses, registrations,
         franchises and other authorizations, consents and approvals of
         Governmental Authorities held by each of the FE Subsidiaries with
         respect to its Purchased FE Assets.

                  (127) "FE Plans" means any Benefit Plan of any FE Subsidiary
         or any ERISA Affiliate thereof or to which any FE Subsidiary or any
         ERISA Affiliate thereof contributed thereunder, including any
         multi-employer plan, that are listed on Schedule 5.8(a).

                  (128) "FE Plants" means Avon Lake, New Castle, and Niles.

                  (129) "FE Post-Closing Adjustment" has the meaning set forth
         in Section 3.3(c).

                  (130) "FE Qualifying Offer" means an offer to an FE
         Transferred Non-Union Employee of the same or similar job that is at
         least 100% of such employee's current total annual cash compensation at
         the time the offer was made (consisting of base salary and target
         incentive bonus) and does not require, as a condition of acceptance, a
         relocation of residence as described in Section 7.11A(f)(iii).

                  (131) "FERC" means the Federal Energy Regulatory Commission or
         any successor agency thereto.

                  (132) "FE Real Property" has the meaning set forth in Section
         2.1A(a). Any reference to the FE Real Property includes, by definition,
         the surface and subsurface elements, including the soils and
         groundwater present at the FE Real Property, and any reference to items
         "at the FE Real Property" includes all items "at, on, in, upon, over,
         across, under and within" the FE Real Property.

                  (133) "FE Real Property Leases" has the meaning set forth in
         Section 5.5.

                  (134) "FE Required Regulatory Approvals" means the Required
         Regulatory Approvals listed in Schedule 5.3(b).

                                       16
<PAGE>   18
                  (135) "FE Savings Plans" means any defined contribution
         pension plan maintained by an FE Subsidiary or any ERISA Affiliate
         thereof for the benefit of the FE Transferred Employees.

                  (136) "FE SO2 Emission Allowances" means SO2 Emission
         Allowances allocated to any of the FE Plants (but not purchased by an
         FE Subsidiary) by the USEPA pursuant to the federal Clean Air Act.

                  (137) "FE Subsidiaries" has the meaning set forth in the
         Recitals.

                  (138) "FE Subsidiaries SEC Reports" has the meaning set forth
         in the Section 5.21.

                  (139) "FE Tangible Personal Property" has the meaning set
         forth in Section 2.1A(c).

                  (140) "FE Transferable Permits" means those FE Permits and FE
         Environ mental Permits held by each of the FE Subsidiaries with respect
         to its Purchased FE Assets which may be transferred to Buyer without a
         filing with, notice to, consent of or approval of any Governmental
         Authority, as set forth in Schedule 1.1(140).

                  (141) "FE Transferred Employee Records" means records related
         to an FE Subsidiary's employees who become employees of Buyer but only
         to the extent such records pertain to (a) skill and development
         training and biographies, (b) seniority histories, (c) salary and
         benefit information, (d) Occupational, Safety and Health Administration
         reports, or (e) active medical restriction forms.

                  (142) "FE Transferred Employees" means FE Transferred
         Non-Union Employees and FE Transferred Union Employees.

                  (143) "FE Transferred Non-Union Employees" has the meaning set
         forth in Section 7.11A(c).

                  (144) "FE Transferred Union Employees" has the meaning set
         forth in Section 7.11A(b).

                  (145) "FE Transmission Assets" means the Transmission Assets
         of each FE Subsidiary or any of their Affiliates located on or forming
         a part of the FE Real Property.

                  (146) "FE Union Employees" has the meaning set forth in
         Section 7.11A(b).

                                       17
<PAGE>   19
                  (147) "Final Order" means an action by the relevant
         Governmental Authority that has not been reversed, stayed, enjoined,
         set aside, annulled or suspended and/or with respect to which any
         waiting period prescribed by law before the transactions contemplated
         hereby may be consummated has expired.

                  (148) "FIRPTA Affidavit" means the Foreign Investment in Real
         Property Tax Act Certification and Affidavit to be executed by Seller
         or the applicable FE Subsidiary, as appropriate, substantially in the
         form of Exhibit F hereto.

                  (149) "Fuel Supplies" means the supplies of coal, fuel oil,
         natural gas or alternative fuels related to the operation of any Plant
         and located at or in transit to such Plant.

                  (150) "GAAP" means U.S. generally accepted accounting
         principles.

                  (151) "Good Utility Practices" means any practices, methods,
         standards, guides, or acts, as applicable, that are:

                           (a) required by any Governmental Authority, regional
                  or national reliability council, or national trade
                  organization, including NERC, ECAR, Edison Electric Institute,
                  or American Society of Mechanical Engineers, or the successor
                  of any of them, whether or not the Party whose conduct is at
                  issue is a member thereof;

                           (b) otherwise engaged in or approved by a significant
                  portion of the electric utility industry during the relevant
                  time period which in the exercise of reasonable judgment in
                  light of the facts known or that should have been known at the
                  time a decision was made, could have been expected to
                  accomplish the desired result at a reasonable cost in a manner
                  consistent with law, regulation, good business practices,
                  generation, transmission, and distribution reliability,
                  safety, environmental protection, economy, and expediency.
                  Good Utility Practice is intended to be acceptable practices,
                  methods, or acts generally accepted in the region, and is not
                  intended to be limited to the optimum practices, methods, or
                  acts to the exclusion of all others; and

                           (c) reasonably necessary to maintain the reliability
                  of the Plants.

                  (152) "Governmental Authority" means any foreign, federal,
         state, local or other governmental, regulatory or administrative
         agency, court, commission, department, board, or other governmental
         subdivision, legislature, rulemaking board, court, tribunal,
         arbitrating body or other governmental authority.

                                       18
<PAGE>   20
                  (153) "HSR Act" means the Hart-Scott-Rodino Antitrust
         Improvements Act of 1976, as amended.

                  (154) "IBEW " means International Brotherhood of Electrical
         Workers.

                  (155) "IBEW CBA" has the meaning set forth in Section 7.11(b).

                  (156) "Income Tax" means any federal, state, local or foreign
         Tax (a) based upon, measured by or calculated with respect to gross or
         net income, profits or receipts (including, without limitation, capital
         gains Taxes and minimum Taxes) or (b) based upon, measured by or
         calculated with respect to multiple bases (including, without
         limitation, corporate franchise taxes) if one or more of the bases on
         which such Tax may be based, measured by or calculated with respect to,
         is described in clause (a), in each case together with any interest,
         penalties, or additions to such Tax.

                  (157) "Indemnifiable Loss" means any claim, demand, suit,
         loss, liability, damage, obligation, payment, cost or expense
         (including, without limitation, the cost and expense of any action,
         suit, proceeding, assessment, judgment, settlement or compromise
         relating thereto and reasonable attorneys' fees and reasonable
         disbursements in connection therewith).

                  (158) "Indemnifying Party" means a Party obligated to provide
         indemnification under this Agreement.

                  (159) "Indemnitee" means a Person entitled to receive
         indemnification under this Agreement.

                  (160) "Independent Accounting Firm" means such independent
         accounting firm of national reputation as is mutually appointed by the
         Buyer and Seller or applicable FE Subsidiaries, as applicable.

                  (161) "Inspection" means all tests, reviews, examinations,
         inspections, investigations, verifications, samplings and similar
         activities conducted by Buyer or its Representatives with respect to
         the Purchased Assets prior to the Auction Closing.

                  (162) "Intellectual Property" means all patents and patent
         rights, trademarks and trademark rights, inventions, copyrights and
         copyright rights, and all pending applications for registrations of
         patents, trademarks, and copyrights, necessary for the

                                       19
<PAGE>   21
         operation and maintenance of the applicable Purchased Assets, as set
         forth as part of Schedule 2.1(1) or 2.1A(k), as the case may be.

                  (163) "Inventories" means the DLC Inventories and the FE
         Inventories.

                  (164) "Knowledge" means the actual knowledge of the corporate
         officers or Plant managers of the specified Person charged with
         responsibility for the particular function as of the date of this
         Agreement, or, with respect to any certificate delivered pursuant to
         this Agreement, the date of delivery of the certificate.

                  (165) "Local 140 CBA" has the meaning set forth in Section
         7.11A(b).

                  (166) "Local 270 CBA" has the meaning set forth in Section
         7.11A(m).

                  (167) "Local 270 Employees" has the meaning set forth in
         Section 7.11A(m).

                  (168) "Material Adverse Effect" means any change in, or effect
         on, any Plant, from or after the date hereof, that is materially
         adverse to the operations or condition (financial or otherwise) of such
         Plant, other than: (a) any change affecting the international,
         national, regional or local electric industry as a whole and not
         specific and exclusive to such Plant; (b) any change or effect
         resulting from changes in international, national, regional or local
         wholesale or retail markets for electric power; (c) any change or
         effect resulting from changes in the international, national, regional
         or local markets for any fuel used in connection with such Plant; (d)
         any change or effect resulting from changes in the North American,
         national, regional or local electric transmission systems or operations
         thereof; (e) any materially adverse change in or effect on such Plant
         which is cured (including by the payment of money) by the FE
         Subsidiaries or Seller, as the case may be, before the Termination
         Date; and (f) any order of any court or Governmental Authority
         applicable to providers of generation, transmission or distribution of
         electricity generally that imposes restrictions, regulations or other
         requirements thereon, including any order with respect to an
         independent system operator or retail access in Pennsylvania or Ohio.

                  (169) "Must-Run Agreements" means the DLC Must-Run Agreement
         and the FE Must-Run Agreement.

                  (170) "New Castle" means all generating units and related
         assets located at the generating station known as New Castle, as more
         fully identified on Schedule 2.1A attached hereto.

                                       20
<PAGE>   22
                  (171) "Niles" means all generating units and related assets
         located at the generating station known as Niles, as more fully
         identified on Schedule 2.1A attached hereto.

                  (172) "NOx Budget Program" means Nitrogen Oxides Budget
         Program, which is a statutory or regulatory program promulgated by the
         United States or a state pursuant to which the United States or state
         provides for a limit on the nitrogen oxides that can be emitted by all
         sources covered by the program and establishes allowances or
         authorizations, which in total are equal to the amount of nitrogen
         oxides allowed by the limit, where each allowance or authorization
         represents a "right" to emit a unit of nitrogen oxides, as the means
         for ensuring compliance with the limit.

                  (173) "NOx Emission Allowance" means (a) an authorization by
         the PaDEP under its NOx Budget Program authorizing the emission of up
         to one ton of nitrogen oxides during the ozone season, as such season
         is defined by the PaDEP; (b) an authorization by the OEPA under any
         future NOx Budget Program authorizing the emission of up to one ton of
         nitrogen oxides during the ozone season, as such season is defined by
         the OEPA; or (c) an authorization by USEPA under any future NOx Budget
         Program promulgated by the USEPA, including but not limited to any
         future program implemented in lieu of a state NOx Budget Program,
         authorizing the emission of up to one ton of nitrogen oxides during the
         ozone season, as such season is defined by the USEPA.

                  (174) "OEC" means Ohio Edison Company, a subsidiary of FE and
         an Ohio corporation.

                  (175) "OEPA" means the Ohio Environmental Protection Agency
         and any successor agency thereto.

                  (176) "Off-Site Location" means any real property other than
         the Real Property.

                  (177) "PaDEP" means the Pennsylvania Department of
         Environmental Protection and any successor agency thereto.

                  (178) "PaPUC" means the Pennsylvania Public Utility
         Commission, and any successor agency thereto.

                  (179) "Party" has the meaning set forth in the Recitals.

                                       21
<PAGE>   23
                  (180) "Permit" means DLC Permits or FE Permits, as applicable.

                  (181) "Permitted Encumbrances" means the permitted liens and
         encumbrances as set forth in Schedule 1.1(181).

                  (182) "Person" means any individual, partnership, limited
         liability company, joint venture, corporation, trust, unincorporated
         organization, or governmental entity or any department or agency
         thereof.

                  (183) "Phillips" means all generating units and related assets
         located at the generating station known as Phillips, as more fully
         identified on Schedule 2.1 attached hereto.

                  (184) "Plant" means, with respect to the Purchased DLC Assets,
         any of the DLC Plants, and with respect to the Purchased FE Assets, any
         of the FE Plants.

                  (185) "Post-Closing Adjustments" means the DLC Post-Closing
         Adjustments and the FE Post-Closing Adjustments.

                  (186) "Power Sales Contract" means that certain 100 MW,
         eight-year, firm power sale agreement between that certain purchaser
         and DLC, a true and correct copy of which is attached as Schedule
         1.1(186) hereto.

                  (187) "PPC" means Pennsylvania Power Company, a subsidiary of
         OEC and a Pennsylvania corporation.

                  (188) "Proposed DLC Post-Closing Adjustment" has the meaning
         set forth in Section 3.3(c).

                  (189) "Proposed FE Post-Closing Adjustment" has the meaning
         set forth in Section 3.3(c).

                  (190) "Proposed Post-Closing Adjustments" means the Proposed
         DLC Post-Closing Adjustment and the Proposed FE Post-Closing
         Adjustment.

                  (191) "Proprietary Information" of a Party means all
         information about the Party or its Affiliates, including their
         respective properties or operations, furnished to the other Party or
         its Representatives by the Party or its Representatives, after the date
         hereof, regardless of the manner or medium in which it is furnished and
         all analyses reports, tests or other information created or prepared
         by, or on behalf of, a Party during the

                                       22
<PAGE>   24
         performance of "Phase I" or "Phase II" environmental site assessments.
         Proprietary Information does not include information that: (a) is or
         becomes generally available to the public, other than as a result of a
         disclosure by the other Party or its Representatives; (b) was available
         to the other Party on a nonconfidential basis prior to its disclosure
         by the Party or its Representatives; (c) becomes available to the other
         Party on a nonconfidential basis from a person, other than the Party or
         its Representatives, who is not otherwise bound by a confidentiality
         agreement with the Party or its Representatives, or is not otherwise
         under any obligation to the Party or any of its Representatives not to
         transmit the information to the other Party or its Representatives; or
         (d) is independently developed by the other Party.

                  (192) "PUCO" means the Public Utilities Commission of the
         State of Ohio and any successor agency thereto.

                  (193) "Purchased Assets" means the Purchased DLC Assets and
         the Purchased FE Assets, as applicable.

                  (194) "Purchased DLC Assets" has the meaning set forth in
         Section 2.1.

                  (195) "Purchased FE Assets" has the meaning set forth in
         Section 2.1A.

                  (196) "Purchase Price" has the meaning set forth in Section
         3.2.

                  (197) "QF Contracts" means (i) those two power purchase
         contracts entered into pursuant to Seller's obligations under the
         Public Utility Regulatory Act of 1978 ("PURPA") with two hydroelectric
         projects, both of which are "Qualifying Facilities" under PURPA, and
         (ii) the power purchase contract entered into pursuant to Seller's
         obligations under PURPA with a landfill gas-fired facility, which is a
         "Qualifying Facility" under PURPA; true and correct copies of all three
         QF Contracts are attached as Schedule 1.1(197) hereto.

                  (198) "Real Property" means the DLC Real Property or the FE
         Real Property, as appropriate.

                  (199) "Real Property Leases" means DLC Real Property Leases
         and FE Real Property Leases, as applicable.

                  (200) "Regulated Substances" means (a) any petrochemical or
         petroleum products, oil or coal ash, radioactive materials, radon gas,
         asbestos in any form that is or could become friable, urea formaldehyde
         foam insulation and dielectric fluid containing

                                       23
<PAGE>   25
         polychlorinated biphenyls; (b) any chemicals, materials or substances
         defined as or included in the definition of "hazardous substances,"
         "hazardous wastes," "hazardous materials," "hazardous constituents,"
         "restricted hazardous materials," "extremely hazardous substances,"
         "toxic substances," "contaminants," "pollutants," "toxic pollutants" or
         words of similar meaning and regulatory effect under any applicable
         Environmental Law; and (c) any other chemical, material or substance,
         exposure to which or whose discharge, emission, disposal or Release is
         prohibited, limited or regulated by any applicable Environmental Law.

                  (201) "Regulatory Material Adverse Effect" shall occur where a
         Final Order with respect to the Required Regulatory Approvals contains
         terms and conditions that are materially adverse to the financial
         condition, prospects, properties, operations or results of operations
         of the affected Party, taken as a whole including all Subsidiaries and
         Affiliates, to which the terms and conditions of such Final Order
         apply; provided that, in addition to the foregoing, any such Final
         Order shall be deemed to constitute a Regulatory Material Adverse
         Effect if (a) the Party affected by the Regulatory Material Adverse
         Effect shall have terminated the Exchange Agreement, and (b) (i) as to
         FE Subsidiaries or their Affiliates, if it prohibits such FE
         Subsidiaries or its Affiliates from transferring their transmission
         assets to American Transmission Systems, Inc. (or its successor and
         assigns), is inconsistent with the FERC's determination in Ohio Edison
         Co. et al., 81 FERC P. 61,110 (1997) that "we expect First Energy to
         participate in the midwest ISO or another appropriate ISO," or requires
         the FE Subsidiaries or their Affiliates to divest generating plants
         other than Avon Lake, New Castle or Niles, or (ii) as to Seller, if it
         disallows from recovery in rates a material portion of the expenses
         related to the Exchange.

                  (202) "Release" means release, spill, leak, discharge, dispose
         of, pump, pour, emit, empty, inject, leach, dump or allow to escape
         into or through the environment.

                  (203) "Remediation" means any action taken in the
         investigation, removal, confinement, cleanup, treatment, or monitoring
         of a Release or an Environmental Condition on Real Property or Off-Site
         Location, including, without limitation, (a) obtaining any Permits or
         Environmental Permits required for such remedial activities, and (b)
         implementation of any engineering controls and institutional controls.
         The term "Remediation" includes, without limitation, any action which
         constitutes "removal action" or "remedial action" as defined by Section
         101 of CERCLA, Section 6901(23) and (24); any action which constitutes
         a "response" as defined by Section 102 of the Pennsylvania Hazardous
         Sites Cleanup Act, 35 P.S. Section 6020.103; or any action which
         constitutes a "remedy" or "remedial activities" as defined by Ohio Rev.
         Code Ann. Section 3746.01(N).

                                       24
<PAGE>   26
                  (204) "Representatives" of a Party means such Party's
         authorized representatives, including without limitation, its
         professional and financial advisors.

                  (205) "Required Regulatory Approvals" means with respect to a
         Party, any consent or approval of, filing with, or notice to, any
         Governmental Authority that is necessary for the execution and delivery
         of this Agreement and the Ancillary Agreements by such Party or the
         consummation thereby of the transactions contemplated hereby, other
         than such consents, approvals, filings or notices which are not
         required in the ordinary course to be obtained or made prior to the
         Auction Closing and the transfer of the Purchased Assets or which, if
         not obtained or made, will not prevent such Party from performing its
         material obligations hereunder.

                  (206) "Revenue Bonds" has the meaning set forth in Section
         7.14(a).

                  (207) "SEC" means the Securities and Exchange Commission and
         any successor agency thereto.

                  (208) "Seller" has the meaning set forth in the Preamble.

                  (209) "SO2 Emission Allowance" means an authorization by the
         Administrator of the USEPA under the federal Clean Air Act, 42 U.S.C.
         Section 7401, et seq., to emit up to one ton of sulfur dioxide during
         or after a specified calendar year.

                  (210) "Subsidiary" when used in reference to any Person means
         any entity of which outstanding securities having ordinary voting power
         to elect a majority of the Board of Directors or other Persons
         performing similar functions of such entity are owned directly or
         indirectly by such Person.

                  (211) "Taxes" means all taxes, charges, fees, levies,
         penalties or other assessments imposed by any federal, state, local or
         foreign taxing authority, including, but not limited to, income,
         excise, property, sales, transfer, franchise, payroll, withholding,
         social security, gross receipts, license, stamp, occupation, employment
         or other taxes, including any interest, penalties or additions
         attributable thereto.

                  (212) "Tax Return" means any return, report, information
         return, declaration, claim for refund or other document (including any
         schedule or related or supporting information) required to be supplied
         to any taxing authority with respect to Taxes including amendments
         thereto.

                                       25
<PAGE>   27
                  (213) "TEC" means The Toledo Edison Company, a subsidiary of
         FE and an Ohio corporation.

                  (214) "Termination Benefits" has the meaning set forth in
         Section 7.11A(g).

                  (215) "Termination Date" has the meaning set forth in Section
         10.1(b).

                  (216) "Third Party Claim" means any claim, action, or
         proceeding made or brought by any Person who is not (a) a Party to this
         Agreement, or (b) an Affiliate of a Party to this Agreement.

                  (217) "Transfer Taxes" means any real property transfer or
         gains tax, sales tax, conveyance fee, use tax, stamp tax, stock
         transfer tax or other similar tax, including any related penalties,
         interest and additions to tax.

                  (218) "Transferable Permit" means a DLC Transferable Permit or
         an FE Transferable Permit, as the case may be.

                  (219) "Transferred Employee Records" means the DLC Transferred
         Employee Records and the FE Transferred Employee Records.

                  (220) "Transmission Assets" means, with respect to a Plant,
         the electrical transmission and distribution facilities (as opposed to
         generation facilities) located on Real Property or forming part of such
         Plant (whether or not regarded as a "transmission" or "generation"
         asset for regulatory or accounting purposes), including all switchyard
         facilities, step-up transformers, substation facilities and support
         equipment, as well as all permits, contracts and warranties, to the
         extent they relate to such transmission and distribution assets.

                  (221) "USEPA" means the United States Environmental Protection
         Agency and any successor agency thereto.

                  (222) "UWUA" means Utility Workers Union of America.

                  (223) "WARN Act" means the Federal Worker Adjustment
         Retraining and Notification Act of 1988, as amended.

                  (224) "Warranty Deed" means a special warranty deed or limited
         warranty deed, as applicable, substantially in the form of Exhibit G.1
         attached hereto (with respect to DLC Real Property) or Exhibit G.2
         attached hereto (with respect to FE Real Property).

                                       26
<PAGE>   28
                  (225) "Year 2000 Compliant" means, with respect to Seller or
         the FE Subsidiaries, that the Computer Systems will correctly
         differentiate between years, in different centuries, that end in the
         same two (2) digits, and will accurately process date/time data
         (including, but not limited to, calculating, comparing, and sequencing)
         from, into, and between the twentieth and twenty-first centuries,
         including leap year calculations. "Year 2000 Compliance" has a meaning
         correlative to the foregoing.

         1.2 Certain Interpretive Matters. In this Agreement, unless the context
otherwise requires, the singular shall include the plural, the masculine shall
include the feminine and neuter, and vice versa. The term "includes" or
"including" shall mean "including without limitation." References to a Section,
Article, Exhibit or Schedule shall mean a Section, Article, Exhibit or Schedule
of this Agreement, and reference to a given agreement or instrument shall be a
reference to that agreement or instrument as modified, amended, supplemented or
restated through the date as of which such reference is made. In addition, for
the avoidance of doubt, to the extent that at the Auction Closing the FE
Subsidiary shall have previously transferred or delivered to Seller, pursuant to
the terms of the Exchange Agreement, any of the items that this Agreement
contemplates will be transferred or delivered by the FE Subsidiary at the
Auction Closing to Buyer pursuant to the terms of this Agreement, (i) Seller, in
place of the FE Subsidiary, shall transfer or deliver to Buyer, and Buyer shall
accept from Seller, all such items as otherwise contemplated by this Agreement
and (ii) Buyer shall make to Seller, in place of the FE Subsidiary, and Seller
shall accept from Buyer, any deliveries and payments correlative to such items
as otherwise contemplated by this Agreement.

                                   ARTICLE II

                                PURCHASE AND SALE

         2.1 Transfer of DLC Assets. Upon the terms and subject to the
satisfaction of the conditions contained in this Agreement, at the Auction
Closing (as defined in Section 3.1), Seller will sell, assign, convey, transfer
and deliver to Buyer, and Buyer will purchase, assume and acquire from Seller,
free and clear of all Encumbrances (except for Permitted Encumbrances), all of
Seller's right, title and interest in and to all the assets (except for Excluded
DLC Assets) constituting, or used in and necessary to generate electricity from,
the DLC Plants, including, without limitation, those assets identified on
Schedule 2.1 and those assets described below, each as in existence on the
Auction Closing Date (as defined in Section 3.1) (such assets, collectively, the
"Purchased DLC Assets"):

                                       27
<PAGE>   29
                  (a) Those certain parcels of real property owned by Seller
relating to the DLC Plants together with all buildings, facilities, and other
improvements thereon and all appurtenances thereto as described in Schedule 4.9
(the "DLC Real Property");

                  (b) All DLC Inventories, DLC Capital Spare Parts and DLC SO2
Emission Allowances and DLC NOx Emission Allowances with a vintage year
occurring during or after the year during which the Auction Closing occurs that
have not been transferred or sold to a third party prior to the date of this
Agreement;

                  (c) All machinery (mobile or otherwise), equipment (including
communications equipment), vehicles, tools, furniture and furnishings and other
personal property related to the Purchased DLC Assets, owned by Seller and
located on the DLC Real Property on the Auction Closing Date, including, without
limitation, the items of personal property included in Schedule 2.1(c), together
with all the personal property of Seller used principally in the operation of
the DLC Plants that are in the possession of DLC and whether or not located on
the DLC Real Property as listed in such Schedule 2.1(c), (other than property
used or primarily usable as part of the DLC Transmission Assets) (collectively,
the "DLC Tangible Personal Property");

                  (d) Subject to the provisions of Section 7.6(c), all DLC
Agreements, including the QF Contracts and the Power Sales Contract;

                  (e) Subject to the provisions of Section 7.6(c), all DLC Real
Property Leases;

                  (f) All DLC Transferable Permits;

                  (g) All books, operating records, operating, safety and
maintenance manuals, engineering design plans, blueprints and as-built plans,
specifications, procedures and similar items of Seller relating specifically to
the Purchased DLC Assets and necessary for the operation of the DLC Plants
(subject to the right of Seller to retain copies of same for its use) other than
such items which are proprietary to third parties and accounting records;

                  (h) All DLC Emission Reduction Credits that accrue on or after
the date of this Agreement but prior to the Auction Closing Date;

                  (i) All unexpired, transferable warranties and guarantees from
third parties with respect to any DLC Purchased Asset (including those listed in
Schedule 2.1(i)), as of the Auction Closing Date;

                  (j) The names of the DLC Plants. It is expressly understood
that Seller is not assigning or transferring to Buyer any right to use the name
"Duquesne", "Duquesne Light

                                       28
<PAGE>   30
Company", "DQE", "DQE, Inc." or any other trade names, trademarks, service
marks, corporate names and logos or any part, derivative or combination thereof;

                  (k) All drafts, memoranda, reports, information, technology,
and specifications relating to Seller's plans for Year 2000 Compliance with
respect to the Purchased DLC Assets; and

                  (l) The Intellectual Property as described on Schedule 2.1(l)
(the "DLC Intellectual Property").

                  (m) All DLC SO2 Emission Allowances and DLC NOx Emission
Allowances allocated to the DLC Plants with a vintage year occurring prior to
the year of the Auction Closing that (i) have not been transferred or sold to a
third-party prior to the date of this Agreement; or (ii) have not been used by
DLC or a person that owns or operates assets as a tenant in common with DLC for
purposes of compliance with applicable Environmental Laws prior to the date of
this Agreement; or (iii) will not be needed by DLC or a person that owns or
operates assets as a tenant in common with DLC, for purposes of compliance with
applicable Environmental Laws with respect to calendar year 1999 operations.

         2.1A Transfer of FE Assets. Upon the terms and subject to the
satisfaction of the conditions contained in this Agreement, at the Auction
Closing (as defined in Section 3.1) Seller will sell, assign and convey
beneficial ownership, and cause each FE Subsidiary, pursuant to Section 2.1B, to
transfer and deliver its Purchased FE Assets (as defined below) and Buyer will
purchase, assume and acquire from Seller, and accept transfer and delivery from
each FE Subsidiary, free and clear of all Encumbrances (except for Permitted
Encumbrances), all of Seller's and such FE Subsidiary's right, title and
interest in and to all the assets (except for Excluded FE Assets) constituting,
or used in and necessary to generate electricity from, the FE Plants, including,
without limitation, those assets identified in Schedule 2.1A and those assets
described below, each as in existence on the Auction Closing Date (collectively,
the "Purchased FE Assets"):

                  (a) Those certain parcels of real property relating to each
such FE Subsidiary's FE Plants together with all buildings, facilities and other
improvements thereon and all appurtenances thereto, as described in Schedule
5.9 (the "FE Real Property");

                  (b) All FE Inventories of such FE Subsidiary, FE Capital Spare
Parts of each such FE Subsidiary and, subject to Section 2.2A(j), all FE SO2
Emission Allowances and NOx Emission Allowances of such FE Subsidiary with a
vintage year occurring during or after the year during which the Auction Closing
occurs that have not been transferred or sold to a third party prior to the date
of this Agreement;

                                       29
<PAGE>   31
                  (c) All machinery (mobile or otherwise), equipment (including
communications equipment), vehicles, tools, furniture and furnishings and other
personal property related to the Purchased FE Assets relating to each such FE
Subsidiary's FE Plants and located on the FE Real Property on the Auction
Closing Date, including, without limitation, the items of personal property
included in Schedule 2.1A(c), together with all the personal property of each
such FE Subsidiary used principally in the operation of its FE Plant that are in
the possession of such FE Subsidiary whether or not located on the FE Real
Property, as listed in such Schedule 2.1A(c), (other than property used or
primarily usable as part of the FE Transmission Assets) (collectively, the "FE
Tangible Personal Property");

                  (d) Subject to the provisions of Section 7.6(c), all FE
Agreements of each such FE Subsidiary;

                  (e) Subject to the provisions of Section 7.6(c), all FE Real
Property Leases of each such FE Subsidiary;

                  (f) All FE Transferable Permits of each such FE Subsidiary;

                  (g) All books, operating records, operating, safety and
maintenance manuals, engineering design plans, documents, blueprints and
as-built plans, specifications, procedures and similar items of each such FE
Subsidiary relating specifically to its Purchased FE Assets and necessary for
the operation of its FE Plants (subject to the right of each such FE Subsidiary
to retain copies of the same for its use) other than such items which are
proprietary to third parties and accounting records;

                  (h) All unexpired, transferable warranties and guarantees from
third parties with respect to any FE Purchased Asset of each such FE Subsidiary,
as of the Auction Closing Date;

                  (i) The names of the FE Plants. It is expressly understood
that neither Seller nor any FE Subsidiary is assigning or transferring to Buyer
any right to use the name "FirstEnergy," "FE," "Ohio Edison," "Pennsylvania
Power," "Cleveland Electric Illuminating," "Toledo Edison," or "The Illuminating
Company" or any other trade names, trademarks, service marks, corporate names or
logos or any part, derivative or combination thereof;

                  (j) All drafts, memoranda, reports, information, technology,
and specifications relating to the FE Subsidiaries' and their Affiliates' plans
for Year 2000 Compliance with respect to the Purchased FE Assets; and

                  (k) The Intellectual Property of each such FE Subsidiary, as
described on Schedule 2.1A(k) (the "FE Intellectual Property").

                                       30
<PAGE>   32
         2.1B Delivery and Transfer of Purchased FE Assets. Upon the terms and
subject to the satisfaction of the conditions contained in this Agreement, at
the Auction Closing (as defined in Section 3.1) each FE Subsidiary will deliver
and transfer its Purchased FE Assets to Buyer and will record title to its FE
Real Property in the name of Buyer, free and clear of all Encumbrances, except
for Permitted Encumbrances.

         2.2 Excluded DLC Assets. Notwithstanding anything to the contrary in
this Agreement, nothing in this Agreement will constitute a transfer to Buyer
of, or be construed as conferring on Buyer, and Buyer is not acquiring, any
right, title or interest in or to the following specific assets which are
associated with the Purchased DLC Assets, but which are hereby specifically
excluded from the sale and the definition of Purchased DLC Assets herein (the
"Excluded DLC Assets"):

                  (a) The DLC Transmission Assets, including those certain
assets, facilities and agreements and other property used or primarily usable as
part of the DLC Transmission Assets identified on Schedule 2.2(a) hereto;

                  (b) Certain switches and meters in the DLC Plants, gas
facilities, revenue meters and remote testing units, drainage pipes and systems,
as identified in the DLC Easement and Attachment Agreement, and certain
equipment and systems described in Schedule 2.2(b) hereto;

                  (c) Certificates of deposit, shares of stock, securities,
bonds, debentures, evidences of indebtedness, and interests in joint ventures,
partnerships, limited liability companies and other entities;

                  (d) All cash, cash equivalents, bank deposits, accounts and
notes receivable (trade or otherwise), and any income, sales, payroll or other
tax receivables;

                  (e) The rights of Seller and its Affiliates to the names
"Duquesne Light Company", "DLC", "DQE", "DQE, Inc." or any other trade names,
trademarks, service marks, corporate names or logos or any part, derivative or
combination thereof;

                  (f) All tariffs, agreements and arrangements to which Seller
is a party for the purchase or sale of electric capacity and/or energy or for
the purchase of transmission or ancillary services, except the QF Contracts, the
Power Sales Contract and that certain diversity contract with Zinc Corporation
of America, (a true and correct copy of which diversity contract is attached as
Schedule 2.2(f) hereto);

                  (g) Except in the case of causes of action against third
parties (including indemnification and contribution) relating to an
Environmental Condition or Regulated Substance or arising under Environmental
Laws, the rights of Seller in and to any causes of action against third

                                       31
<PAGE>   33
parties (including indemnification and contribution) relating to any DLC Real
Property or DLC Tangible Personal Property, DLC Permits, DLC Environmental
Permits, Taxes, DLC Real Property Leases or DLC Agreements, if any, and not
relating to the Assumed DLC Liabilities, including any claims for refunds,
prepayments, offsets, recoupment, insurance proceeds, condemnation awards,
judgments and the like, whether received as payment or credit against future
liabilities, relating specifically to the DLC Plants or the DLC Real Property
and relating to any period prior to the Auction Closing Date;

                  (h) All personnel records of Seller and its Affiliates
relating to the DLC Transferred Employees other than DLC Transferable Employee
Records or other records, the disclosure of which is required by law or legal or
regulatory process or subpoena; and

                  (i) Any and all of Seller's rights and interests in any
contract that is not a DLC Agreement or that is an intercompany transaction
between Seller and an Affiliate of Seller, whether or not such intercompany
transaction relates to the provision of goods and services, payment
arrangements, intercompany charges or balances, or the like.

         2.2A Excluded FE Assets. Notwithstanding anything to the contrary in
this Agreement, nothing in this Agreement will constitute a transfer to Buyer
of, or be construed as conferring on Buyer, and Buyer is not acquiring, any
right, title or interest in or to the following specific assets of each of the
FE Subsidiaries that are associated with their Purchased FE Assets, but which
are hereby specifically excluded from the sale and the definition of Purchased
FE Assets herein (the "Excluded FE Assets"):

                  (a) The FE Transmission Assets of each such FE Subsidiary,
including those certain assets, facilities and agreements identified on Schedule
2.2A(a) hereto;

                  (b) Certain switches and meters in the FE Plants, gas
facilities, revenue meters and remote testing units, drainage pipes and systems,
as identified in the FE Easement and Attachment Agreement, and certain equipment
and systems described on Schedule 2.2A(b);

                  (c) Certificates of deposit, shares of stock, securities,
bonds, debentures, evidences of indebtedness, and interests in joint ventures,
partnerships, limited liability companies and other entities of each such FE
Subsidiaries;

                  (d) All cash, cash equivalents, bank deposits, accounts and
notes receivable (trade or otherwise), and any income, sales, payroll or other
tax receivables of each such FE Subsidiaries;

                  (e) The rights of each FE Subsidiary and its Affiliates to the
names "FirstEnergy," "FE," "Ohio Edison," "Pennsylvania Power," "Cleveland
Electric Illuminating,"

                                       32
<PAGE>   34
"Toledo Edison," or "The Illuminating Company" or any other trade names,
trademarks, service marks, corporate names or logos of FE or its Affiliates, or
any part, derivative or combination thereof;

                  (f) All tariffs, agreements and arrangements to which any FE
Subsidiary is a party for the purchase or sale of electric capacity and/or
energy or for the purchase of transmission or ancillary services;

                  (g) Except in the case of causes of action against third
parties (including indemnification and contribution) relating to an
Environmental Condition or Regulated Substances or arising under Environmental
Laws, the rights of any FE Subsidiary in and to any causes of action against
third parties (including indemnification and contribution) relating to any FE
Real Property or FE Tangible Personal Property, FE Permits, FE Environmental
Permits, Taxes, FE Real Property Leases or FE Agreements, if any, and not
relating to the Assumed FE Liabilities, including any claims for refunds,
prepayments, offsets, recoupment, insurance proceeds, condemnation awards,
judgments and the like, whether received as payment or credit against future
liabilities, relating specifically to the FE Plants or the FE Real Property and
relating to any period prior to the Auction Closing Date;

                  (h) All personnel records of each such FE Subsidiary and their
Affiliates relating to the FE Transferred Employees, other than FE Transferred
Employee Records or other records, the disclosure of which is required by law,
or legal or regulatory process or subpoena;

                  (i) Any and all of each such FE Subsidiary's rights and
interests in any contract that is not an FE Agreement or that is an intercompany
transaction between an FE Subsidiary and its Affiliates, whether or not such
intercompany transaction relates to the provision of goods and services, payment
arrangements, intercompany charges or balances, or the like; and

                  (j) (i) (A) All FE SO2 Emission Allowances with a vintage year
         occurring prior to the year of the Auction Closing and (B) any excess
         FE SO2 Emission Allowances resulting from the FE Subsidiaries'
         ownership of the FE Plants during the year of the Auction Closing,
         which shall be calculated by summing the SO2 Emission Allowances
         allocated to the FE Plants by the USEPA for such year, multiplied by
         the quotient of the number of days of ownership of the FE Plants by the
         FE Subsidiaries divided by 365, and subtracting the actual tons of
         sulfur dioxide emitted by the FE Plants during such portion of such
         year. If the results of such calculation is zero or less than zero, the
         amount of the excess FE SO2 Emission Allowances shall equal zero.

                           (ii) Any excess FE NOx Emission Allowances resulting
         from the FE Subsidiaries' ownership of the FE Plants located in
         Pennsylvania during the year of the

                                       33
<PAGE>   35
         Auction Closing, which shall be calculated by summing the NOx Emission
         Allowances allocated to such FE Plants by the PaDEP for such year,
         multiplied by the quotient of the number of days of the FE
         Subsidiaries' ownership of such FE Plants during the ozone season (as
         defined by PaDEP in its NOx Budget Program), divided by the number of
         days in said ozone season, and subtracting the actual tons of nitrogen
         oxides emitted by such FE Plants during such portion of such ozone
         season. If the result of such calculation is zero or less then zero,
         the amount of the excess NOx FE Emission Allowances shall equal zero.

         2.3 Assumed DLC Liabilities. On the Auction Closing Date, Buyer shall
deliver to Seller the DLC Assignment and Assumption Agreement pursuant to which
Buyer shall assume and agree to discharge when due, without recourse to Seller,
in accordance with the respective terms and subject to the respective conditions
thereof, all of the Assumed DLC Liabilities applicable to the Purchased DLC
Assets acquired by Buyer from Seller as well as all of the Accrued FE
Liabilities relating to the Purchased FE Assets. All of the following
liabilities and obligations of Seller, direct or indirect, known or unknown,
absolute or contingent, which relate to, or arise by virtue of Seller's
ownership of, the Purchased DLC Assets (other than Excluded DLC Liabilities) are
referred to collectively as the "Assumed DLC Liabilities":

                  (a) All liabilities and obligations of Seller arising on or
after the Auction Closing Date under the DLC Agreements, the DLC Real Property
Leases, and the DLC Transferable Permits in accordance with the terms thereof,
including, without limitation, the DLC Agreements entered into by DLC (i) prior
to the date hereof and (ii) after the date hereof consistent with the terms of
this Agreement, except in each case to the extent such liabilities and
obligations, but for a breach or default by Seller, would have been paid,
performed or otherwise discharged on or prior to the Auction Closing Date or to
the extent the same arise out of any such breach or default or out of any event
which after the giving of notice or passage of time or both would constitute a
default by Seller;

                  (b) All liabilities and obligations of Seller associated with
the Purchased DLC Assets in respect of Taxes for which Buyer is liable pursuant
to Sections 3.5 or 7.9(a) hereof;

                  (c) All liabilities and obligations of Seller with respect to
the DLC Transferred Employees incurred after the Auction Closing Date for which
Buyer is responsible pursuant to Section 7.11;

                  (d) All liabilities, responsibilities and obligations of
Seller arising under Environmental Laws or relating to Environmental Conditions
or Regulated Substances (including common law liabilities relating to
Environmental Conditions and Regulated Substances), whether such liability,
responsibility or obligation is known or unknown, contingent or accrued as of
the Auction Closing Date, including but not limited to: (i) costs of compliance
(including capital, operating and other costs) relating to any violation or
alleged violation of Environmental Laws

                                       34
<PAGE>   36
occurring prior to, on or after the Auction Closing Date, with respect to the
ownership or operation of the Purchased DLC Assets; (ii) property damage or
natural resource damage (whether such damages were manifested before or after
the Auction Closing Date) arising from Environmental Conditions or Releases of
Regulated Substances at, on, in, under, adjacent to, or migrating from any
Purchased DLC Assets prior to, on or after the Auction Closing Date; (iii) any
Remediation (whether or not such Remediation commenced before the Auction
Closing Date or commences after the Auction Closing Date) of Environmental
Conditions or Regulated Substances that are present or have been Released prior
to, on or after the Auction Closing Date, at, on, in, adjacent to or migrating
from the Purchased DLC Assets; (iv) any violations or alleged violations of
Environmental Laws occurring on or after the Auction Closing Date with respect
to the ownership or operation of any Purchased DLC Assets; (v) any bodily injury
or loss of life arising from Environmental Conditions or Releases of Regulated
Substances at, on, in, under, adjacent to or migrating from any Purchased DLC
Asset on or after the Auction Closing Date; (vi) any bodily injury, loss of
life, property damage, or natural resource damage arising from the storage,
transportation, treatment, disposal, discharge, recycling or Release, at any
Off-Site Location, or arising from the arrangement for such activities, on or
after the Auction Closing Date, of Regulated Substances generated in connection
with the ownership or operation of the Purchased DLC Assets; and (vii) any
Remediation of any Environmental Condition or Release of Regulated Substances
arising from the storage, transportation, treatment, disposal, discharge,
recycling or Release, at any Off-Site Location, or arising from the arrangement
for such activities, on or after the Auction Closing Date, of Regulated
Substances generated in connection with the ownership or operation of the
Purchased DLC Assets; provided, that nothing set forth in this Section 2.3 shall
require Buyer to assume any liabilities, responsibilities or obligations that
are expressly excluded in Section 2.4;

                  (e) All liabilities and obligations of Seller associated with
the Purchased DLC Assets under the agreements or consent orders set forth on
Schedule 2.3(e) arising on or after the Auction Closing Date;

                  (f) With respect to the Purchased DLC Assets, any Tax that may
be imposed by any federal, state or local government on the ownership, sale
(except as otherwise provided in Section 7.9(a)), operation or use of the
Purchased DLC Assets on or after the Auction Closing Date, except for any Income
Taxes attributable to income received by Seller; and

                  (g) All liabilities and obligations of Seller for those
certain Accrued Liabilities of the FE Subsidiaries assigned by the FE
Subsidiaries to and assumed by Seller pursuant to the FE (Accrued Liability)
Assignment and Assumption Agreements, as further described in Section 4.3 of the
Exchange Agreement (the "Accrued FE Liabilities").

                  (h) All liabilities and obligations of Seller arising on and
after the Auction Closing Date under those orders, consent orders, decrees, or
consent decrees relating to the

                                       35
<PAGE>   37
Purchased DLC Assets issued by or entered into with any Governmental Authority
and listed in Schedule 2.3(h) ("DLC Governmental Orders"). In furtherance of
this obligation, on the Auction Closing Date, Buyer shall execute and deliver to
Seller an enforceable agreement acknowledging and agreeing to be bound by, and
assume Seller's obligations under, the DLC Governmental Orders.

                  (i) For purposes of clarification, without any acknowledgment
or admission that the following is a legal obligation of Seller, Buyer
acknowledges that it shall assume and be fully responsible for holding in its
accounts sufficient SO2 Emissions Allowances and NOx Emissions Allowances to
cover emissions of SO2 and NOx from all of the DLC Plants for all of the
calendar year in which the Auction Closing occurs, including the period of such
year prior to the Auction Closing.

         2.3A Assumed FE Liabilities. On the Auction Closing Date, Buyer shall
deliver to Seller and each applicable FE Subsidiary an FE Assignment and
Assumption Agreement pursuant to which Buyer shall assume and agree to discharge
when due, without recourse to Seller or such FE Subsidiary, in accordance with
the respective terms and subject to the respective conditions thereof, all of
the Assumed FE Liabilities applicable to the Purchased FE Assets acquired by
Buyer from Seller and/or such FE Subsidiary, as the case may be. All of the
following liabilities and obligations of each FE Subsidiary, and/or Seller, as
the case may be, if any, direct or indirect, known or unknown, absolute or
contingent, which relate to, or arise by virtue of such FE Subsidiary's, and/or
Seller's, as the case may be, ownership of, the Purchased FE Assets (other than
Excluded FE Liabilities) are referred to collectively as the "Assumed FE
Liabilities":

                  (a) All liabilities and obligations of such FE Subsidiary,
and/or Seller, as the case may be, (if any), associated with such FE
Subsidiary's Purchased FE Assets arising on or after the Auction Closing Date
under its FE Agreements, FE Real Property Leases and FE Transferable Permits,
each in accordance with the terms thereof, including, without limitation, the FE
Agreements entered into by such FE Subsidiary (i) prior to the date hereof and
(ii) after the date hereof consistent with the terms of this Agreement, except
in each case to the extent such liabilities and obligations, but for a breach or
default of such FE Subsidiary, would have been paid, performed or otherwise
discharged on or prior to the Auction Closing Date or to the extent the same
arise out of any such breach or default or out of any event which after the
giving of notice or passage of time or both would constitute a default by such
FE Subsidiary;

                  (b) All liabilities and obligations of such FE Subsidiary,
and/or Seller, as the case may be, (if any), associated with such FE
Subsidiary's Purchased FE Assets in respect of Taxes for which Buyer is liable
pursuant to Sections 3.6 or 7.9(a) hereof;

                  (c) All liabilities and obligations of such FE Subsidiary,
and/or Seller, as the case may be, (if any), associated with such FE
Subsidiary's Purchased FE Assets with respect to the FE

                                       36
<PAGE>   38
Transferred Employees incurred after the Auction Closing for which Buyer is
responsible pursuant to Section 7.11A;

                  (d) All liabilities, responsibilities and obligations of such
FE Subsidiary, and/or Seller, as the case may be, (if any), associated with such
FE Subsidiary's Purchased FE Assets arising under Environmental Laws or relating
to Environmental Conditions or Regulated Substances (including common law
liabilities relating to Environmental Conditions and Regulated Substances),
whether such liability, responsibility or obligation is known or unknown,
contingent or accrued as of the Auction Closing Date including but not limited
to: (i) costs of compliance (including capital, operating and other costs)
relating to any violation or alleged violation of Environmental Laws occurring
prior to, on or after the Auction Closing Date, with respect to the ownership or
operation of the Purchased FE Assets; (ii) property damage or natural resource
damage (whether such damages were manifested before or after the Auction Closing
Date) arising from Environmental Conditions or Releases of Regulated Substances
at, on, in, under, adjacent to, or migrating from any Purchased FE Assets prior
to, on or after the Auction Closing Date; (iii) any Remediation (whether or not
such Remediation commenced before the Auction Closing Date or commences after
the Auction Closing Date) of Environmental Conditions or Regulated Substances
that are present or have been Released prior to, on or after the Auction Closing
Date, at, on, in adjacent to or migrating from the Purchased FE Assets; (iv) any
violations or alleged violations of Environmental Laws occurring on or after the
Auction Closing Date with respect to the ownership or operation of any FE
Assets; (v) any bodily injury or loss of life arising from Environmental
Conditions or Releases of Regulated Substances at, on, in, under, adjacent to or
migrating from any FE Purchased Asset on or after the Auction Closing Date;(vi)
any bodily injury, loss of life, property damage, or natural resource damage
arising from the storage, transportation, treatment, disposal, discharge,
recycling or Release, at any Off-Site Location, or arising from the arrangement
for such activities, on or after the Auction Closing Date, of Regulated
Substances generated in connection with the ownership or operation of the
Purchased FE Assets; and (vii) any Remediation of any Environmental Condition or
Release of Regulated Substances arising from the storage, transportation,
treatment, disposal, discharge, recycling or Release, at any Off-Site Location,
or arising from the arrangement for such activities, on or after the Auction
Closing Date, of Regulated Substances generated in connection with the ownership
or operation of the Purchased FE Assets; provided, that nothing set forth in
this Section 2.3A shall require Buyer to assume any liabilities,
responsibilities or obligations that are expressly excluded in Section 2.4A;

                  (e) All liabilities and obligations of each such FE
Subsidiary, and/or Seller, as the case may be, (if any), associated with its
Purchased FE Assets under the agreements or consent orders set forth on Schedule
2.3A(e) after the Auction Closing; and

                  (f) With respect to the Purchased FE Assets of each such FE
Subsidiary, and/or Seller, as the case may be, any Tax that may be imposed by
any federal, state or local government

                                       37
<PAGE>   39
on the ownership, sale (except as otherwise provided in Section 7.9(a)),
operation or use of its Purchased FE Assets on or after the Auction Closing
Date, except for any Income Taxes attributable to income received by each such
FE Subsidiary, or Seller, if any.

                  (g) All liabilities and obligations of FE and each FE
Subsidiary, and/or Seller, as the case may be, (if any), arising on and after
the Auction Closing Date under those orders, consent orders, decrees, or consent
decrees relating to the Purchased FE Assets issued by or entered into with any
Governmental Authority and listed in Schedule 2.3A(g) ("FE Governmental
Orders"). In furtherance of this obligation, on the Auction Closing Date, Buyer
shall execute and deliver to Seller and each applicable FE Subsidiary an
enforceable agreement acknowledging and agreeing to be bound by, and assume the
obligations of FE and the applicable FE Subsidiary, and/or Seller, as the case
may be, (if any), under, the FE Governmental Orders.

                  (h) For purposes of clarification, without any acknowledgment
or admission that the following is a legal obligation of the FE Subsidiaries,
Buyer acknowledges that it shall assume and be fully responsible for holding in
its accounts sufficient SO2 Emissions Allowances and NOx Emissions Allowances to
cover emissions of SO2 and NOx from all of the FE Plants for all of the calendar
year in which the Auction Closing occurs, including the period of such year
prior to the Auction Closing.

         2.4 Excluded DLC Liabilities. Notwithstanding anything to the contrary
in this Agreement, Buyer shall not assume or be obligated to pay, perform or
otherwise discharge the following liabilities or obligations of Seller
(collectively, the "Excluded DLC Liabilities"):

                  (a) Any liabilities or obligations of Seller in respect of any
Excluded DLC Assets or other assets of Seller that are not Purchased DLC Assets;

                  (b) Any liabilities or obligations with respect to Taxes
attributable to Seller's ownership, operation or use of the Purchased DLC Assets
for taxable periods, or portions thereof, ending before the Auction Closing
Date, except for Taxes for which Buyer is liable pursuant to Sections 3.5 or
7.9(a) hereof;

                  (c) Any liabilities or obligations of Seller accruing under
any of the DLC Agreements prior to the Auction Closing Date;

                  (d) Any and all asserted or unasserted liabilities or
obligations to third parties (including employees) for personal injury or tort,
or similar causes of action relating to the Purchased DLC Assets arising during
or attributable to the period prior to the Auction Closing Date, other than
liabilities or obligations assumed by Buyer under Section 2.3(d);

                                       38
<PAGE>   40
                  (e) Any fines, penalties and associated costs for defending
related enforcement actions, resulting from any violation or alleged violation
of Environmental Laws with respect to the ownership or operation of the
Purchased DLC Assets occurring prior to the Auction Closing Date;

                  (f) Any payment obligations of Seller pursuant to the DLC
Agreements for goods delivered or services rendered prior to the Auction Closing
Date, including, but not limited to, rental payments pursuant to the DLC Real
Property Leases;

                  (g) Any liabilities, responsibilities and obligations of
Seller arising under Environmental Laws or relating to Environmental Conditions
or Regulated Substances (including common law liabilities relating to
Environmental Conditions and Regulated Substances), whether such liability,
responsibility or obligation was known or unknown, contingent or accrued, which
relates to (i) any bodily injury, loss of life, property damage or natural
resource damage arising from the storage, transportation, treatment, disposal,
discharge, recycling or Release of Regulated Substances generated in connection
with the ownership or operation of the Purchased DLC Assets at any Off-Site
Location, or arising from the arrangement for such activities, prior to the
Auction Closing Date; or (ii) any Remediation of any Environmental Condition or
Regulated Substance at any Off-Site Location, arising from the storage,
transportation, treatment, disposal, discharge, recycling or Release of
Regulated Substances generated in connection with the ownership or operation of
the Purchased DLC Assets at such Off-Site Location, or arising from the
arrangement for such activities, prior to the Auction Closing Date; provided,
that for purposes of this paragraph, "Off-Site Location" does not include any
location to which Regulated Substances disposed of or Released at the Purchased
DLC Assets have migrated;

                  (h) Any liability to third parties (including employees) for
bodily injury or loss of life, to the extent caused (or allegedly caused) by
Environmental Conditions or the Release of Regulated Substances at, on, in,
under, or adjacent to, or migrating from, the Purchased DLC Assets prior to the
Auction Closing Date;

                  (i) Subject to Section 7.11, any liabilities or obligations of
Seller, any Seller Subsidiary or any ERISA Affiliate of Seller relating to any
DLC Plan including but not limited to any liability (i) relating to benefits
payable under any DLC Plan; (ii) relating to the Pension Benefit Guaranty
Corporation under Title IV of ERISA; (iii) relating to a multi-employer plan;
(iv) with respect to non-compliance with the notice and benefit continuation
requirements of COBRA; (v) with respect to any noncompliance with ERISA or any
other applicable laws; or (vi) with respect to any suit, proceeding or claim
which is brought against Buyer, any DLC Plan, or any fiduciary or former
fiduciary of any such DLC Plan;

                  (j) Subject to Section 7.11, any liabilities or obligations
arising from facts or circumstances prior to the Auction Closing Date relating
to the employment or termination of

                                       39
<PAGE>   41
employment, including discrimination, wrongful discharge, unfair labor
practices, or constructive termination by Seller of any individual, attributable
to any actions or inactions by Seller prior to the Auction Closing Date other
than actions or inactions taken at the written direction of Buyer;

                  (k) Subject to Section 7.11, any obligations of Seller for
wages, overtime, employment taxes, severance pay, transition payments in respect
of compensation or similar benefits accruing or arising prior to the Auction
Closing under any term or provision of any contract, plan, instrument or
agreement relating to any of the Purchased DLC Assets; and

                  (l) Any liability of Seller arising out of a breach by Seller
or any of its Affiliates of any of their respective obligations under this
Agreement or the Ancillary Agreements.

         2.4A Excluded FE Liabilities. Notwithstanding anything to the contrary
in this Agreement, Buyer shall not assume or be obligated to pay, perform or
otherwise discharge the following liabilities or obligations of each FE
Subsidiary (collectively, the "Excluded FE Liabilities"):

                  (a) Any liabilities or obligations of each such FE Subsidiary
in respect of its Excluded FE Assets or other assets of each such FE Subsidiary
that are not its Purchased FE Assets;

                  (b) Any liabilities or obligations of each such FE Subsidiary
with respect to Taxes attributable to each such FE Subsidiary's ownership,
operation or use of its Purchased FE Assets for taxable periods, or portions
thereof, ending before the Auction Closing Date, except for Taxes for which
Buyer is liable pursuant to Section 3.6 or 7.9(a) hereof;

                  (c) Any liabilities or obligations of each such FE Subsidiary
accruing under any of the FE Agreements prior to the Auction Closing Date;

                  (d) Any and all asserted or unasserted liabilities or
obligations to third parties (including employees) for personal injury or tort,
or similar causes of action relating to the Purchased FE Assets arising during
or attributable to the period prior to the Auction Closing Date, other than
liabilities or obligations assumed under Section 2.3A(d);

                  (e) Any fines, penalties and associated costs for defending
related enforcement actions, resulting from any violation or alleged violation
of Environmental Laws with respect to such FE Subsidiary's ownership or
operation of its Purchased FE Assets occurring prior to the Auction Closing
Date;

                  (f) Any payment obligations of each such FE Subsidiary
pursuant to its FE Agreements for goods delivered or services rendered prior to
the Auction Closing Date, including, but not limited to, rental payments
pursuant to its FE Real Property Leases;

                                       40
<PAGE>   42
                  (g) Any liabilities, responsibilities and obligations of each
such FE Subsidiary arising under Environmental Laws or relating to Environmental
Conditions or Regulated Substances (including common law liabilities relating to
Environmental Conditions and Regulated Substances), whether such liability,
responsibility or obligation was known or unknown, contingent or accrued, which
relates to (i) any bodily injury, loss of life, property damage or natural
resource damage arising from the storage, transportation, treatment, disposal,
discharge, recycling or Release of Regulated Substances generated in connection
with the ownership or operation of its Purchased FE Assets at any Off-Site
Location, or arising from the arrangement for such activities, prior to the
Auction Closing Date; or (ii) any Remediation of any Environmental Condition or
Regulated Substance at any Off-Site Location, arising from the storage,
transportation, treatment, disposal, discharge, recycling or Release of
Regulated Substances generated in connection with the ownership or operation of
its Purchased FE Assets at such Off-Site Location, or arising from the
arrangement for such activities, prior to the Auction Closing Date; provided,
that for purposes of this paragraph, "Off-Site Location" does not include any
location to which Regulated Substances disposed of or Released at such Purchased
FE Assets have migrated;

                  (h) Any liability to third parties (including employees) for
bodily injury or loss of life, to the extent caused (or allegedly caused) by
Environmental Conditions or the Release of Regulated Substances at, on, in,
under, or adjacent to, or migrating from, the Purchased FE Assets of each such
FE Subsidiary prior to the Auction Closing Date;

                  (i) Any liabilities or obligations of each such FE Subsidiary
or any ERISA Affiliate of such FE Subsidiary relating to any FE Plan including
but not limited to any liability (i) relating to benefits payable under any FE
Plan; (ii) relating to the Pension Benefit Guaranty Corporation under Title IV
of ERISA; (iii) relating to a multi-employer plan; (iv) with respect to
non-compliance with the notice and benefit continuation requirements of COBRA;
(v) with respect to any noncompliance with ERISA or any other applicable laws;
or (vi) with respect to any suit, proceeding or claim which is brought against
Buyer, any FE Plan, or any fiduciary or former fiduciary of any such FE Plan, in
each case other than liabilities or obligations assumed under Section 7.11A;

                  (j) Any liabilities or obligations arising from facts or
circumstances prior to the Auction Closing Date relating to the employment or
termination of employment, including discrimination, wrongful discharge, unfair
labor practices, or constructive termination by any FE Subsidiary of any
individual, attributable to any actions or inactions by each such FE Subsidiary
prior to the Auction Closing Date, including without limitation unfair labor
practice charges relating to Avon Lake, other than such actions or inactions
taken at the written direction of Buyer, other than liabilities or obligations
assumed under Section 7.11A;

                                       41
<PAGE>   43
                  (k) Any obligations of each such FE Subsidiary for wages,
overtime, employment taxes, severance pay, transition payments in respect of
compensation or similar benefits accruing or arising prior to the Auction
Closing under any term or provision of any contract, plan, instrument or
agreement relating to any of its Purchased FE Assets, other than liabilities or
obligations assumed under Section 7.11A; and

                  (l) Any liability of each such FE Subsidiary arising out of a
breach by each such FE Subsidiary, or any of its Affiliates, of any of their
respective obligations under this Agreement or the Ancillary Agreements.

         2.5      Control of Litigation.

                  (a) The Parties agree and acknowledge that Seller and the FE
Subsidiaries, respectively, shall be entitled exclusively to control, defend and
settle any litigation, administrative or regulatory proceeding, and any
investigation or Remediation activity (including without limitation any
environmental mitigation or Remediation activities), arising out of or related
to any Excluded DLC Liabilities and Excluded FE Liabilities, respectively, and
Buyer agrees to cooperate fully in connection therewith and in connection
therewith, shall comply with the provisions of Section 7.2.

                  (b) The Parties agree and acknowledge that Buyer shall be
entitled exclusively to control, defend and settle any litigation,
administrative or regulatory proceeding, and any investigation or Remediation
activity (including without limitation any environmental mitigation or
Remediation activities), arising out of or related to any Assumed DLC
Liabilities and Assumed FE Liabilities, respectively, and Seller, with respect
to Assumed DLC Liabilities, and Seller and the FE Subsidiaries, with respect to
Assumed FE Liabilities, agree to cooperate fully in connection therewith and in
connection therewith, shall comply with the provisions of Section 7.2.

         2.6      Fuel Supplies.

                  (a) At the Auction Closing, (i) Seller will sell, assign,
convey, transfer and deliver to Buyer its rights, title and interest in and to
the Fuel Supplies related to the operation of the DLC Plants ("DLC Fuel
Supplies"), and (ii) Buyer shall pay to Seller an amount equal to the actual
cost of such DLC Fuel Supplies on Seller's books and records, as established by
invoices (and reasonable supporting materials demonstrating the actual cost of
such DLC Fuel Supplies), with such invoices and supporting materials to be
delivered to Buyer by Seller not later than three (3) Business Days prior to the
scheduled date of the Auction Closing.

                  (b) At the Auction Closing, (i) Seller will sell, assign,
convey, transfer and deliver to Buyer its rights, title and interest in and to
the Fuel Supplies related to the operation of the FE Plants (collectively, "FE
Fuel Supplies"), and (ii) Buyer shall pay to Seller an amount equal to

                                       42
<PAGE>   44
the actual cost of such FE Fuel Supplies on the FE Subsidiaries' books and
records as established by invoices (and reasonable supporting materials
demonstrating the actual cost of such FE Fuel Supplies), with such invoices and
supporting materials to be delivered to Seller by the FE Subsidiaries and then
by Seller to the Buyer not later than three (3) Business Days prior to the
scheduled date of the Auction Closing.

         2.7      Inventories.

                   (a) Schedule 2.7(a) lists the quantities of DLC Inventories
that will be transferred to Buyer, together with the net book values of such DLC
Inventories. At the Auction Closing, as part of the Purchased DLC Assets, Seller
will transfer to Buyer the DLC Inventories relating to the DLC Plants. Because
Seller has operated the DLC Plants as part of a larger, integrated utility
system, not all of such DLC Inventories have actually been maintained in stock
at each DLC Plant, but are identified and dedicated as Purchased DLC Assets on
Schedule 2.7(a) hereto. Seller shall transport and deliver all such DLC
Inventories to the applicable DLC Plant prior to the Auction Closing.

                  (b) Schedule 2.7(b) lists the quantities of FE Inventories
that will be transferred to Buyer, together with the net book values of such FE
Inventories. At the Auction Closing, as part of the Purchased FE Assets, Seller
will transfer to Buyer its right, title and interest in and to the FE
Inventories relating to the FE Plants. Because each FE Subsidiary has operated
its FE Plants as part of a larger, integrated utility system, not all of such FE
Inventories have actually been maintained in stock at each such FE Plant, but
are identified and dedicated as Purchased FE Assets on Schedule 2.7(b) hereto.
Each FE Subsidiary shall transport and deliver all such FE Inventories to the
applicable FE Plant prior to the Auction Closing.

                                   ARTICLE III

                                   THE CLOSING

       3.1 Closing. Upon the terms and subject to the satisfaction of the
conditions in Article VIII of this Agreement, each of (i) the sale, assignment,
conveyance, transfer and delivery of the Purchased DLC Assets to Buyer by
Seller, (ii) the sale, assignment and conveyance of Seller's beneficial
ownership of the Purchased FE Assets to Buyer by Seller, (iii) the transfer and
delivery of the Purchased FE Assets to Buyer by Seller and/or each FE
Subsidiary, as the case may be, (iv) the payment of the Purchase Price to Seller
by Buyer, and (v) the consummation of the other respective obligations of the
Parties contemplated by this Agreement shall take place at a closing (the
"Auction Closing"), to be held at the offices of Skadden, Arps, Slate, Meagher &
Flom LLP, 1440 New York Avenue, N.W., Washington, D.C. or another mutually
acceptable location.

         3.2      Closing Payments.

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<PAGE>   45
                   (a) Upon the terms and subject to the satisfaction of the
conditions contained in this Agreement, in consideration of the aforesaid sale,
assignment, conveyance, transfer and delivery of the Purchased Assets, Buyer
will pay or cause to be paid to Seller at the Auction Closing an aggregate
amount in U.S. dollars of one billion seven hundred five million dollars
($1,705,000,000.00) (the "Purchase Price") plus or minus any adjustments
pursuant to the provisions of this Agreement, by wire transfer of immediately
available funds denominated in U.S. dollars or by such other means as are agreed
upon by Seller and Buyer.

                  (b) Simultaneously with its payment of the Purchase Price
pursuant to Section 3.2(a), Buyer will pay or cause to be paid to Seller the sum
of (i) the amounts payable to Seller for FE Fuel Supplies pursuant to Section
2.6(b) plus (ii) the amount expended by the FE Subsidiaries between the date
hereof and the Auction Closing Date for FE Capital Expenditures that (A) are not
described in Schedule 7.1(A)(c)(viii) and (B) satisfy one or more of the tests
for permitted FE Capital Expenditures set forth in Section 7.1A(c)(viii), plus
or minus (iii) the amount by which the book value of FE Inventories, as of the
Auction Closing Date, exceeds or falls short of that value set forth in Schedule
2.7(b), plus or minus (iv) the net balance payable to or by Seller, if any, for
items relating to the Purchased FE Assets prorated pursuant to Section 3.6 (each
sum, an "FE Closing Payment"), by wire transfer of immediately available funds
denominated in U.S. dollars or by such other means as are agreed upon by Seller
and Buyer.

         3.3      Adjustment to Purchase Price.

                  (a) Subject to Section 3.3(b), at the Auction Closing, the
Purchase Price shall be adjusted to account for the items set forth in this
Section 3.3(a):

                           (i) The Purchase Price shall be adjusted to account
         for the amount by which the book value of DLC Inventories held by
         Seller, as of the Auction Closing Date, exceeds or falls short of that
         set forth in Schedule 2.7(a).

                           (ii) The Purchase Price shall be adjusted to account
         for the net balance payable to or by Seller, if any, for items relating
         to the Purchased DLC Assets prorated pursuant to Sections 3.5.

                           (iii) The Purchase Price shall be adjusted to account
         for the amount expended by Seller between the date hereof and the
         Auction Closing Date for DLC Capital

                                       44
<PAGE>   46
         Expenditures that (A) are not described in Schedule 7.1(c)(viii) and
         (B) satisfy one or more of the tests for permitted DLC Capital
         Expenditures set forth in Section 7.1(c)(viii).

                           (iv) The Purchase Price shall be adjusted to account
         for the amounts payable to Seller for DLC Fuel Supplies pursuant to
         Section 2.6(a).

                  (b) At least ten (10) Business Days prior to the Auction
Closing Date, (i) Seller shall prepare and deliver to Buyer an estimated closing
statement (the "DLC Estimated Closing Statement") that shall set forth Seller's
best estimate of the estimated adjustments to the Purchase Price required by
Section 3.3(a) (the "DLC Estimated Adjustment") and (ii) Seller shall prepare
and deliver to Buyer an estimated closing statement (the "FE Estimated Closing
Statement") that shall set forth Seller's best estimate of the estimated
payments to be made to Seller pursuant to Section 3.2(b) (the "FE Estimated
Closing Payment"). Within five (5) Business Days following the delivery of an
Estimated Closing Statement to Buyer, Buyer may object in good faith to such
Estimated Closing Payment in writing. In the event of any such objection, the
applicable Parties shall attempt to resolve their differences by negotiation. If
such Parties are unable to do so before three (3) Business Days prior to the
Auction Closing Date, the amounts of the DLC Estimated Adjustment and the FE
Estimated Closing Payments not in dispute shall be paid at the Auction Closing
and the disputed portions shall be paid as a Post-Closing Adjustment to the
extent required by Section 3.3(d).

                  (c) Within sixty (60) days following the Auction Closing Date,
(i) Seller shall prepare and deliver to Buyer a final closing statement setting
forth the final adjustments to the Purchase Price required by Section 3.3(a)
(the "Proposed DLC Post-Closing Adjustment"), and (ii) Seller shall prepare and
deliver to Buyer a final closing statement setting forth the final adjustments
to the final FE Closing Payment (the "Proposed FE Post-Closing Adjustment"). All
calculations of the Proposed Post-Closing Adjustments shall be prepared using
the same accounting principles, policies and methods as Seller and the FE
Subsidiaries have historically used, respectively, in connection with the
calculation of the items reflected on such Proposed Post-Closing Adjustments.

                  (d) Within thirty (30) days following the delivery of a
Proposed Post-Closing Adjustment to Buyer, Buyer may object to such Proposed
Post-Closing Adjustment in writing. Seller and the FE Subsidiaries agree to
cooperate with Buyer to provide Buyer and Buyer's Representatives information
used to prepare the Proposed Post-Closing Adjustments and information relating
thereto. If Buyer objects to a Proposed Post-Closing Adjustment, the applicable
Parties shall attempt to resolve such dispute by negotiation. If such Parties
are unable to resolve such dispute within thirty (30) days of any such objection
by Buyer, the Parties shall appoint an Independent Accounting Firm, which shall,
at Seller's and Buyer's joint expense, with respect to the Proposed DLC
Post-Closing Adjustment, and at the applicable FE Subsidiary's and Buyer's joint
expense with respect to an FE Post-Closing Adjustment, review such Proposed
Post-Closing Adjustment and determine the appropriate adjustment to the Purchase
Price or an FE Closing Payment, as applicable,

                                       45
<PAGE>   47
if any, within thirty (30) days of such appointment. The Parties agree to
cooperate with the Independent Accounting Firm and provide it with such
information as it reasonably requests to enable it to make such determination.
The finding of such Independent Accounting Firm shall be binding on the Parties
hereto. Upon determination by agreement of the applicable Parties or by binding
determination of the Independent Accounting Firm of the appropriate adjustment
to the Purchase Price (in either case, the "DLC Post-Closing Adjustment") and/or
to an FE Closing Payment (in either case, each an "FE Post-Closing Adjustment"),
if such Post-Closing Adjustment results in a change to either the Purchase Price
or an FE Closing Payment, the Party owing the difference shall deliver such
difference to the Party owed such amount no later than two (2) Business Days
after the determination of such Post Closing Adjustment, in immediately
available funds or in any other manner as reasonably requested by the Party owed
such amount.

         3.4      Reserved

         3.5      DLC Prorations.

                  (a) Buyer and Seller agree that all of the items normally
prorated, including those listed below (but not including Income Taxes),
relating to the business and operation of the Purchased DLC Assets shall be
prorated as of the Auction Closing Date, with Seller liable for such items to
the extent such items relate to any time period prior to the Auction Closing
Date, and Buyer liable for such items to the extent such items relate to periods
commencing with the Auction Closing Date (measured in the same units used to
compute the item in question, otherwise measured by calendar days):

                           (i) Personal property, real estate and occupancy
         Taxes, assessments and other charges, if any, on or with respect to the
         business and operation of the Purchased DLC Assets;

                           (ii) Rent, Taxes and all other items (including
         prepaid services or goods not included in DLC Inventories) payable by
         or to Seller under any of the DLC Agreements conveyed to Buyer;

                           (iii) Any permit, license, registration, compliance
         assurance fees or other fees with respect to any DLC Transferable
         Permit;

                           (iv) Sewer rents and charges for water, telephone,
         electricity and other utilities with respect to the Purchased DLC
         Assets; and

                           (v) Rent and Taxes payable by or to Seller under the
         DLC Real Property Leases assigned to Buyer.

                                       46
<PAGE>   48
                  (b) In connection with the prorations referred to in Section
3.5(a) above, in the event that actual figures are not available at the Auction
Closing Date, the proration shall be based upon the actual Taxes or other
amounts accrued through the Auction Closing Date or paid for the most recent
year (or other appropriate period) for which actual Taxes or other amounts paid
are available. Such prorated Taxes or other amounts shall be re-prorated and
paid to the appropriate Party within sixty (60) days of the date that the
previously unavailable actual figures become available. The prorations shall be
based on the number of days in a year or other appropriate period (i) before the
Auction Closing and (ii) including and after the Auction Closing Date. Seller
and Buyer agree to furnish each other with such documents and other records as
may be reasonably requested in order to confirm all adjustment and proration
calculations made pursuant to this Section 3.5.

         3.6      FE Prorations.

                   (a) Seller and each FE Subsidiary, and, as set forth in
Section 2.3A(g), Buyer, agree that all of the items normally prorated, including
those listed below (but not including Income Taxes), relating to the business
and operation of the Purchased FE Assets shall be prorated as of the Auction
Closing Date, with the applicable FE Subsidiary liable to the extent such items
relate to any time period prior to the Auction Closing Date, and Buyer solely
liable to the extent such items relate to periods commencing with the Auction
Closing Date (measured in the same units used to compute the item in question,
otherwise measured by calendar days):

                           (i) Personal property, real estate and occupancy
                  Taxes, assessments and other charges, if any, on or with
                  respect to the business and operation of the Purchased FE
                  Assets;

                           (ii) Rent, Taxes and all other items (including
                  prepaid services or goods not included in FE Inventories)
                  payable by or to such FE Subsidiary under any of its FE
                  Agreements conveyed to Buyer;

                           (iii) Any permit, license, registration, compliance
                  assurance fees or other fees with respect to the FE
                  Transferable Permits of such FE Subsidiary;

                           (iv) Sewer rents and charges for water, telephone,
                  electricity and other utilities with respect to the Purchased
                  FE Assets of such FE Subsidiary; and

                           (v) Rent and Taxes payable by or to such FE
                  Subsidiary under its FE Real Property Leases assigned to
                  Buyer.

                                       47
<PAGE>   49
                  (b) In connection with the prorations referred to in Section
3.6(a) above, in the event that actual figures are not available at the Auction
Closing Date, the proration shall be based upon the actual Taxes or other
amounts accrued through the Auction Closing Date or paid for the most recent
year (or other appropriate period) for which actual Taxes or other amounts paid
are available. Such prorated Taxes or other amounts shall be re-prorated and
paid to the appropriate Party within sixty (60) days of the date that the
previously unavailable actual figures become available. The prorations shall be
based on the number of days in a year or other appropriate period (i) before the
Auction Closing Date and (ii) including and after the Auction Closing Date. The
Parties agree to furnish each other with such documents and other records as may
be reasonably requested in order to confirm all adjustment and proration
calculations made pursuant to this Section 3.6.

         3.7 Deliveries by Seller. At the Auction Closing, Seller will deliver,
or cause to be delivered, the following to Buyer:

                  (a) The Bill of Sale for the Purchased Assets, duly executed
by Seller;

                  (b) Certified copies of any and all governmental and other
third party consents, waivers or approvals obtained or required to be obtained
by Seller with respect to the transfer of the Purchased DLC Assets, or the
consummation of the transactions contemplated by this Agreement;

                  (c) One or more Warranty Deeds conveying title to the DLC Real
Property to Buyer, duly executed and acknowledged by Seller and in recordable
form;

                  (d) The opinions of counsel required by Section 8.1;

                  (e) The DLC Assignment and Assumption Agreement, duly executed
by Seller;

                  (f) A FIRPTA Affidavit, duly executed by Seller;

                  (g) Copies, certified by the Secretary or Assistant Secretary
of Seller, of corporate resolutions authorizing the execution and delivery of
this Agreement and all of the agreements and instruments to be executed and
delivered by Seller in connection herewith, and the consummation of the
transactions contemplated hereby;

                  (h) A certificate of the Secretary or Assistant Secretary of
Seller identifying the name and title and bearing the signatures of the officers
of Seller authorized to execute and deliver this Agreement and the other
agreements and instruments contemplated hereby;

                                       48
<PAGE>   50
                  (i) Certificate of Good Standing with respect to Seller,
issued by the Secretary of State of the Commonwealth of Pennsylvania;

                  (j) To the extent available, originals of all DLC Agreements,
DLC Real Property Leases and DLC Transferable Permits and, if not available,
true and correct copies thereof;

                  (k) All such other instruments of assignment, transfer or
conveyance as shall, in the reasonable opinion of Buyer and its counsel, be
necessary to transfer to Buyer the Purchased DLC Assets, in accordance with this
Agreement and where necessary or desirable in recordable form;

                  (l) Such other agreements, documents, instruments and writings
as are required to be delivered by Seller at or prior to the Auction Closing
Date pursuant to this Agreement or otherwise reasonably required by Buyer in
connection herewith; and

                  (m) A certificate dated the Auction Closing Date executed by
the duly authorized officers of Seller to the effect that, to such officers'
Knowledge, the conditions set forth in Sections 8.1(e) and (f) have been
satisfied by Seller and that each of the representations and warranties of
Seller made in this Agreement are true and correct in all material respects as
though made at and as of the Auction Closing Date.

         3.8 Deliveries by the FE Subsidiaries. At the Auction Closing, each FE
Subsidiary or, to the extent that any of the following items were delivered to
Seller at the Exchange Closing, Seller, with respect to its FE Assets will
deliver, or cause to be delivered, the following to Buyer:

                  (a) The Bill of Sale with respect to the Purchased FE Assets
of such FE Subsidiary, duly executed by such FE Subsidiary;

                  (b) Certified copies of any and all governmental and other
third party consents, waivers, or approvals obtained or required to be obtained
by such FE Subsidiary with respect to the transfer of its Purchased FE Assets or
the consummation of the transactions contemplated by this Agreement;

                  (c) One or more Warranty Deeds conveying title to the FE Real
Property to Buyer, duly executed and acknowledged by such FE Subsidiary and in
recordable form;

                  (d) The opinions of counsel required by Section 8.1, in the
form of Exhibit H attached hereto;

                                       49
<PAGE>   51
                  (e) The applicable FE Assignment and Assumption Agreement,
duly executed by such FE Subsidiary;

                  (f) A FIRPTA Affidavit, duly executed by such FE Subsidiary;

                  (g) Copies, certified by the Secretary or Assistant Secretary
of such FE Subsidiary, of corporate resolutions authorizing the execution and
delivery of this Agreement, the Exchange Agreement and all of the agreements and
instruments to be executed and delivered by such FE Subsidiary in connection
herewith, and the consummation of the transactions contemplated by this
Agreement;

                  (h) A certificate of the Secretary or Assistant Secretary of
such FE Subsidiary identifying the name and title and bearing the signatures of
the officers of such FE Subsidiary authorized to execute and deliver this
Agreement and the other agreements and instruments contemplated hereby;

                  (i) To the extent available, originals of all FE Agreements,
FE Real Property Leases and FE Transferable Permits of such FE Subsidiary and,
if not available, true and correct copies thereof;

                  (j) Certificate of Good Standing with respect to such FE
Subsidiary, issued by the Secretary of State of Ohio or the Secretary of State
of the Commonwealth of Pennsylvania, as applicable;

                  (k) All such other instruments of assignment, transfer or
conveyance as shall, in the reasonable opinion of Buyer and its counsel, be
necessary to transfer to the Buyer the Purchased FE Assets of such FE
Subsidiary, in accordance with this Agreement and where necessary or desirable
in recordable form;

                  (l) Such other agreements, documents, instruments and writings
as are required to be delivered by such FE Subsidiary at or prior to the Auction
Closing Date pursuant to this Agreement or otherwise reasonably required by
Buyer in connection herewith; and

                  (m) A certificate dated the Auction Closing Date, executed by
the duly authorized officers of such FE Subsidiary to the effect that, to such
officers' Knowledge, the conditions set forth in Sections 8.1(e) and (f) have
been satisfied by such FE Subsidiary and that each of the representations and
warranties of such FE Subsidiary made in this Agreement are true and correct in
all material respects as though made at and as of the Auction Closing Date.

                                       50
<PAGE>   52
         3.9 Deliveries by Buyer. At the Auction Closing, Buyer will deliver, or
cause to be delivered, the following:

                  (a) With respect to Seller:

                           (i) The Purchase Price, as adjusted pursuant to
         Section 3.3, by wire transfer of immediately available funds
         denominated in U.S. dollars in accordance with Seller's instructions or
         by such other means as are agreed upon by Seller and Buyer;

                           (ii) The FE Closing Payment to be made to Seller by
         wire transfer of immediately available funds denominated in U.S.
         dollars in accordance with Seller's instructions or by such other means
         as are agreed upon by Buyer and Seller; and

                           (iii) The DLC Assignment and Assumption Agreement,
         duly executed by Buyer;

                           (iv) All such other instruments of assignment or
         assumption as shall, in the reasonable opinion of Seller and its
         counsel, be necessary for the assignment of the Purchased DLC Assets to
         or the assumption of the Assumed DLC Liabilities by Buyer in accordance
         with this Agreement; and

                           (v) The agreement contemplated by Section 2.3(h)
         hereof.

                  (b) With respect to Seller and the FE Subsidiaries:

                           (i) The FE Assignment and Assumption Agreements, duly
         executed by Buyer;

                           (ii) All such other instruments of assignment or
         assumption as shall, in the reasonable opinion of Seller, the FE
         Subsidiaries or their counsel, be necessary for the assignment of the
         Purchased FE Assets to or the assumption of the Assumed FE Liabilities
         by Buyer in accordance with this Agreement;

                           (iii) Copies, certified by the Secretary or Assistant
         Secretary of Buyer , of resolutions authorizing the execution and
         delivery of this Agreement and all of the agreements and instruments to
         be executed and delivered by the Buyer in connection herewith, and the
         consummation of the transactions contemplated hereby;

                           (iv) A certificate of the Secretary or Assistant
         Secretary of Buyer, identifying the name and title and bearing the
         signatures of the officers of Buyer authorized

                                       51
<PAGE>   53
         to execute and deliver this Agreement and the other agreements and
         instruments contemplated hereby;

                           (v) The opinions of counsel required by Sections 8.2
         and 8.3; and

                           (vi) The agreement contemplated by Section 2.3A(g)
         hereof.

                  (c) Certified copies of any and all governmental and other
third party consents, waivers or approvals obtained or required to be obtained
by Buyer with respect to the transfer of the Purchased Assets or the
consummation of the transactions contemplated by this Agreement;

                  (d) Certificates of Insurance relating to the insurance
policies required pursuant to each of the DLC Connection Agreement and the FE
Connection Agreements;

                  (e) Such other agreements, documents, instruments and writings
as are required to be delivered by Buyer at or prior to the Auction Closing Date
pursuant to this Agreement or otherwise reasonably required by Seller and the FE
Subsidiaries in connection herewith;

                  (f) Certificate of Good Standing with respect to Buyer, issued
by the Secretary of State of Delaware; and

                  (g) A certificate dated the Auction Closing Date executed by
the duly authorized officers of Buyer to the effect that, to such officers'
Knowledge, the conditions set forth in Sections 8.2(f), (g) and (i) and Sections
8.3(e),(f) and (h) have been satisfied by Buyer and that each of the
representations and warranties of Buyer made in this Agreement are true and
correct in all material respects as though made at and as of the Auction Closing
Date.

         3.10 Ancillary Agreements. The Parties acknowledge that the Ancillary
Agreements (except for the Must-Run Agreements and the Connection Agreements)
shall be executed on or before the Auction Closing Date and each Party agrees to
execute, in connection with the Auction Closing, each Ancillary Agreement to
which it is to be a party, substantially in the form of such Ancillary
Agreements attached hereto. Each Party further acknowledges that, to the extent
that it is a party to such Ancillary Agreement, it has executed the Must-Run
Agreements and the Connection Agreements.

         3.11 Work in Progress. The Parties agree to work together before and
after the Auction Closing Date to effect an orderly transition with respect to
work in progress.

                                   ARTICLE IV

                                       52
<PAGE>   54
              REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLER

         Seller hereby represents and warrants to Buyer as follows:

         4.1 Incorporation; Qualification. Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has all requisite corporate power and authority
to own, lease, and operate its material assets and properties and to carry on
its business as is now being conducted. Seller is duly qualified to do business
as a foreign corporation and is in good standing under the laws of each
jurisdiction in which its business, as now being conducted, shall require it to
be so qualified, except where the failure to be so qualified would not have a
Material Adverse Effect. Seller has heretofore delivered to Buyer true,
complete, and correct copies of its Articles of Incorporation and Bylaws
currently in effect.

         4.2 Authority. Seller has full corporate power and authority to execute
and deliver this Agreement and each of the Ancillary Agreements to which Seller
is a signatory and to consummate the transactions contemplated hereby or
thereby. The execution and delivery of this Agreement and each of the Ancillary
Agreements to which Seller is a signatory and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action required on the part of Seller and
this Agreement has been duly and validly executed and delivered by Seller.
Subject to the receipt of the DLC Required Regulatory Approvals, each of this
Agreement and the Ancillary Agreements to which Seller is a signatory
constitutes the legal, valid and binding agreement of Seller, enforceable
against Seller in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally and general principles of equity (regardless of
whether enforcement is considered in a proceeding at law or in equity).

         4.3      Consents and Approvals; No Violation.

                   (a) Except as set forth in Schedule 4.3(a), and subject to
obtaining any DLC Required Regulatory Approvals, neither the execution, delivery
and performance of this Agreement nor the execution, delivery and performance of
the Ancillary Agreements will (i) conflict with or result in any breach of any
provision of the Articles of Incorporation or Bylaws of Seller, (ii) result in a
default (or give rise to any right of termination, cancellation or acceleration)
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, material agreement or other instrument or obligation to which Seller
is a party or by which it, or any of the Purchased DLC Assets may be bound,
except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained or
that would not, individually or in the aggregate, create a Material Adverse
Effect; or (iii) constitute violations of any law, regulation,

                                       53
<PAGE>   55
order, judgment or decree applicable to Seller, which violations, individually
or in the aggregate, would create a Material Adverse Effect.

                  (b) Except as set forth in Schedule 4.3(b), (the filings and
approvals referred to in Schedule 4.3(b) are collectively referred to as the
"DLC Required Regulatory Approvals"), no consent or approval of, filing with, or
notice to, any Governmental Authority is necessary for the execution and
delivery of this Agreement and the Ancillary Agreements by Seller or the
consummation by Seller of the transactions contemplated hereby and thereby,
other than (i) such consents, approvals, filings or notices which, if not
obtained or made, will not prevent Seller from performing its material
obligations under this Agreement and the Ancillary Agreements and (ii) such
consents, approvals, filings or notices which become applicable to Seller or the
Purchased DLC Assets as a result of the specific regulatory status of the Buyer
(or any of its Affiliates) or as a result of any other facts that specifically
relate to the business or activities in which the Buyer (or any of its
Affiliates) is or proposes to be engaged.

         4.4 Insurance. Except as set forth in Schedule 4.4, all material
policies of fire, liability, workers' compensation and other forms of insurance
(if any) owned or held by, or on behalf of, Seller with respect to the business,
operations or employees at the DLC Plants or the Purchased DLC Assets are in
full force and effect, all premiums with respect thereto covering all periods up
to and including the date hereof have been paid (other than retroactive premiums
which may be payable with respect to comprehensive general liability and
workers' compensation insurance policies), and no notice of cancellation or
termination has been received with respect to any such policy which was not
replaced on substantially similar terms prior to the date of such cancellation.
Except as described in Schedule 4.4, within the thirty-six (36) months preceding
the date of this Agreement, Seller has not been refused any insurance with
respect to the Purchased DLC Assets nor has its coverage been limited by any
insurance carrier to which it has applied for any such insurance or with which
it has carried insurance during the last twelve (12) months.

         4.5 DLC Real Property Leases. Schedule 4.5 lists, as of the date of
this Agreement, all real property leases under which Seller is a lessee or
lessor and which relate to the Purchased DLC Assets (the "DLC Real Property
Leases"). Except as set forth in Schedule 4.5, all such DLC Real Property Leases
are valid, binding and enforceable against Seller in accordance with their
terms; there are no existing defaults by Seller or, to Seller's Knowledge, any
other party thereunder that could reasonably be expected to result in a Material
Adverse Effect; and no event has occurred which (whether with or without notice,
lapse of time or both) would constitute a default by Seller or, to Seller's
Knowledge, any other party thereunder that could reasonably be expected to
result in a Material Adverse Effect. Seller has delivered to Buyer true, correct
and complete copies of each of the DLC Real Property Leases.

                                       54
<PAGE>   56
      4.6 Environmental Matters. Except as disclosed in Schedule 4.6 or in the
"Phase I" and "Phase II" environmental site assessments prepared by the
independent environmental consultants and made available for inspection by Buyer
("DLC Environmental Reports"):

            (a) Seller holds, and is in substantial compliance with, all
Environmental Permits that are required for Seller to conduct the business and
operations of the Purchased DLC Assets, and Seller is otherwise in compliance
with applicable Environmental Laws with respect to the business and operations
of the Purchased DLC Assets, except for such failures to hold or comply with
required Environmental Permits, or such failures to be in compliance with
applicable Environmental Laws, as would not, individually or in the aggregate,
create a Material Adverse Effect;

            (b) Seller has not received (i) any written request for information,
or been notified that it is a potentially responsible party, under CERCLA or any
similar state law with respect to any of the DLC Real Property, or (ii) any
written notification from a Governmental Authority with respect to pending or
ongoing investigations or enforcement actions related to alleged or potential
violations of any applicable Environmental Law with respect to any of the DLC
Real Property;

            (c) Seller has not entered into or agreed to any consent decree or
order relating to the Purchased DLC Assets, and is not subject to any
outstanding judgment, decree, or judicial order relating to compliance with any
Environmental Law or to Remediation of Regulated Substances under any
Environmental Law relating to the Purchased DLC Assets; and

            (d) To Seller's Knowledge, no Release of Regulated Substances has
occurred at, from, in, on, or under the DLC Real Property, and no Regulated
Substances are present in, on, about or migrating from the DLC Real Property
that could give rise to an Environmental Claim related to the Purchased DLC
Assets for which Remediation reasonably could be required, except in any such
case to the extent that any such Release or Environmental Claim would not,
individually or in the aggregate, create a Material Adverse Effect.

      The representations and warranties made in this Section 4.6 are Seller's
exclusive representations and warranties relating to environmental matters of
Seller as of the date hereof.

      4.7 Labor Matters. Seller has previously delivered to Buyer true and
correct copies of all collective bargaining agreements to which Seller is a
party or is subject and which relate to the business and operations of the
Purchased DLC Assets. With respect to the business or operations of the
Purchased DLC Assets, except to the extent set forth in Schedule 4.7 and except
for such matters as will not, individually or in the aggregate, create a
Material Adverse Effect, (a) Seller is in compliance with all applicable laws
respecting employment and employment practices, occupational safety and health,
plant closing, mass layoffs, terms and conditions of employment and wages and
hours; (b) Seller has not received any written notice of any unfair labor
practice complaint

                                       55
<PAGE>   57
against Seller pending before the National Labor Relations Board; (c) no
arbitration proceeding arising out of or under any collective bargaining
agreement is pending against Seller; and (d) Seller has not experienced any work
stoppage within the three-year period prior to the date hereof and to Seller's
Knowledge none is currently threatened.

      4.8 Benefit Plans: ERISA.

            (a) Schedule 4.8 lists all DLC Plans maintained for, or in which the
employees of Seller connected with the Purchased DLC Assets participate. True
and complete copies of all such DLC Plans have been made available to the Buyer.

            (b) No liability under Title IV or Section 302 of ERISA has been
incurred by Seller or any ERISA Affiliate of Seller that has not been satisfied
in full, and no condition exists that presents a material risk to Seller or any
ERISA Affiliate of Seller of incurring any such liability, other than liability
for premiums due to the Pension Benefit Guaranty Corporation (which premiums
have been paid when due). Insofar as the representation made in this Section 4.8
applies to Sections 4064, 4069 or 4204 of Title IV of ERISA, it is made with
respect to any employee benefit plan, program, agreement or arrangement subject
to Title IV of ERISA to which Seller or any ERISA Affiliate of Seller made, or
was required to make, contributions during the five (5)-year period ending on
the last day of the most recent plan year ended prior to the Auction Closing
Date.

            (c) The consummation of the transactions contemplated by this
Agreement will not, either alone or in combination with another event, (i)
entitle any current or former employee or officer of Seller or any ERISA
Affiliate of Seller to severance pay, unemployment compensation or any other
payment, except as expressly provided in this Agreement, or (ii) accelerate the
time of payment or vesting, or increase the amount of compensation due any such
employee or officer.

            (d) There has been no material failure of any of the DLC Plans that
is a group health plan (as defined in Section 5000(b)(1) of the Code) to meet
the requirements of Section 4980B(f) of the Code with respect to a qualified
beneficiary (as defined in Section 4980B(g) of the Code). Neither the Seller nor
any ERISA Affiliate of Seller has contributed to a nonconforming group health
plan (as defined in Section 5000(c) of the Code) and no ERISA Affiliate of
Seller has incurred a tax under Section 5000(e) of the Code that is or could
become a liability of Buyer.

            (e) There are no pending, threatened or anticipated claims by or on
behalf of any DLC Plans, by any employee or beneficiary covered under any such
DLC Plans, or otherwise involving any such DLC Plans (other than routine claims
for benefits).

      4.9 DLC Real Property. Schedule 4.9 contains a description of the DLC Real
Property included in the Purchased DLC Assets. True and correct copies of any
current surveys, abstracts,

                                       56
<PAGE>   58
title commitments and title opinions in Seller's possession and all policies of
title insurance currently in force and in the possession of Seller with respect
to the DLC Real Property have heretofore been made available to Buyer.

      4.10 Condemnation. Except as set forth in Schedule 4.10, Seller has not
received any written notices of and otherwise has no Knowledge of any pending or
threatened proceedings or actions by any Governmental Authority to condemn or
take by power of eminent domain all or any part of the Purchased DLC Assets.

      4.11 Contracts and Leases.

            (a) Schedule 4.11(a) lists each DLC Agreement which is material to
Seller for the business or operations of the Purchased DLC Assets, other than
those (i) that are listed or described on another Schedule, (ii) that are
expected to expire or terminate prior to the Auction Closing Date, or (iii) that
provide for annual payments by Seller after the date hereof of less than
$100,000 and payments by Seller after the date hereof of less than $500,000 in
the aggregate.

            (b) Except as disclosed in Schedule 4.11(b), each DLC Agreement
listed on Schedule 4.11(a) constitutes a legal, valid and binding obligation of
Seller and, to Seller's Knowledge, constitutes a valid and binding obligation of
the other parties thereto, and may be transferred to the Buyer as contemplated
by this Agreement without the consent of the other parties thereto and will
continue in full force and effect thereafter, unless in such case the impact of
such lack of legality, validity or binding nature, or inability to transfer,
would not, individually or in the aggregate, create a Material Adverse Effect.

            (c) Except as set forth in Schedule 4.11(c), there is not, under the
DLC Agreements listed on Schedule 4.11(a), any default or event which, with
notice or lapse of time or both, would constitute a default on the part of the
Seller or to Seller's Knowledge, any of the other parties thereto, except such
events of default and other events which would not, individually or in the
aggregate, create a Material Adverse Effect.

      4.12 Legal Proceedings. Except as set forth in Schedule 4.12, there is no
action or proceeding pending or, to Seller's Knowledge, threatened against
Seller before any court, arbitrator or Governmental Authority, which could,
individually or in the aggregate, reasonably be expected to create a Material
Adverse Effect. Except as set forth in Schedule 4.12 Seller is not subject to
any outstanding judgments, rules, orders, writs, injunctions or decrees of any
court, arbitrator or Governmental Authority that would, individually or in the
aggregate, create a Material Adverse Effect.

      4.13 Permits.

                                       57
<PAGE>   59
            (a) Seller has all DLC Permits (other than Environmental Permits,
which are addressed in Section 4.6 hereof) necessary to own and operate the
Purchased DLC Assets except where the failure to have such DLC Permits would
not, individually or in the aggregate, create a Material Adverse Effect. Except
as disclosed on Schedule 4.13(a), Seller has not received any written
notification that it is in violation of any such DLC Permits, except
notifications of violations which would not, individually or in the aggregate,
create a Material Adverse Effect. Seller is in compliance with all DLC Permits
except where such non-compliance would not, individually or in the aggregate,
create a Material Adverse Effect.

            (b) Schedule 4.13(b) sets forth all material DLC Permits, other than
DLC Transferable Permits (which are set forth on Schedule 1.1(71)), related to
the Purchased DLC Assets.

      4.14 Taxes.

            (a) Seller has filed or caused to be filed all Tax Returns that are
required to be filed by it with respect to any Tax relating to the Purchased DLC
Assets, and has paid or caused to be paid all Taxes that have become due as
indicated thereon, except where such Tax is being contested in good faith by
appropriate proceedings, or where the failure to so file or pay would not create
a Material Adverse Effect. Seller has complied in all material respects with all
applicable laws, rules and regulations relating to withholding Taxes relating to
DLC Transferred Employees. All Tax Returns relating to the Purchased DLC Assets
are true, correct and complete in all material respects. There are no liens for
Taxes upon the Purchased DLC Assets except for liens for Taxes not yet due and
Permitted Encumbrances.

            (b) Except as set forth in Schedule 4.14(b), no notice of deficiency
or assessment has been received from any taxing authority with respect to
liabilities for Taxes of Seller in respect of the Purchased DLC Assets, which
have not been fully paid or finally settled, and any such deficiency shown in
Schedule 4.14 is being contested in good faith through appropriate proceedings.

            (c) Except as set forth in Schedule 4.14(c), there are no
outstanding agreements or waivers extending the applicable statutory periods of
limitation for Taxes associated with the Purchased DLC Assets that will be
binding upon Buyer after the Auction Closing.

            (d) Except as set forth on Schedule 4.14(d), none of the Purchased
DLC Assets is property that is required to be treated as being owned by any
other person pursuant to the so-called safe harbor lease provisions of former
Section 168(f) of the Code, and none of the Purchased DLC Assets is "tax-exempt
use" property within the meaning of Section 168(h) of the Code.

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            (e) Schedule 4.14(e) sets forth the taxing jurisdictions in which
Seller owns assets or conducts business that require a notification to a taxing
authority of the transactions contemplated by this Agreement, if the failure to
make such notification, or obtain Tax clearance certificates in connection
therewith, would either require Buyer to withhold any portion of the
consideration or subject Buyer to any liability for any Taxes of Seller.

      4.15 Intellectual Property. Schedule 2.1(l) sets forth all DLC
Intellectual Property used in and, individually or in the aggregate with other
Intellectual Property, material to the operation or business by Seller of the
Purchased DLC Assets, each of which Seller either has all right, title and
interest in or valid and binding rights under contract to use in connection with
the operation of the Purchased DLC Assets. Except as disclosed in Schedule 4.15,
(a) Seller is not, nor has it received any notice that it is, in default (or
with the giving of notice or lapse of time or both, would be in default), under
any contract to use such DLC Intellectual Property, and (b) to Seller's
Knowledge, such DLC Intellectual Property is not being infringed by any other
Person. Except as disclosed in Schedule 4.15, Seller has not received notice
that it is infringing any Intellectual Property of any other Person in
connection with the operation or business of the Purchased DLC Assets, and
Seller, to its Knowledge, is not infringing any Intellectual Property of any
other Person which, individually or in the aggregate, would have a Material
Adverse Effect.

      4.16 Capital Expenditures. Except as set forth in Schedule 7.1(c)(viii),
there are no DLC Capital Expenditures that are planned by Seller through
December 31, 2000.

      4.17 Compliance With Laws. Seller is in compliance with all applicable
laws, rules and regulations with respect to its ownership or operation of the
Purchased DLC Assets except where the failure to be in compliance would not,
individually or in the aggregate, create a Material Adverse Effect.

      4.18 Title. Seller is the owner of record title to the DLC Real Property
and has good and valid title to the other Purchased DLC Assets which it purports
to own. As of the date of the Auction Closing, Seller shall be the owner of
record title to the DLC Real Property and have good and valid title to the other
Purchased DLC Assets which it purports to own, free and clear of all
Encumbrances except Permitted Encumbrances. If the Exchange Closing shall have
occurred prior to the Auction Closing Date, Seller shall also be the owner of
record title to the FE Real Property and have good and valid title to the other
Purchased FE Assets which it purports to own, free and clear of all Encumbrances
except Permitted Encumbrances.

      4.19 DISCLAIMERS REGARDING PURCHASED DLC ASSETS. EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE IV, THE PURCHASED DLC
ASSETS ARE TRANSFERRED "AS IS, WHERE IS", AND SELLER EXPRESSLY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES OF ANY KIND OR

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NATURE, EXPRESS OR IMPLIED, AS TO LIABILITIES, OPERATIONS OF THE DLC PLANTS,
CONDITION, VALUE OR QUALITY OF THE PURCHASED DLC ASSETS OR THE PROSPECTS
(FINANCIAL AND OTHERWISE), RISKS AND OTHER INCIDENTS OF THE PURCHASED DLC ASSETS
AND SELLER SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF
MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH
RESPECT TO THE PURCHASED DLC ASSETS, OR ANY PART THEREOF, OR AS TO THE
WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR
PATENT, OR COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS, OR THE APPLICABILITY OF
ANY GOVERNMENTAL REQUIREMENTS, INCLUDING BUT NOT LIMITED TO ANY ENVIRONMENTAL
LAWS, OR WHETHER SELLER POSSESSES SUFFICIENT REAL PROPERTY OR PERSONAL PROPERTY
TO OPERATE THE PURCHASED DLC ASSETS. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED
HEREIN, SELLER FURTHER SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY
REGARDING THE ABSENCE OF HAZARDOUS SUBSTANCES OR LIABILITY OR POTENTIAL
LIABILITY ARISING UNDER ENVIRONMENTAL LAWS WITH RESPECT TO THE PURCHASED DLC
ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED HEREIN, SELLER EXPRESSLY DISCLAIMS ANY REPRESENTATION OR
WARRANTY OF ANY KIND REGARDING THE CONDITION OF THE PURCHASED DLC ASSETS OR THE
SUITABILITY OF THE PURCHASED DLC ASSETS FOR OPERATION AS A POWER PLANT AND NO
SCHEDULE OR EXHIBIT TO THIS AGREEMENT, NOR ANY OTHER MATERIAL OR INFORMATION
PROVIDED BY OR COMMUNICATIONS MADE BY SELLER OR ITS REPRESENTATIVES, OR BY ANY
BROKER OR INVESTMENT BANKER, WILL CAUSE OR CREATE ANY WARRANTY, EXPRESS OR
IMPLIED, AS TO THE CONDITION, VALUE OR QUALITY OF THE PURCHASED DLC ASSETS.

      4.20 Year 2000 Compliance. Seller, with respect to all Computer Systems
included in the Purchased DLC Assets to be transferred under this Agreement, has
plans to achieve Year 2000 Compliance with respect to such Computer Systems, and
is using its Commercially Reasonable Efforts to carry out such plans.

      4.21 SEC Filings; Financial Statements.

            (a) Seller has filed, or caused to be filed, all forms, reports and
documents required to be filed by Seller with the SEC since January 1, 1998, and
has heretofore delivered or made available to Buyer in the form filed with the
SEC, together with any amendments thereto, its (i) Annual Reports on Form 10-K
for the fiscal year ended December 31, 1997, (ii) Quarterly Reports on Form 10-Q
for the fiscal quarter ended March 31, 1998, June 30, 1998 and September 30,
1998, and (iii) all other reports or registration statements filed by Seller
with the SEC since January 1, 1998 (collectively, the "DLC SEC Reports"). The
DLC SEC Reports were prepared substantially in

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accordance with the requirements of the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, as the case may be, and the
rules and regulations promulgated under each of such respective acts, and did
not at the time they were filed contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.

            (b) The financial statements, including all related notes and
schedules, contained in the DLC SEC Reports (or incorporated by reference
therein) fairly present the consolidated financial position of Seller as at the
respective dates thereof and the consolidated results of operations and cash
flows of Seller for the periods indicated in accordance with GAAP applied on a
consistent basis throughout the periods involved (except for changes in
accounting principles disclosed in the notes thereto) and subject in the case of
interim financial statements to normal year-end adjustments.

                                    ARTICLE V

                REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF FE
                             AND THE FE SUBSIDIARIES

      Each FE Subsidiary severally with respect to itself and all matters
related to such FE Subsidiary's obligations hereunder and as to the Purchased FE
Assets to be transferred to Buyer, hereby represents and warrants to Buyer as
follows:

      5.1 Incorporation; Qualification. Such FE Subsidiary is a corporation duly
incorporated, validly existing and in good standing under the laws of its
respective state of incorporation and has all requisite corporate power and
authority to own, lease and operate its material assets and properties and to
carry on its business as is now being conducted. Such FE Subsidiary is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each jurisdiction in which its business as now being conducted shall
require it to be so qualified, except where the failure to be so qualified would
not have a Material Adverse Effect. Such FE Subsidiary has heretofore delivered
to Buyer true, complete and correct copies of its respective Articles of
Incorporation, Code of Regulations or Bylaws as currently in effect.

      5.2 Authority. Such FE Subsidiary has full corporate power and authority
to execute and deliver this Agreement and each of the Ancillary Agreements to
which it is a signatory and to consummate the transactions contemplated hereby
or thereby. The execution and delivery of this Agreement and each of the
Ancillary Agreements to which it is a signatory by such FE Subsidiary and the
consummation of the transactions contemplated hereby and thereby by such FE
Subsidiary

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<PAGE>   63
have been duly and validly authorized by all necessary corporate action required
on the part of such FE Subsidiary and this Agreement and each of the Ancillary
Agreements to which it is a signatory has been duly and validly executed and
delivered by such FE Subsidiary. Subject to the receipt of the FE Required
Regulatory Approvals, each of this Agreement and each of the Ancillary
Agreements to which it is a signatory constitutes the legal, valid and binding
agreement of such FE Subsidiary, enforceable against such FE Subsidiary in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other similar
laws affecting or relating to enforcement of creditors' rights generally and
general principles of equity (regardless of whether enforcement is considered in
a proceeding at law or in equity).

      5.3 Consents and Approvals; No Violation.

            (a) Except as set forth in Schedule 5.3(a), and subject to obtaining
any FE Required Regulatory Approvals, neither the execution, delivery and
performance of this Agreement by such FE Subsidiary, nor the execution, delivery
and performance of the Ancillary Agreements to which such FE Subsidiary is a
signatory will (i) conflict with or result in any breach of any provision of the
Articles of Incorporation, Code of Regulations or Bylaws of such FE Subsidiary,
(ii) result in a default (or give rise to any right of termination, cancellation
or acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, material agreement or other instrument or obligation
to which such FE Subsidiary is a party or by which such FE Subsidiary, or any of
its Purchased FE Assets may be bound, except for such defaults (or rights of
termination, cancellation or acceleration) as to which requisite waivers or
consents have been obtained or that would not, individually or in the aggregate,
create a Material Adverse Effect; or (iii) constitute violations of any law,
regulation, order, judgment or decree applicable to such FE Subsidiary, which
violation, individually or in the aggregate, would create a Material Adverse
Effect.

            (b) Except as set forth in Schedule 5.3(b) (the filings and
approvals referred to in Schedule 5.3(b) are collectively referred to as "FE
Required Regulatory Approvals"), no consent or approval of, filing with, or
notice to, any Governmental Authority is necessary for the execution and
delivery of this Agreement and the Ancillary Agreements, or the consummation by
such FE Subsidiary of the transactions contemplated hereby and thereby, other
than (i) such consents, approvals, filings or notices which, if not obtained or
made, will not prevent such FE Subsidiary from performing its material
obligations under this Agreement and the Ancillary Agreements and (ii) such
consents, approvals, filings or notices which become applicable to such FE
Subsidiary or its Purchased FE Assets as a result of the specific regulatory
status of Buyer (or any of its Affiliates) or as a result of any other facts
that specifically relate to the business or activities in which Buyer (or any of
its Affiliates) is or proposes to be engaged.

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<PAGE>   64
      5.4 Insurance. Except as set forth in Schedule 5.4, all material policies
of fire, liability, workers' compensation and other forms of insurance (if any)
owned or held by, or on behalf of, such FE Subsidiary with respect to the
business, operations or employees at its FE Plants or its Purchased FE Assets
are in full force and effect, all premiums with respect thereto covering all
periods up to and including the date hereof have been paid (other than
retroactive premiums which may be payable with respect to comprehensive general
liability and workers' compensation insurance policies), and no notice of
cancellation or termination has been received with respect to any such policy
which was not replaced on substantially similar terms prior to the date of such
cancellation. Except as described in Schedule 5.4, within the thirty-six (36)
months preceding the date of this Agreement, such FE Subsidiary has not been
refused any insurance with respect to its Purchased FE Assets nor has its
coverage been limited by any insurance carrier to which it has applied for any
such insurance or with which it has carried insurance during the last twelve
(12) months.

      5.5 FE Real Property Leases. Schedule 5.5 lists, as of the date of this
Agreement, all real property leases under which such FE Subsidiary is a lessee
or lessor, and which relate to its Purchased FE Assets ("FE Real Property
Leases"). Except as set forth in Schedule 5.5, all such FE Real Property Leases
are valid, binding and enforceable against such FE Subsidiary in accordance with
their terms; there are no existing defaults by such FE Subsidiary or, to such FE
Subsidiary's Knowledge, any other party thereunder that could reasonably be
expected to result in a Material Adverse Effect; and no event has occurred which
(whether with or without notice, lapse of time or both) would constitute a
default by such FE Subsidiary or, to such FE Subsidiary's Knowledge, any other
party thereunder that could reasonably be expected to result in a Material
Adverse Effect. Such FE Subsidiary has delivered to Seller and Seller has
delivered to the Buyer, true, correct and complete copies of each of its FE Real
Property Leases.

      5.6 Environmental Matters. Except as disclosed in Schedule 5.6 or in the
"Phase I" and "Phase II" environmental site assessments prepared by the
independent environmental consultants and made available for inspection by Buyer
("FE Environmental Reports"):

            (a) Such FE Subsidiary holds, and is in substantial compliance with
all FE Environmental Permits, that are required for such FE Subsidiary to
conduct the business and operations of its Purchased FE Assets, and such FE
Subsidiary is otherwise in compliance with applicable Environmental Laws with
respect to the business and operations of its Purchased FE Assets, except for
such failures to hold or comply with required FE Environmental Permits, or such
failures to be in compliance with applicable Environmental Laws, as would not,
individually or in the aggregate, create a Material Adverse Effect;

            (b) Such FE Subsidiary has not received (i) any written request for
information, or been notified that it is a potentially responsible party, under
CERCLA or any similar state law with respect to the FE Real Property, or (ii)
any written notification from a Governmental Authority

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<PAGE>   65
with respect to pending or ongoing investigations or enforcement actions related
to alleged or potential violations of any applicable Environmental Law with
respect to any of the FE Real Property;

            (c) Such FE Subsidiary has not entered into or agreed to any consent
decree or order relating to its Purchased FE Assets, or is subject to any
outstanding judgment, decree, or judicial order relating to compliance with any
Environmental Law or to Remediation of Regulated Substances under any
Environmental Law relating to its Purchased FE Assets; and

            (d) To the Knowledge of such FE Subsidiary, no Release of Regulated
Substances has occurred at, from, in, on, or under its FE Real Property and no
Regulated Substances are present in, on, about or migrating from its FE Real
Property that could give rise to an Environmental Claim related to its Purchased
FE Assets for which Remediation reasonably could be required, except in any such
case to the extent that any such Release or Environmental Claim would not,
individually or in aggregate, create a Material Adverse Effect.

The representations and warranties made in this Section 5.6 are the exclusive
representations and warranties of such FE Subsidiary relating to environmental
matters as of the date hereof.

      5.7 Labor Matters. Such FE Subsidiary previously delivered to Buyer true
and correct copies of all collective bargaining agreements to which such FE
Subsidiary is a party or is subject and which relate to the business and
operations of its Purchased FE Assets. With respect to the business or
operations of its Purchased FE Assets, except to the extent set forth in
Schedule 5.7 and except for such matters as will not, individually or in
aggregate, create a Material Adverse Effect, (a) such FE Subsidiary is in
compliance with all applicable laws respecting employment and employment
practices, occupational safety and health, plant closing, mass layoffs, terms
and conditions of employment and wages and hours; (b) such FE Subsidiary has not
received any written notice of any unfair labor practice complaint against any
FE Subsidiary pending before the National Labor Relations Board; (c) no
arbitration proceeding arising out of or under any collective bargaining
agreement is pending against such FE Subsidiary; and (d) such FE Subsidiary has
not experienced any work stoppage within the three-year period prior to the date
hereof and to the Knowledge of such FE Subsidiary none is currently threatened.

      5.8 Benefit Plans: ERISA.

            (a) Schedule 5.8(a) lists all FE Plans maintained for, or in which
the employees of such FE Subsidiary connected with its Purchased FE Assets
participate. True and complete copies of all such FE Plans have been made
available to Buyer.

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<PAGE>   66
            (b) No liability under Title IV or Section 302 of ERISA has been
incurred by such FE Subsidiary or any ERISA Affiliate of such FE Subsidiary that
has not been satisfied in full, and no condition exists that presents a material
risk to such FE Subsidiary or any ERISA Affiliate thereof of incurring any such
liability, other than liability for premiums due the Pension Benefit Guaranty
Corporation (which premiums have been paid when due). Insofar as the
representation made in this Section 5.8 applies to Sections 4064, 4069 or 4204
of Title IV of ERISA, it is made with respect to any employee benefit plan,
program, agreement or arrangement subject to Title IV of ERISA to which such FE
Subsidiary or any ERISA Affiliate of such FE Subsidiary made, or was required to
make, contributions during the five (5)-year period ending on the last day of
the most recent plan year ended prior to the Auction Closing Date.

            (c) The consummation of the transactions contemplated by this
Agreement will not, either alone or in combination with another event, (i)
entitle any current or former employee or officer of such FE Subsidiary or any
ERISA Affiliate of such FE Subsidiary to severance pay, unemployment
compensation or any other payment, except as expressly provided in this
Agreement, or (ii) accelerate the time of payment or vesting, or increase the
amount of compensation due any such employee or officer.

            (d) There has been no material failure of any of the FE Plans that
is a group health plan (as defined in Section 5000(b)(1) of the Code) to meet
the requirements of Section 4980B(f) of the Code with respect to a qualified
beneficiary (as defined in Section 4980B(g) of the Code). Neither such FE
Subsidiary nor any ERISA Affiliate of such FE Subsidiary has contributed to a
nonconforming group health plan (as defined in Section 5000(c) of the Code) and
no ERISA Affiliate of such FE Subsidiary has incurred a tax under Section
5000(e) of the Code that is or could become a liability of Buyer.

            (e) There are no pending, threatened or anticipated claims by or on
behalf of any FE Plans, by any employee or beneficiary covered under any such FE
Plans, or otherwise involving any such FE Plans (other than routine claims for
benefits).

      5.9 Real Property. Schedule 5.9 contains a description of the FE Real
Property of such FE Subsidiary included in the Purchased FE Assets. True and
correct copies of any current surveys, abstracts, title commitments and title
opinions in such FE Subsidiary's possession and all policies of title insurance
currently in force and in the possession of such FE Subsidiary with respect to
its FE Real Property have heretofore been made available to Buyer.

      5.10 Condemnation. Except as set forth in Schedule 5.10, such FE
Subsidiary has not received any written notices of and otherwise has no
Knowledge of any pending or threatened proceedings or actions by any
Governmental Authority to condemn or take by power of eminent domain all or any
part of its Purchased FE Assets.

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      5.11 Contracts and Leases.

             (a) Schedule 5.11(a) lists each FE Agreement which is material to
such FE Subsidiary for the business or operations of its Purchased FE Assets,
other than those (i) that are expected to expire or terminate prior to the
Auction Closing Date, or (ii) that provide for annual payments by such FE
Subsidiary after the date hereof of less than $100,000 and payments by such FE
Subsidiary after the date hereof of less than $500,000 in the aggregate.

            (b) Except as disclosed in Schedule 5.11(b), each FE Agreement
listed in Schedule 5.11(b) constitutes a legal, valid and binding obligation of
such FE Subsidiary and, to the Knowledge of such FE Subsidiary, constitutes a
valid and binding obligation of the other parties thereto, and may be
transferred to Buyer as contemplated by this Agreement without the consent of
the other parties thereto and will continue in full force and effect thereafter,
unless in any such case the impact of such lack of legality, validity or binding
nature, or inability to transfer, would not, individually or in the aggregate,
create a Material Adverse Effect.

            (c) Except as set forth in Schedule 5.11(c), there is not, under any
of its FE Agreements listed on Schedule 5.11(a), any default or event which,
with notice or lapse of time or both, would constitute a default on the part of
such FE Subsidiary or to its Knowledge, any of the other parties thereto, except
such events of default and other events which would not, individually or in the
aggregate, create a Material Adverse Effect.

      5.12 Legal Proceedings. Except as set forth in Schedule 5.12, there is no
action or proceeding pending or, to the Knowledge of such FE Subsidiary,
threatened against such FE Subsidiary before any court, arbitrator or
Governmental Authority, which could, individually or in the aggregate,
reasonably be expected to create a Material Adverse Effect. Except as set forth
in Schedule 5.12, such FE Subsidiary is not subject to any outstanding
judgments, rules, orders, writs, injunctions or decrees of any court, arbitrator
or Governmental Authority that would, individually or in the aggregate, create a
Material Adverse Effect.

      5.13 Permits.

             (a) Such FE Subsidiary has all FE Permits (other than the FE
Environmental Permits, which are addressed in Section 5.6 hereof) necessary to
own and operate its Purchased FE Assets except where the failure to have such FE
Permits would not, individually or in the aggregate, create a Material Adverse
Effect. Except as disclosed on Schedule 5.13(a), such FE Subsidiary has not
received any written notification that such FE Subsidiary is in violation of any
such FE Permits, except notifications of violations which would not,
individually or in the aggregate, create a Material

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Adverse Effect. Such FE Subsidiary is in compliance with all its FE Permits
except where non-compliance would not, individually or in the aggregate, create
a Material Adverse Effect.

            (b) Schedule 5.13(b) sets forth all material FE Permits, other than
FE Transferable Permits (which are set forth on Schedule 1.1(140)), related to
the Purchased FE Assets of such FE Subsidiary.

      5.14 Taxes.

            (a) Such FE Subsidiary has filed or caused to be filed all Tax
Returns that are required to be filed by it with respect to any Tax relating to
the Purchased FE Assets or to such FE Subsidiary's operation of the Purchased FE
Assets, and paid or caused to be paid all Taxes that have become due as
indicated thereon, except where such Tax is being contested in good faith by
appropriate proceedings, or where the failure to so file or pay would not create
a Material Adverse Effect. Such FE Subsidiary has complied in all material
respects with all applicable laws, rules and regulations relating to withholding
Taxes relating to its FE Transferred Employees. All Tax Returns relating to its
Purchased FE Assets are true, correct and complete in all material respects.
There are no liens for Taxes upon its Purchased FE Assets except for liens for
Taxes not yet due and Permitted Encumbrances.

            (b) Except as set forth in Schedule 5.14(b), no notice of deficiency
or assessment has been received from any taxing authority with respect to
liabilities for Taxes of such FE Subsidiary in respect of its Purchased FE
Assets, which have not been fully paid or finally settled, and any such
deficiency shown in Schedule 5.14 is being contested in good faith through
appropriate proceedings.

            (c) Except as set forth in Schedule 5.14(c), there are no
outstanding agreements or waivers extending the applicable statutory periods of
limitation for Taxes associated with its Purchased FE Assets that will be
binding upon Buyer after the Auction Closing.

            (d) Except as set forth on Schedule 5.14(d), none of its Purchased
FE Assets is property that is required to be treated as being owned by any other
person pursuant to the so-called safe harbor lease provisions of former Section
168(f) of the Code, and none of its Purchased FE Assets is "tax-exempt use"
property within the meaning of Section 168(h) of the Code.

            (e) Schedule 5.14(e) sets forth the taxing jurisdictions in which
such FE Subsidiary owns assets or conducts business that require a notification
to a taxing authority of the transactions contemplated by this Agreement, if the
failure to make such notification, or obtain Tax clearance certificates in
connection therewith, would either require Buyer to withhold any portion of the
consideration or subject Buyer to any liability for any Taxes of such FE
Subsidiary.

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      5.15 Intellectual Property. Schedule 2.1A(k) sets forth all FE
Intellectual Property used in and, individually or in the aggregate with other
Intellectual Property, material to the operation or business by such FE
Subsidiary of its Purchased FE Assets, each of which such FE Subsidiary or its
Affiliates either has all right, title and interest in or valid and binding
rights under contract to use in connection with its operation of its Purchased
FE Assets. Except as disclosed in Schedule 5.15, (i) such FE Subsidiary is not,
nor has it received any notice that it is, in default (or with the giving of
notice or lapse of time or both, would be in default), under any contract to use
such FE Intellectual Property, and (ii) to the Knowledge of such FE Subsidiary,
such FE Intellectual Property is not being infringed by any other Person. Such
FE Subsidiary has not received notice that it is infringing any Intellectual
Property of any other Person in connection with the operation or business of its
Purchased FE Assets, and such FE Subsidiary, to its Knowledge, is not infringing
any Intellectual Property of any other Person which, individually or in the
aggregate, would have a Material Adverse Effect.

      5.16 Capital Expenditures. Except as set forth in Schedule 7.1A(c)(viii),
there are no FE Capital Expenditures that are planned by such FE Subsidiary with
respect to its Purchased FE Assets through December 31, 2000.

      5.17 Compliance With Laws. Such FE Subsidiary is in compliance with all
applicable laws, rules and regulations with respect to the ownership or
operation of its Purchased FE Assets, except where the failure to be in
compliance would not, individually or in the aggregate, create a Material
Adverse Effect.

      5.18 Title. Such FE Subsidiary is the owner of record title to the FE Real
Property and has good and valid title to the other Purchased FE Assets which it
purports to own. As of the date of the Auction Closing, (a) if the Exchange
Closing shall not have occurred prior to the Auction Closing Date, such FE
Subsidiary shall be the owner of record title to the FE Real Property and have
good and valid title to the other Purchased FE Assets which it purports to own,
free and clear of all Encumbrances except Permitted Encumbrances, or (b) if the
Exchange Closing shall have occurred prior to the Auction Closing Date, such FE
Subsidiary shall have transferred on that date record title to the FE Real
Property and good and valid title to the other Purchased FE Assets which it
purported to own, free and clear of all Encumbrances except Permitted
Encumbrances.

      5.19 DISCLAIMERS REGARDING PURCHASED FE ASSETS. EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE V, THE PURCHASED FE
ASSETS ARE TRANSFERRED "AS IS, WHERE IS", AND SUCH FE SUBSIDIARY EXPRESSLY
DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR
IMPLIED, AS TO LIABILITIES, OPERATIONS OF ITS FE PLANTS, THE TITLE, CONDITION,
VALUE OR QUALITY OF ITS PURCHASED FE

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ASSETS OR THE PROSPECTS (FINANCIAL AND OTHERWISE), RISKS AND OTHER INCIDENTS OF
ITS PURCHASED FE ASSETS AND SUCH FE SUBSIDIARY SPECIFICALLY DISCLAIMS ANY
REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR
ANY PARTICULAR PURPOSE WITH RESPECT TO ITS PURCHASED FE ASSETS, OR ANY PART
THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS
THEREIN, WHETHER LATENT OR PATENT, OR COMPLIANCE WITH ENVIRONMENTAL
REQUIREMENTS, OR THE APPLICABILITY OF ANY GOVERNMENTAL REQUIREMENTS, INCLUDING
BUT NOT LIMITED TO ANY ENVIRONMENTAL LAWS, OR WHETHER SUCH FE SUBSIDIARY
POSSESSES SUFFICIENT REAL PROPERTY OR PERSONAL PROPERTY TO OPERATE ITS PURCHASED
FE ASSETS. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SUCH FE SUBSIDIARY
FURTHER SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING THE
ABSENCE OF REGULATED SUBSTANCES OR LIABILITY OR POTENTIAL LIABILITY ARISING
UNDER ENVIRONMENTAL LAWS WITH RESPECT TO ITS PURCHASED FE ASSETS. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED
HEREIN, SUCH FE SUBSIDIARY EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF
ANY KIND REGARDING THE CONDITION OF ITS PURCHASED FE ASSETS OR THE SUITABILITY
OF ITS PURCHASED FE ASSETS FOR OPERATION AS A POWER PLANT AND NO SCHEDULE OR
EXHIBIT TO THIS AGREEMENT, NOR ANY OTHER MATERIAL OR INFORMATION PROVIDED BY OR
COMMUNICATIONS MADE BY SUCH FE SUBSIDIARY OR ITS REPRESENTATIVES, OR BY ANY
BROKER OR INVESTMENT BANKER, WILL CAUSE OR CREATE ANY WARRANTY, EXPRESS OR
IMPLIED, AS TO THE TITLE, CONDITION, VALUE OR QUALITY OF ITS PURCHASED FE
ASSETS.

      5.20 Year 2000 Compliance. Such FE Subsidiary, with respect to all
Computer Systems included in its Purchased FE Assets to be transferred under
this Agreement, has plans to achieve Year 2000 Compliance with respect to such
Computer Systems, and is using its Commercially Reasonable Efforts to execute
and carry out such plans.

      5.21 SEC Filings; Financial Statements.

            (a) Such FE Subsidiary has filed all forms, reports and documents
required to be filed with the SEC since January 1, 1998, and has heretofore
delivered or made available to Buyer in the form filed with the SEC, together
with any amendments thereto, its (i) Annual Reports on Form 10-K for the fiscal
year ended December 31, 1997, (ii) all proxy statements relating to its meetings
of stockholders (whether annual or special) held since January 1, 1997, (iii)
Quarterly Reports on Form 10-Q for the fiscal quarter ended March 31, 1998, June
30, 1998 and September 30, 1998, and (iv) all other reports or registration
statements filed by such FE Subsidiary with the SEC since January 1, 1998
(collectively, "FE Subsidiaries SEC Reports"). The FE Subsidiaries SEC

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Reports were prepared substantially in accordance with the requirements of the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, as the case may be, and the rules and regulations promulgated under
each of such respective acts, and did not at the time they were filed contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.

            (b) The financial statements, including all related notes and
schedules, contained in the FE Subsidiaries SEC Reports (or incorporated by
reference therein) fairly present the consolidated financial position of the FE
Subsidiaries as at the respective dates thereof and the consolidated results of
operations and cash flows of the FE Subsidiaries for the periods indicated in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except for changes in accounting principles disclosed in the notes
thereto) and subject in the case of interim financial statements to normal
year-end adjustments.

                                   ARTICLE VI

                     REPRESENTATIONS AND WARRANTIES OF BUYER

      Buyer represents and warrants to Seller and the FE Subsidiaries as
follows:

      6.1 Organization. Buyer is a Delaware corporation, duly organized, validly
existing and in good standing under the laws of the state of its organization
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as is now being conducted. Buyer is,
or by the Auction Closing will be, qualified to do business in the Common wealth
of Pennsylvania and the State of Ohio. Buyer has delivered or shall promptly
deliver to Seller and the FE Subsidiaries true, complete and correct copies of
its Articles of Incorporation and Bylaws (or other similar governing documents)
as currently in effect.

      6.2 Authority. Buyer has full corporate power and authority to execute and
deliver this Agreement and the Ancillary Agreements and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Ancillary Agreements by Buyer and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action required on the part of Buyer and
this Agreement and the Ancillary Agreements have been duly and validly executed
and delivered by Buyer. Subject to the receipt of the Buyer Required Regulatory
Approvals, each of this Agreement and the Ancillary Agreements constitute legal,
valid and binding agreements of Buyer, enforceable against Buyer in accordance
with their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other

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similar laws affecting or relating to enforcement of creditors' rights generally
and general principles of equity (regardless of whether enforcement is
considered in a proceeding at law or in equity).

      6.3 Consents and Approvals; No Violation.

            (a) Except as set forth in Schedule 6.3(a), and subject to obtaining
the Buyer Required Regulatory Approvals, neither the execution, delivery and
performance of this Agreement nor the execution, delivery and performance of the
Ancillary Agreements by Buyer nor the consummation by Buyer of the transactions
contemplated hereby and thereby will (i) conflict with or result in any breach
of any provision of the Articles of Incorporation or Bylaws (or other similar
governing documents) of Buyer, or (ii) result in a default (or give rise to any
right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, material
agreement or other instrument or obligation to which Buyer or any of its
Subsidiaries is a party or by which any of their respective assets may be bound,
except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained or
which would not, individually or in the aggregate, have a material adverse
effect on the business, assets, operations or condition (financial or otherwise)
of Buyer ("Buyer Material Adverse Effect") or (iii) constitute violations of any
law, regulation, order, judgment or decree applicable to Buyer, which
violations, individually or in the aggregate, would create a Buyer Material
Adverse Effect.

            (b) Except as set forth in Schedule 6.3(b) (the filings and
approvals referred to in such Schedule are collectively referred to as the
"Buyer Required Regulatory Approvals"), no consent or approval of, filing with,
or notice to, any Governmental Authority is necessary for Buyer's execution and
delivery of this Agreement and the Ancillary Agreements or the consummation by
Buyer of the transactions contemplated hereby and thereby, other than such
consents, approvals, filings or notices, which, if not obtained or made, will
not prevent Buyer from performing its obligations under this Agreement and the
Ancillary Agreements.

      6.4 Availability of Funds. Buyer acknowledges and agrees that on the
Auction Closing Date, it will have sufficient funds to pay the Purchase Price
and the FE Closing Payments and to permit Buyer to timely perform all of its
obligations under this Agreement and the Ancillary Agreements, and that its
commitments and obligations hereunder and thereunder are not subject to a
financing contingency.

      6.5 Financial Representations. Buyer has provided Seller with the most
recent balance sheet, income statement and statement of changes in cash flows
for the last fiscal year and most recent interim period. Such financial
statements have been prepared in accordance with generally accepted accounting
principles and fairly reflect the financial posture and results of operations of
Buyer as at and for the periods therein.

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<PAGE>   73
      6.6 Legal Proceedings. There are no actions or proceedings pending against
Buyer before any court or arbitrator or Governmental Authority, which,
individually or in the aggregate, could reasonably be expected to create a Buyer
Material Adverse Effect. Buyer is not subject to any outstanding judgments,
rules, orders, writs, injunctions or decrees of any court, arbitrator or
Governmental Authority which would, individually or in the aggregate, create a
Buyer Material Adverse Effect.

      6.7 No Knowledge of Seller's Breach or FE's Breach. Buyer has no Knowledge
of any breach by Seller or any FE Subsidiary of any representation or warranty
of Seller or any FE Subsidiary, or of any other condition or circumstance that
would excuse Buyer from its timely performance of its obligations hereunder.
Buyer shall notify promptly Seller, with respect to Seller's representations and
warranties or such other conditions or circumstances, and any FE Subsidiary,
with respect to such FE Subsidiary's representations and warranties or such
other conditions or circumstances, respectively, if any such information comes
to Buyer's attention prior to the Auction Closing.

      6.8 Qualified Buyer. Buyer is qualified to obtain any Permits and
Environmental Permits necessary for Buyer to own and operate the Purchased
Assets as of the Auction Closing. Without limiting the foregoing, Buyer is not
aware of any reason or circumstance that would prevent Buyer from procuring the
Buyer Regulatory Approvals associated with (i) "Exempt Wholesale Generator"
status or (ii) a finding that following the Auction Closing, Buyer would not
have market power.

      6.9 Inspections.Subject to the restrictions set forth in Section 7.2,
Buyer acknowledges and agrees that it has, prior to its execution of this
Agreement, (i) reviewed the Environmental Reports, (ii) had full opportunity to
conduct to its satisfaction Inspections of the Purchased Assets, including the
Real Property, and (iii) fully completed and approved the results of all
Inspections of the Purchased Assets. Subject to the restrictions set forth in
Section 7.2, Buyer acknowledges that it is satisfied through such review and
Inspections that no further investigation and study on or of the Real Property
is necessary for the purposes of acquiring the Purchased Assets for Buyer's
intended use, and Buyer hereby waives any and all objections to or claims with
respect to any and all physical characteristics and existing Environmental
Conditions of the Real Property, including without limitation, any Regulated
Substances in, at, on, under or related to the Real Property. Buyer acknowledges
and agrees that it hereby assumes the risk that adverse past, present, and
future physical characteristics and Environmental Conditions may not have been
revealed by its Inspections and the investigations of the Purchased Assets
contained in the Environmental Reports. In making its decision to execute this
Agreement, and to purchase the Purchased Assets, Buyer has relied on and will
rely upon the results of its Inspections and the Environmental Reports.

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<PAGE>   74
      6.10 WARN Act. Buyer does not intend to engage in a "Plant Closing" or
"Mass Layoff" as such terms are defined in the WARN Act within sixty days of the
Auction Closing Date.

                                   ARTICLE VII

                            COVENANTS OF THE PARTIES

      7.1 Conduct of Business Relating to the Purchased DLC Assets.

            (a) Except as described in Schedule 7.1(a) or as expressly
contemplated by this Agreement or to the extent Buyer otherwise consents in
writing, during the period from the date of this Agreement to the Auction
Closing Date, Seller (i) will operate the Purchased DLC Assets in the ordinary
course of business consistent with its past practices and Good Utility
Practices, (ii) shall use all Commercially Reasonable Efforts to preserve intact
the Purchased DLC Assets, and endeavor to preserve the goodwill and
relationships with customers, suppliers and others having business dealings with
it, (iii) shall maintain adequate insurance coverage relating to the Purchased
DLC Assets, including insurance described in Section 4.4, (iv) shall comply with
all applicable laws relating to such Purchased DLC Assets, including without
limitation, all Environmental Laws, except, with respect to the Purchased DLC
Assets, where the failure to so comply would not result in a Material Adverse
Effect, and (v) shall operate the Purchased DLC Assets in such a manner so as to
ensure that emissions of SO2 and NOx are generally consistent with recent
operations, taking into account fluctuations in demand or utilization of the
Purchased DLC Assets that could cause increases or decreases in such emissions.

            (b) Seller shall continue its program to install such equipment or
Computer Systems relating to the Purchased DLC Assets with respect to Year 2000
Compliance in accordance with the plans referred to in Section 2.1(j); provided
that if Buyer requests reasonable changes in such plans, Seller will alter its
plans, provided that (i) all incremental costs of Seller shall be promptly
reimbursed by Buyer and (ii) Buyer shall, to Seller's reasonable satisfaction,
indemnify, defend and hold harmless Seller from and against any and all
Indemnifiable Losses in any way relating to, resulting from or arising out of
such requested changes to such plans.

            (c) Without limiting the generality of Section 7.1(a) and, except as
contemplated in this Agreement or as described in Schedule 7.1(c), or as
required under applicable law or by any Governmental Authority, prior to the
Auction Closing Date, without the prior written consent of Buyer, Seller shall
not as to the Purchased DLC Assets:

                  (i) Make any material change in the levels of DLC Inventories
      customarily maintained by Seller with respect to any Purchased DLC Asset,
      other than changes which are consistent with Good Utility Practices;

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<PAGE>   75
                  (ii) Sell, lease (as lessor), encumber, pledge, transfer or
      otherwise dispose of, any Purchased DLC Asset (except for DLC Inventories
      or DLC Fuel Supplies used, consumed or replaced in the ordinary course of
      business consistent with past practices of Seller or with Good Utility
      Practices) other than to encumber any such DLC Purchased Asset with
      Permitted Encumbrances;

                  (iii) Modify, amend or voluntarily terminate, prior to the
      respective expiration date of any of the DLC Agreements or DLC Real
      Property Leases or any of the DLC Permits or DLC Environmental Permits
      with respect to such Purchased DLC Assets in any material respect, other
      than (A) in the ordinary course of business, to the extent consistent with
      the past practices of Seller or Good Utility Practices, (B) with cause, to
      the extent consistent with past practices of Seller or Good Utility
      Practices, or (C) as may be required in connection with transferring
      Seller's rights or obligations thereunder to Buyer pursuant to this
      Agreement;

                  (iv) Except as otherwise provided herein, enter into any
      commitment for the purchase, sale, or transportation of fuel for any
      Purchased DLC Asset having a term greater than six months and not
      terminable on or before the Auction Closing Date either (A) automatically,
      or (B) by option of Seller (or, after the Auction Closing, by Buyer) in
      its sole discretion, if the aggregate payment under such commitment for
      fuel and all other outstanding commitments for fuel for that Purchased DLC
      Asset not previously approved by Buyer would exceed $1,000,000;

                  (v) Sell or otherwise dispose of DLC SO2 Emission Allowances
      or DLC NOx Emission Allowances or DLC Emission Reduction Credits, except
      to the extent necessary to operate such Purchased DLC Assets in accordance
      with this Section 7.1;

                  (vi) Except as otherwise provided herein, enter into any
      contract, agreement, commitment or arrangement relating to any Purchased
      DLC Asset that individually exceeds $250,000 or in the aggregate exceeds
      $1,000,000 unless it is terminable by Seller (or, after the Auction
      Closing Date, by Buyer) without penalty or premium upon no more than sixty
      (60) days notice;

                  (vii) Except as otherwise required by the terms of any DLC
      collective bargaining agreement or as otherwise provided in Section 7.11,
      (A) hire at, or transfer to such Purchased DLC Asset, any new employees
      prior to the Auction Closing, other than to fill vacancies in existing
      positions in the reasonable discretion of Seller, (B) materially increase
      salaries or wages of employees employed in connection with such Purchased
      DLC Asset prior to the Auction Closing, (C) take any action prior to the
      Auction Closing to affect a material change in any DLC collective
      bargaining agreement or (D) take any action prior to

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      the Auction Closing to materially increase the aggregate benefits payable
      to the employees employed in connection with such Purchased DLC Asset;

                  (viii) Make any DLC Capital Expenditures except (A) as
      described on Schedule 7.1(c)(viii); (B) as mandated after the date of this
      Agreement by any Governmental Authority (provided that Seller may, at
      Buyer's direction, direct Seller to delay making such DLC Capital
      Expenditures and contest such mandates by appropriate proceedings at
      Buyer's expense, unless such delay would have an adverse impact on the
      Purchased DLC Assets); or (C) those which are prudent in amount but do not
      exceed in the aggregate $500,000 for any Purchased DLC Asset, in addition
      to those identified in (A) and (B) above; and

                  (ix) Except as otherwise provided herein, enter into any
      written or oral contract, agreement, commitment or arrangement with
      respect to any of the proscribed transactions set forth in the foregoing
      paragraphs (i) through (viii).

7.1A Conduct of Business Relating to the Purchased FE Assets.

            (a) Except as described in Schedule 7.1A(a) or as expressly
 contemplated by this Agreement or to the extent Buyer otherwise consents in
 writing, during the period from the date of this Agreement to the Auction
 Closing Date, each FE Subsidiary that is operating one or more of the Purchased
 FE Assets, (i) will operate such Purchased FE Assets in the ordinary course of
 business consistent with its past practices and Good Utility Practices, (ii)
 shall use all Commercially Reasonable Efforts to preserve intact such Purchased
 FE Assets, and endeavor to preserve the goodwill and relationships with
 customers, suppliers and others having business dealings with it, (iii) shall
 maintain adequate insurance coverage relating to such Purchased FE Assets,
 including insurance described in Section 5.4, (iv) shall comply with all
 applicable laws relating to such Purchased FE Assets, including without
 limitation, all Environmental Laws, except, with respect to such Purchased FE
 Assets, where the failure to so comply would not result in a Material Adverse
 Effect, and (v) shall operate the Purchased FE Assets in such a manner so as to
 ensure that emissions of SO2 and NOx are generally consistent with recent
 operations, taking into account fluctuations in demand or utilization of the
 Purchased FE Assets that could cause increases or decreases in such emissions.

            (b) Each FE Subsidiary that is operating one or more of the
 Purchased FE Assets, shall continue its program to install such equipment or
 Computer Software relating to the Purchased FE Assets (except for such
 equipment and computer software described on Schedule 2.2A(b)) with respect to
 Year 2000 Compliance in accordance with the plans referred to in Section
 2.1A(j); provided that if Buyer requests reasonable changes in such plans, such
 FE Subsidiary will alter its plans provided that (i) all incremental costs of
 such FE Subsidiary shall be promptly reimbursed by Buyer and (ii) Buyer shall,
 to such FE Subsidiary's reasonable satisfaction,

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indemnify, defend and hold harmless such FE Subsidiary from and against any and
all Indemnifiable Losses in any way relating to, resulting from or arising out
of such requested changes to such plans.

            (c) Without limiting the generality of Section 7.1A(a) and, except
as contemplated in this Agreement or as described in Schedule 7.1A(c), or as
required under applicable law or by any Governmental Authority, prior to the
Auction Closing Date, without the prior written consent of Buyer, no FE
Subsidiary shall as to its Purchased FE Assets:

                  (i) Make any material change in the levels of the FE
       Inventories customarily maintained by such FE Subsidiary with respect to
       its Purchased FE Assets, other than changes which are consistent with
       Good Utility Practices;

                  (ii) Sell, lease (as lessor), encumber, pledge, transfer or
       otherwise dispose of, any Purchased FE Asset (except for FE Inventories
       or FE Fuel Supplies used, consumed or replaced in the ordinary course of
       business consistent with past practices of such FE Subsidiary or with
       Good Utility Practices) other than to encumber any such Purchased FE
       Asset with Permitted Encumbrances;

                  (iii) Modify, amend or voluntarily terminate, prior to the
       respective expiration date of any of the FE Agreements or FE Real
       Property Leases or any of its FE Permits or FE Environmental Permits with
       respect to such Purchased FE Assets in any material respect, other than
       (A) in the ordinary course of business, to the extent consistent with the
       past practices of such FE Subsidiary or Good Utility Practices, (B) with
       cause, to the extent consistent with past practices of such FE Subsidiary
       or with Good Utility Practices, or (C) as may be required in connection
       with transferring of any such FE Subsidiary's rights or obligations
       thereunder to Buyer pursuant to this Agreement;

                  (iv) Except as otherwise provided herein, enter into any
       commitment for the purchase, sale, or transportation of fuel for any FE
       Purchased Asset having a term greater than six months and not terminable
      on or before the Auction Closing Date either (A) automatically, or (B) by
      option of such FE Subsidiary (or, after the Auction Closing, by Buyer) in
      its sole discretion, if the aggregate payment under such commitment for
      fuel and all other outstanding commitments for fuel for that Purchased FE
      Asset not previously approved by Buyer would exceed $1,000,000;

                  (v) Sell or otherwise dispose of FE SO2 Emission Allowances or
       FE NOx Emission Allowances or FE Emission Reduction Credits, except to
       the extent necessary to operate such Purchased FE Assets in accordance
       with this Section 7.1A;

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                  (vi) Except as otherwise provided herein, enter into any
       contract, agreement, commitment or arrangement relating to any FE
       Purchased Asset that individually exceeds $250,000 or in the aggregate
       exceeds $1,000,000 unless it is terminable by such FE Subsidiary (or,
       after the Auction Closing Date, by Buyer) without penalty or premium upon
       no more than sixty (60) days notice;

                  (vii) Except as otherwise required by the terms of any FE
       collective bargaining agreement or as otherwise provided in Section
       7.11A, (A) hire at, or transfer to such FE Purchased Asset, any new
       employees prior to the Auction Closing, other than to fill vacancies in
       existing positions in the reasonable discretion of such FE Subsidiary,
       (B) materially increase salaries or wages of employees employed in
       connection with such FE Purchased Asset prior to the Auction Closing, (C)
       take any action prior to the Auction Closing to affect a material change
       in any FE collective bargaining agreement, or (D) take any action prior
       to the Auction Closing to materially increase the aggregate benefits
       payable to the employees employed in connection with such FE Purchased
       Asset;

                  (viii) Make any FE Capital Expenditures except as (A) as
       described on Schedule 7.1A(c)(viii); (B) as mandated after the date of
       this Agreement by any Governmental Authority (provided that Buyer may
       direct such FE Subsidiary to delay making such FE Capital Expenditures
       and contest such mandates by appropriate proceedings at Buyer's expense,
       unless such delay would have an adverse impact on the Purchased FE
       Assets); or (C) those which are prudent in amount but do not exceed in
       the aggregate $500,000 for any FE Purchased Asset, in addition to those
       identified in (A) and (B) above; and

                  (ix) Except as otherwise provided herein, enter into any
       written or oral contract, agreement, commitment or arrangement with
       respect to any of the proscribed transactions set forth in the foregoing
       paragraphs (i) through (viii).

      7.2 Access to Information.

            (a) Between the date of this Agreement and the Auction Closing Date,
 Seller with respect to the Purchased DLC Assets, and the FE Subsidiaries with
 respect to the Purchased FE Assets, will, at reasonable times and upon
 reasonable notice, provide Buyer and its Representatives:

                  (i) reasonable access to their respective managerial
       personnel, to all books, records, plans, equipment, offices and other
       facilities and properties constituting such Purchased Assets;

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                  (ii) such historical financial and operating data and other
       information with respect to such Purchased Assets as Buyer may from time
       to time reasonably request;

                  (iii) upon request, a copy of each material report, schedule
       or other document filed by Seller, FE or any FE Subsidiary with respect
       to such Purchased Assets with the SEC, FERC, PUCO, PaPUC, PaDEP or any
       other Governmental Authority;

                  (iv) access to each Purchased Asset for Inspection by Buyer
       and its Representatives at reasonable times during regular business hours
       scheduled for such Inspections, and shall provide qualified management,
       engineering, operations and maintenance and other personnel to make
       presentations as required, to escort such Persons and to assist in all
       aspects of conducting the Inspections, provided that each of Buyer,
       Seller, and the FE Subsidiaries shall bear their own costs of
       participating in the Inspections; and

                  (v) with all such other information in the possession or
       control of Seller or an FE Subsidiary as shall be reasonably necessary to
       enable Buyer or its Representatives to verify the accuracy of the
       representations and warranties of Seller and the FE Subsidiaries
       contained in this Agreement; provided, however, that (A) any such
       Inspections shall be conducted in such a manner as not to interfere
       unreasonably with the operation of the Purchased Assets, (B) neither
       Seller nor the FE Subsidiaries shall be required to take any action which
       would constitute a waiver of any legal privilege, including, but not
       limited to, the attorney-client privilege, the work product privilege,
       and the self-critical investigation privilege, and (C) neither Seller nor
       the FE Subsidiaries need supply Buyer with any information which Seller
       or the FE Subsidiaries are under a legal or contractual obligation to
       withhold from disclosure.

Notwithstanding anything in this Section 7.2(a) to the contrary, with respect to
employee records Seller and the FE Subsidiaries will only furnish or provide
such access to Transferred Employee Records and will not furnish or provide
access to other employee personnel records or medical information unless
required by law or specifically authorized by the affected employee.

            (b) (i) Buyer and its Representatives shall be entitled to conduct
      Inspections, in accordance with this Section 7.2(b), of all of the
      Purchased Assets located adjacent to any Connection Point (as defined in
      the Connection Agreements), to verify and/or determine the accuracy of the
      data, drawings, and records described in the Connection Agreements. The
      Parties shall cooperate to schedule Buyer's Inspections of such Purchased
      Assets so that any interference with the operation of each Plant is
      minimized, to the extent reasonably feasible, and so that Buyer may
      complete its Inspections of the Purchased Assets within thirty (30)
      working days of commencement of Inspections and within two (2) months
      after the execution of this Agreement.

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                  (ii) At a mutually convenient time not more than one (1) month
       after Buyer shall have completed its Inspections, the applicable Parties
       shall meet to discuss whether, as a result of the Inspections, it is
       appropriate to modify the exhibits to the Connection Agreements to
       portray more accurately the Connection Points. Any modification to any
       portion of the exhibits of any Connection Agreement to which the
       respective Parties of such Connection Agreement agree shall thereafter be
       deemed part of such exhibits for all purposes under such Connection
       Agreement.

            (c) For seven (7) years after the Auction Closing Date (or such
longer period as may be required by applicable law), each Party and its
Representatives shall have reasonable access to all of the books and records of
the Purchased FE Assets, and, with respect to the Purchased DLC Assets, Buyer
and Seller and their Representatives shall have reasonable access to all of the
books and records of the Purchased DLC Assets, including (i) with respect to the
Purchased FE Assets, all FE Transferred Employee Records in the possession of
any Party to the extent that such access may reasonably be required in
connection with the Assumed FE Liabilities or the Excluded FE Liabilities, or
regarding other matters relating to or affected by the operation of the
Purchased FE Assets, and (ii) with respect to the Purchased DLC Assets, all DLC
Transferred Employee Records in the possession Buyer or Seller to the extent
that such access may reasonably be required in connection with the Assumed DLC
Liabilities or the Excluded DLC Liabilities, or other matters relating to or
affected by the operation of the Purchased DLC Assets. Such access shall be
afforded by the Party in possession of any such books and records upon receipt
of reasonable advance notice and during normal business hours. The Party
exercising this right of access shall be solely responsible for any costs or
expenses incurred by it or the holder of the information with respect to such
access pursuant to this Section 7.2(c). If the Party in possession of such books
and records shall desire to dispose of any books and records upon or prior to
the expiration of such seven-year period (or any such longer period), such Party
shall, prior to such disposition, give the other Party a reasonable opportunity,
at the latter's expense, to segregate and remove such books and records as it
may select.

            (d) Buyer agrees that, prior to the Auction Closing Date, neither it
nor its Representatives will contact any vendors, suppliers, employees, or other
contracting parties of Seller or its Affiliates or any FE Subsidiary or its
Affiliates with respect to any aspect of the Purchased Assets or the
transactions contemplated hereby, without the prior written consent of Seller or
the relevant FE Subsidiary, as applicable, which consent shall not be
unreasonably withheld. For avoidance of doubt, with respect to an FE
Subsidiary's Purchased FE Assets, consent will only be needed from such FE
Subsidiary.

            (e) Seller agrees that, between the date of this Agreement and the
Auction Closing Date, Seller will (i) respond to reasonable inquiries from Buyer
or FE and (ii) inform Buyer

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and FE as promptly as reasonably practicable, in each case concerning any
material developments in or the status of the matter of Allegheny Energy, Inc.
v. DQE, Inc., Civil Action No. 98-1639 (W.D.Pa.), or other litigation concerning
the Agreement and Plan of Merger, dated as of April 5, 1998, by and between DQE,
Inc. and Allegheny Energy, Inc., except to the extent that it is prohibited from
doing so by confidentiality obligations or agreements.

      7.3 Confidentiality.

            (a) Each Party shall, and shall use its best efforts to cause its
Representatives to, (i) keep all Proprietary Information of any other Party
confidential and not to disclose or reveal any such Proprietary Information to
any person other than such Party's Representatives and (ii) not use such
Proprietary Information other than in connection with the consummation of the
transactions contemplated hereby. After the Auction Closing Date, any
Proprietary Information, to the extent related to the Purchased Assets acquired
by Buyer, shall no longer be subject to the restrictions set forth herein. The
obligations of the Parties under this Section 7.3(a) shall be in full force and
effect for three (3) years from the date hereof and will survive the termination
of this Agreement, the discharge of all other obligations owed by the Parties to
each other and the Auction Closing Date.

            (b) Notwithstanding the terms of Section 7.3(a) above, the Parties
agree that prior to the Auction Closing, Buyer may reveal or disclose
Proprietary Information to any other Persons in connection with Buyer's
financing of its purchase of the Purchased Assets or any equity participation in
Buyer's purchase of the Purchased Assets; provided that such Persons agree in
writing to maintain the confidentiality of the Proprietary Information in
accordance with this Agreement.

            (c) Upon the other Party's prior written approval (which shall not
be unreasonably withheld), any of the Parties may provide Proprietary
Information of the other Parties to the PUCO, PaPUC, SEC, FERC or any other
Governmental Authority with jurisdiction or any stock exchange, as may be
necessary to obtain Required Regulatory Approvals or to comply generally with
any relevant law or regulation. The disclosing Party will seek confidential
treatment for the Proprietary Information provided to any Governmental Authority
and the disclosing Party will notify the other applicable Party as far in
advance as is practicable of its intention to release to any Governmental
Authority any Proprietary Information.

      7.4 Public Statements. Subject to the requirements imposed by law, any
Governmental Authority or stock exchange, prior to the Auction Closing Date, no
press release or other public announcement or public statement or comment in
response to any inquiry relating to the transactions contemplated by this
Agreement shall be issued or made by any Party without the prior approval of the
other Parties (which approval shall not be unreasonably withheld). The Parties
agree to cooperate in preparing any such announcements.

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<PAGE>   82
      7.5 Expenses. Except to the extent specifically provided herein, whether
or not the transactions contemplated hereby are consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be borne by the Party incurring such costs and
expenses. Notwithstanding anything to the contrary herein, Buyer will be
responsible for (a) all costs and expenses associated with the obtaining of any
title insurance policy and all endorsements thereto that Buyer elects to obtain
and (b) all filing fees under the HSR Act relating to the Purchased Assets it
would acquire hereunder.

      7.6 Further Assurances.

            (a)   (i) Subject to the terms and conditions of this Agreement,
      each Party shall use its best efforts to take, or cause to be taken, all
      actions, and to do, or cause to be done, all things necessary, proper or
      advisable under applicable laws and regulations to consummate and make
      effective the purchase, sale, transfer and delivery of the Purchased
      Assets and the assumption of the Assumed Liabilities pursuant to this
      Agreement. Such actions shall include, without limitation, each Party
      using its best efforts to ensure satisfaction of the conditions precedent
      to its obligations hereunder, including obtaining all necessary consents,
      approvals, and authorizations of third parties and Governmental
      Authorities required to be obtained in order to consummate the
      transactions hereunder, and to effectuate a transfer of the Transferable
      Permits to Buyer. Seller and each FE Subsidiary shall cooperate with Buyer
      in its efforts to obtain all other Permits and Environmental Permits
      necessary for Buyer to operate the Purchased Assets. Buyer agrees to
      perform promptly all conditions required of Buyer in connection with the
      DLC Required Regulatory Approvals and the FE Required Regulatory
      Approvals, other than those conditions which would create a Buyer Material
      Adverse Effect or an Asset Material Adverse Effect. None of the Parties
      hereto shall, without prior written consent of the other applicable Party
      or Parties, take or fail to take any action, which might reasonably be
      expected to prevent or materially impede, interfere with or delay the
      transactions contemplated by this Agreement.

                  (ii) Except as set forth on Schedule 7.6(a), Buyer agrees that
      prior to the Auction Closing Date, it will neither enter into any other
      contract to acquire, nor acquire any electric generation facilities or
      uncommitted generation capacity located in the Common wealth of
      Pennsylvania or the State of Ohio if such acquisition of such additional
      electric generation facilities or uncommitted generation capacity might
      reasonably be expected to prevent or materially impede, interfere with or
      delay the transactions contemplated by this Agreement. Buyer shall give
      Seller and the FE Subsidiaries, as appropriate, reasonable advance notice
      (and in any event not less than ten (10) days notice) before it contracts
      to acquire or acquires any electric generation facility or uncommitted
      generation capacity located in the Commonwealth of Pennsylvania or the
      State of Ohio.

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<PAGE>   83
            (b)   (i) In the event that any Purchased Asset shall not have been
      assigned, conveyed, transferred and delivered hereunder to Buyer at the
      Auction Closing, each of Seller and each FE Subsidiary, as applicable,
      shall, subject to Section 7.6(c), use Commercially Reasonable Efforts to
      assign, convey, transfer and deliver such asset to Buyer as promptly as is
      practicable after the Auction Closing.

                  (ii) In the event that any Easement shall not have been
      granted by Buyer to Seller, or by Buyer to an FE Subsidiary, as the case
      may be, at the Auction Closing, Buyer shall use Commercially Reasonable
      Efforts to grant such Easement to Seller or such FE Subsidiary, as the
      case may be, as promptly as is practicable after the Auction Closing.

            (c)   (i) To the extent that Seller's or any FE Subsidiary's rights
      under any material (as such term is defined in Section 7.6(c)(iii) below)
      Assigned Agreement or Real Property Lease may not be assigned without the
      consent of another Person which consent has not been obtained by the
      Auction Closing Date, this Agreement shall not constitute an agreement to
      assign the same, if an attempted assignment would constitute a breach
      thereof or be unlawful.

                  (ii) Seller and the FE Subsidiaries agree that if any consent
      to an assignment of any material Assigned Agreement or Real Property Lease
      shall not be obtained or if any attempted assignment would be ineffective
      or would impair the Buyer's rights and obligations under the material
      Assigned Agreement or Real Property Lease in question, so that Buyer would
      not in effect acquire the benefit of all such rights and obligations,
      Seller or such FE Subsidiary, as the case may be, at the Buyer's option
      and to the maximum extent permitted by law and such material Assigned
      Agreement or Real Property Lease shall, after the Auction Closing Date,
      appoint Buyer to be Seller's or such FE Subsidiary's agent with respect to
      such material Assigned Agreement or Real Property Lease, or, to the
      maximum extent permitted by law and such material Assigned Agreement or
      Real Property Lease, enter into such reasonable arrangements with Buyer or
      take such other actions as are necessary to provide Buyer with the same or
      substantially similar rights and obligations of such material Assigned
      Agreement or Real Property Lease as Buyer may reasonably request. Seller
      and the FE Subsidiaries shall cooperate and shall each use Commercially
      Reasonable Efforts prior to and after the Auction Closing Date to obtain
      an assignment of such material Assigned Agreement or Real Property Lease
      to Buyer.

                  (iii) For purposes of this Section 7.6(c), without limitation,
      all Real Property Leases and Assigned Agreements listed on Schedules 4.5,
      4.11(a), 5.5 and 5.11(a) are deemed to be "material." Without limitation
      of the foregoing, to the extent that any fuel supply contract relating to
      a DLC Plant or an FE Plant is not assignable, then Seller with respect to
      the DLC Plants and the applicable FE Subsidiary with respect to the FE
      Plants agree to continue to purchase fuel pursuant to such contract(s) and
      to resell it to Buyer at the purchase price for the

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<PAGE>   84
      remainder of the term of such fuel supply contract, provided that the term
      of such fuel contract shall not be extended. Buyer shall make payment to
      Seller and/or the FE Subsidiaries, as the case may be, in this
      circumstance on an as-incurred basis.

            (d) To the extent that Seller's or any FE Subsidiary's rights under
any warranty or guaranty described in Section 2.1(i) or 2.1A(i) may not be
assigned without the consent of another Person, which consent has not been
obtained by the Auction Closing Date, this Agreement shall not constitute an
agreement to assign the same, if an attempted assignment would constitute a
breach thereof, or be unlawful. Seller and each FE Subsidiary agree that if any
consent to an assignment of any such warranty or guaranty shall not be obtained,
or if any attempted assignment would be ineffective or would impair Buyer's
rights and obligations under the warranty or guaranty in question, so that Buyer
would not in effect acquire the benefit of all such rights and obligations,
Seller or the FE Subsidiaries, as applicable, at Buyer's option and expense,
shall use Commercially Reasonable Efforts, to the extent permitted by law and by
such warranty or guaranty, to enforce such warranty or guaranty for the benefit
of Buyer so as to provide Buyer to the maximum extent possible with the benefits
and obligations of such warranty or guaranty.

      7.7 Consents and Approvals.

            (a) As promptly as advisable after the execution of this Agreement,
Buyer and Seller shall each file or cause to be filed with the Federal Trade
Commission and the United States Department of Justice any notifications
required to be filed under the HSR Act and the rules and regulations promulgated
thereunder with respect to the transactions contemplated hereby. Buyer and
Seller shall use their respective best efforts to respond promptly to any
requests for additional information made by either of such agencies, and to
cause the waiting periods under the HSR Act to terminate or expire at the
earliest possible date after the date of filing of such notification. Buyer will
pay all filing fees under the HSR Act relating to the Purchased Assets, but each
of Seller and Buyer will bear its own costs of the preparation of any such
filing.

            (b) As promptly as advisable after the date of this Agreement, Buyer
shall make any filings required by the Federal Power Act, individually or
jointly with Seller and the FE Subsidiaries, as reasonably determined by the
Parties. Prior to filings with the FERC, Buyer shall submit such filings to the
other Parties for review and comment and shall incorporate into the application
any revisions reasonably requested. Buyer shall be solely responsible for the
cost of preparing and filing the application, any petition(s) for rehearing, or
any reapplication. If the initial filing is rejected by the FERC, Buyer agrees
to petition the FERC for rehearing and/or to re-submit an application with the
FERC, provided that in either case this action is directed by Seller and does
not create a Material Adverse Effect on Seller or Buyer.

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<PAGE>   85
            (c) As promptly as advisable, and in any case within sixty (60) days
after the date of this Agreement, Buyer, Seller and the FE Subsidiaries, as
applicable, shall make or cause to be made any filings required by law with the
PUCO, PaPUC and any other Governmental Authority, and make, or cause to be made,
any other filings required to be made with respect to the transactions
contemplated hereby. The Parties shall respond promptly to any requests for
additional information made by such agencies, and use their respective
commercially reasonable efforts to cause regulatory approval to be obtained at
the earliest possible date after the date of any such filing. Each Party will
bear its own costs of the preparation of any such filing.

            (d) Seller, Buyer and each of the FE Subsidiaries shall cooperate
with each other and promptly prepare and file notifications with, and request
Tax clearances from, state and local taxing authorities in jurisdictions in
which a portion of the Purchase Price or the FE Closing Payments may be required
to be withheld or in which Buyer would otherwise be liable for any Tax
liabilities of Seller or the FE Subsidiaries pursuant to such state and local
Tax law.

            (e) Buyer shall have the primary responsibility for securing the
transfer, reissuance or procurement of the Permits and Environmental Permits
(other than Transferable Permits) effective as of the Auction Closing Date.
Seller with respect to the Purchased DLC Assets, and the FE Subsidiaries with
respect to the Purchased FE Assets, shall cooperate with Buyer's efforts in this
regard and assist in any transfer or reissuance of a Permit or Environmental
Permit held by Seller or an FE Subsidiary, or the procurement of any other
Permit or Environmental Permit, related to the Purchased DLC Assets with respect
to Seller and related to the Purchased FE Assets with respect to the FE
Subsidiaries, when so requested by Buyer.

      7.8 Fees and Commissions. Each of Seller, the FE Subsidiaries and Buyer
represent and warrant to the other that, except for Lehman Brothers, Inc., which
is acting for and at the expense of Seller, no broker, finder or other Person is
entitled to any brokerage fees, commissions or finder's fees in connection with
the transactions contemplated hereby by reason of any action taken by the Party
making such representation. Each of Seller, the FE Subsidiaries and Buyer will
pay to the others or otherwise discharge, and will indemnify and hold the others
harmless from and against, any and all claims or liabilities for all brokerage
fees, commissions and finder's fees (other than the fees, commissions and
finder's fees payable to the party listed above) incurred by reason of any
action taken by the indemnifying party.

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<PAGE>   86
      7.9 Tax Matters.

            (a)   (i) All Transfer Taxes incurred in connection with this
      Agreement and the transactions contemplated hereby, including, without
      limitation, (A) Pennsylvania or Ohio sales tax; (B) the Pennsylvania or
      Ohio transfer tax, conveyance fees or conveyances of interests in real
      and/or personal property; and (C) Pennsylvania or Ohio sales tax and
      transfer tax on deeds shall be borne as follows: fifty percent (50%) by
      the Buyer and fifty percent (50%) by the Seller with respect to the
      Purchased DLC Assets and the Purchased FE Assets. Seller shall file, to
      the extent required by, or permissible under, applicable law, all
      necessary Tax Returns and other documentation with respect to all such
      Transfer Taxes, and, if required by applicable law, Buyer shall join in
      the execution of any such Tax Returns and other documentation. Prior to
      the Auction Closing Date, to the extent applicable, Buyer shall provide to
      Seller and the FE Subsidiaries, as applicable, appropriate certificates of
      Tax exemption from each applicable taxing authority.

                  (ii) With respect to the Purchased FE Assets, Buyer shall not
       be responsible for Transfer Taxes incurred in connection with the
       transfer of the FE Purchased Assets pursuant to the Exchange Agreement.

            (b)   (i) With respect to Taxes to be prorated in accordance with
      Section 3.5 of this Agreement, Buyer shall prepare and timely file all Tax
      Returns required to be filed after the Auction Closing Date with respect
      to the Purchased DLC Assets, if any, and shall duly and timely pay all
      such Taxes shown to be due on such Tax Returns. Buyer's preparation of any
      such Tax Returns shall be subject to Seller's approval, which approval
      shall not be unreasonably withheld. Buyer shall make such Tax Returns
      available for Seller's review and approval no later than fifteen (15)
      Business Days prior to the due date for filing each such Tax Return.

                  (ii) With respect to Taxes to be prorated in accordance with
      Section 3.6 of this Agreement, Buyer shall prepare and timely file all Tax
      Returns required to be filed after the Auction Closing Date with respect
      to the Purchased FE Assets, if any, and shall duly and timely pay all such
      Taxes shown to be due on such Tax Returns. Buyer's preparation of any such
      Tax Returns shall be subject to the applicable FE Subsidiary's approval,
      which approval shall not be unreasonably withheld. Buyer shall make such
      Tax Returns available for such FE Subsidiary's review and approval no
      later than fifteen (15) Business Days prior to the due date for filing
      each such Tax Return.

            (c) Buyer and Seller, with respect to Section 7.9(a) and (b)(i), and
Buyer and the FE Subsidiaries, with respect to Section 7.9(b)(ii), shall provide
the other with such assistance as may reasonably be requested by the other Party
in connection with the preparation of any Tax

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<PAGE>   87
Return, any audit or other examination by any taxing authority, or any judicial
or administrative proceedings relating to liability for Taxes, and each shall
retain and provide the requesting Party with any records or information which
may be relevant to such return, audit, examination or proceedings. Any
information obtained pursuant to this Section 7.9(c) or pursuant to any other
Section hereof providing for the sharing of information or review of any Tax
Return or other instrument relating to Taxes shall be kept confidential by the
Parties hereto.

            (d) In the event that a dispute arises between Buyer and Seller,
with respect to Taxes in Sections 7.9(a) and 7.9(b)(i), and Buyer and any of the
FE Subsidiaries, with respect to Taxes in Section 7.9(b)(ii), or concerning any
amount due under this Section 7.9, the Parties shall attempt in good faith to
resolve such dispute and any agreed upon amount shall be paid to the appropriate
Party. If such dispute is not resolved within thirty (30) days, the Parties to
such dispute shall submit the dispute to the Independent Accounting Firm for
resolution, which resolution shall be final, conclusive and binding on such
Parties. Notwithstanding anything in this Agreement to the contrary, the fees
and expenses of the Independent Accounting Firm in resolving the dispute shall
be borne 50% by Seller or the applicable FE Subsidiary, as the case may be, and
50% by Buyer. Any payment required to be made as a result of the resolution of
the dispute by the Independent Accounting Firm shall be made within ten days
after such resolution, together with any interest determined by the Independent
Accounting Firm to be appropriate.

      7.10 Advice of Changes. Prior to the Closing, each Party will advise the
others in writing with respect to any matter arising after execution of this
Agreement of which that Party obtains Knowledge and which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth in this Agreement, including any of the Schedules or Exhibits hereto.
Seller may at any time notify Buyer, in writing, of any development causing a
breach of any of its representations and warranties in Article IV and the FE
Subsidiaries may at any time notify Buyer, in writing, of any development
causing a breach of its representations and warranties in Article V. Unless
Buyer has the right to terminate this Agreement pursuant to Section 10.1(e)
below by reason of such developments and exercises that right within the period
of fifteen (15) days after receipt of such written notice, said written notice
will be deemed to have amended this Agreement, including the appropriate
Schedule or Exhibit, to have qualified the representations and warranties
contained in Article IV and V above, as applicable, and to have cured any
misrepresentation or breach of warranty that otherwise might have existed
hereunder by reason of the development.

      7.11 Seller Employees

            (a) Seller may submit an offer of continuing employment with Seller
or a Seller Subsidiary or an Affiliate thereof to those employees who work at or
in support of the DLC Plants and who are identified on Schedule 7.11(a),
provided that such offer shall not be contingent on any such employee waiving
his or her rights to consider a competing offer of employment from Buyer.

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Upon the acceptance by any such employee of Seller's offer of continuing
employment, Seller shall provide written notice thereof to Buyer and shall
modify Schedule 7.11(a) to reflect the same.

            (b) At least ninety (90) days prior to the Auction Closing Date,
Buyer shall provide Seller with notice of its staffing level requirements,
listed by classification and operation, and shall be required to offer
employment only to that number of employees of Seller who are covered by the
International Brotherhood of Electrical Workers ("IBEW"), Local Unions 140, 142,
144, 147, 148, 149 collective bargaining agreement with Seller ("IBEW CBA") and
are either (i) employed in positions relating to the DLC Plants or (ii) if
employed at another location, perform substantially all their work in support of
the DLC Plants, and in each case, who are necessary to satisfy Buyer's staffing
level requirements (collectively, "DLC Union Employees"). In each
classification, DLC Union Employees shall be so offered employment in order of
their seniority as provided for in the IBEW CBA. Each person who becomes
employed by Buyer pursuant to this section shall be referred to herein as a "DLC
Transferred Union Employee."

            (c) At least ninety (90) days prior to the Auction Closing Date,
Buyer shall provide Seller with notice of its staffing level requirements,
listed by classification and operation, and shall be required to make either a
DLC Non-Qualifying or a DLC Qualifying Offer of employment only to that number
of salaried employees of Seller who are employed in connection with the
Purchased DLC Assets and who are listed in, or are in a function or whose
employment responsibilities are listed in, Schedule 7.11(c) (collectively, "DLC
Non-Union Employees"), which schedule shall also set forth such employees'
salary and responsibilities, and who are necessary to satisfy the staffing level
requirements of Buyer. Each employee employed by Buyer pursuant to this section
shall be referred herein as a "DLC Transferred Non-Union Employee."

            (d) All offers of employment made by Buyer pursuant to Sections 7.11
(b) and (c) shall be made in accordance with all applicable laws and
regulations, and for DLC Union Employees, in accordance with the IBEW CBA and
shall remain open for a period of ten (10) working days. Any such offer which is
accepted within such ten (10) working day period shall thereafter be irrevocable
until the earlier of the Auction Closing Date or the termination of this
Agreement pursuant to its terms. Following acceptance of such offers, Buyer
shall provide written notice thereof to Seller and Seller shall provide Buyer
with access to the files and records of employees accepting such offers, to the
extent permitted by contract, the IBEW CBA and/or applicable law. Schedule
7.11(d) sets forth the collective bargaining agreements, and amendments thereto,
to which Seller is a party in connection with the DLC Plants.

            (e) With respect to DLC Transferred Union Employees and DLC
Transferred Non-Union Employees, the following shall be applicable:

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<PAGE>   89
                  (i) For such DLC Transferred Union Employees, Buyer shall
       recognize the IBEW as the exclusive collective bargaining representative
       and shall assume the terms and conditions of the IBEW CBA, to the extent
       applicable to such DLC Transferred Union Employees, until the expiration
       of said agreement, and will further comply with all applicable legal
       obligations with respect to collective bargaining under federal labor law
       thereafter.

                  (ii) Buyer will establish and maintain benefit plans
       (including a severance plan) for DLC Transferred Non-Union Employees and
       DLC Transferred Union Employees under either the IBEW CBA or any similar
       Seller document which are substantially equivalent to the DLC Plans in
       effect for such employees immediately prior to the Auction Closing Date
       and provide at least the same level of benefits or coverage as the DLC
       Plans in accordance with and for the duration of the IBEW CBA, in the
       case of DLC Transferred Union Employees, or until December 31, 2001, in
       the case of DLC Transferred Non-Union Employees (such period being
       hereinafter referred to as the "DLC Continuation Period"). Subject to
       applicable law and the IBEW CBA, nothing in the foregoing shall prevent
       Buyer from using different benefit providers or from establishing new
       benefit plans or using its existing benefit plans as the means of meeting
       its obligation hereunder. The commitments under this paragraph shall,
       however, require the following during the Continuation Period:

                  (A) With respect to health care plans, Buyer agrees to waive
      or to cause the waiver of all limitations as to pre-existing conditions
      and actively-at-work exclusions and waiting periods for such employees,
      except that Buyer may require the employee or his/her dependents who, on
      the Auction Closing Date, is then in the process of satisfying any similar
      exclusion or waiting period under the Seller health care plans to satisfy
      fully the balance of the applicable time period for such exclusion or
      waiting period under the applicable Buyer plan. With respect to the
      calendar year in which the Auction Closing Date occurs, all health care
      expenses incurred by any such employees and/or any eligible dependent
      thereof in the portion of the calendar year preceding the Auction Closing
      Date that were qualified to be taken into account for purposes of
      satisfying any deductible or out-of-pocket limit under any Seller health
      care plans shall be taken into account for purposes of satisfying any
      deductible or out-of-pocket limit under the health care plan of Buyer for
      such calendar year.

                  (B) With respect to service and seniority, Buyer shall
      recognize each such employee's service and seniority with Seller for all
      non-pension purposes, including the determination of eligibility and
      extent of service or seniority-related welfare benefits such as vacation
      and sick pay benefits and to agree to give each such employee full credit
      for all vacation benefits banked, accrued, and unused, as of the Auction
      Closing Date.

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<PAGE>   90
                  (C) With respect to pension benefits, Buyer shall provide each
      employee with a pension benefit that, when combined with the benefit
      accrued by such employee under the Seller pension plan as it exists on the
      Auction Closing Date, is at least equal in value to the pension benefit
      such employee would have accrued if such employee had remained employed
      with Seller and continued to be covered by such Seller pension plan (as it
      exists on the Auction Closing Date) during the DLC Continuation Period. In
      providing such benefits, Buyer shall recognize each such employee's
      combined service and earnings with Seller and Buyer. The determination of
      the benefit required by this Section 7.11(e)(ii)(C) shall be made in good
      faith by the accounting firm then acting as the independent auditor of
      Buyer, which determination shall be final and binding on the parties
      hereto and each affected employee.

                  (D) With respect to post-retirement medical and life insurance
      programs, Buyer shall provide to any such employee who retires from
      Buyer's employment prior to the expiration of the IBEW CBA with respect to
      DLC Transferred Union Employees, and December 31, 2001 with respect to DLC
      Transferred Non-Union Employees, and is at least age 55 and has ten or
      more years of combined service with Seller and Buyer, benefits, to the
      extent possible, that are substantially equivalent to the Seller
      post-retirement medical and life insurance programs that such employee
      would have received, if such employee had continued to be covered by the
      Seller programs as they existed on the Auction Closing Date.

                  (E) With respect to the Seller's 401(k) Retirement Savings
      Plan for Management or the Seller's 401(k) Retirement Savings Plan for the
      IBEW (collectively, the "DLC Savings Plan"), Buyer shall take any and all
      necessary action to cause the trustee of any defined contribution plan of
      Buyer in which any such employee becomes a participant by virtue of this
      section, to accept a direct "rollover" of all or a portion of said
      employee's "eligible rollover distribution" within the meaning of Section
      402 of the Code from the DLC Savings Plan, if requested to do so by such
      employee, or to accept a direct plan-to-plan transfer from the DLC Savings
      Plan of the account balances of any such employee and the assets of such
      plans related thereto, if requested to do so by Seller or by any such
      employee. Buyer agrees that the property so rolled over and the assets so
      transferred may include (i) promissory notes evidencing loans from the DLC
      Savings Plan to such employees that are outstanding as of the Auction
      Closing Date, and (ii) shares of Seller common stock in which the account
      balances of such employees are invested as of the Auction Closing Date.
      However, any defined contribution plan of Buyer accepting such a rollover
      or transfer shall not be required to (i) make any further loans to any
      such employee after the Auction Closing Date or (ii) permit any additional
      investment to be made in Seller common stock on behalf of any such
      employee after the Auction Closing Date. Seller hereby represents to Buyer
      that the DLC Savings Plan is intended to be qualified within the meaning
      of Section 402 of the Code.

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<PAGE>   91
            (f) With respect to severance benefits, Buyer is required to provide
for any DLC Transferred Non-Union Employee who is terminated as a result of an
overall reduction in work force due to decreased employment needs of Buyer prior
to the date which is one year following the Auction Closing Date severance
benefits at the level for such employees in effect as of the date hereof. DLC
Transferred Non-Union Employees shall also be entitled to such severance
benefits if, prior to the date which is one year following the Auction Closing
Date, Buyer reduces the pay rate for such employee and such employee within
seven (7) days thereafter terminates employment. Any employee provided severance
benefits under this section may be required to execute a release of claims
against Seller or Buyer, in such form as Buyer shall prescribe, as a condition
for the receipt of such benefits.

            (g) Each DLC Transferred Non-Union Employee who is initially
assigned, or assigned within twelve (12) months of the Auction Closing Date, by
Buyer to a principal place of work that requires such employee to relocate his
residence will be reimbursed by Buyer for all relocation expenses in accordance
with the Seller relocation plans in effect as of the date hereof. For purposes
of the foregoing a required relocation of residence shall include a change in
the principal place of work that is more than 30 miles farther from such
employee's principal place of work immediately prior to the Auction Closing Date
and requires a commute from his current residence of at least one hour in each
direction. With respect to any DLC Union Employees who do not receive an offer
of employment from Buyer pursuant to subsection (b) hereof and with respect to
any DLC Non-Union Employees who decline a Non-Qualifying Offer pursuant to
subsection (c) hereof, and are thereafter terminated, Seller shall pay for all
costs that it will or may incur in providing the severance, pension and banked,
accrued or unused vacation benefits described in Schedule 4.8 to the DLC Union
and DLC Non-Union Employees therein described (collectively, the "Termination
Benefits"). The estimated cost of such pension benefits shall be calculated by
the actuarial firm regularly engaged to provide actuarial services to Seller
with respect to its pension plans, and shall be determined using the same
assumptions as to mortality, turnover, interest rate and other actuarial
assumptions as used by such firm in determining the cost of benefits under
Seller's pension plans for purposes of their most recently issued financial
statements prior to Auction Closing Date.

            (h) Seller shall be responsible, with respect to the Purchased DLC
Assets, for performing and discharging all requirements under the WARN Act and
under applicable state and local laws and regulations for the notification of
its employees of any "employment loss" within the meaning of the WARN Act which
occurs prior to the Auction Closing Date.

            (i) Buyer shall not be responsible for extending COBRA Continuation
Coverage to any employees and former employees of Seller, or to any qualified
beneficiaries of such employees and former employees, who become or became
entitled to COBRA Continuation Coverage on or before the Auction Closing Date,
including those for whom the Auction Closing Date occurs during their COBRA
election period.

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            (j) Seller or its Affiliates shall pay to all DLC Transferred Union
and DLC Transferred Non-Union Employees, all compensation, bonus, vacation and
holiday compensation, workers' compensation or other employment benefits to
which they are entitled under the terms of the applicable compensation or Seller
benefit plans or programs. Buyer shall pay to each employee offered employment
pursuant to this Section 7.11, all unpaid salary, bonus, vacation and holiday
compensation, workers' compensation or other compensation or employment benefits
that are payable in cash which have accrued to such employees following the
Auction Closing Date, at such times as provided under the terms of the
applicable compensation or benefit programs.

            (k) Individuals who are otherwise "DLC Union Employees", as defined
in Section 7.11(b) or "DLC Non-Union Employees", as defined in Section 7.11(c)
but who on any date are not actively at work due to a leave of absence covered
by the Family and Medical Leave Act (FMLA), or due to any other authorized leave
of absence, shall nevertheless be treated as "DLC Union Employees" or as "DLC
Non-Union Employees", as the case may be, on such date if they are able (i) to
return to work within the protected period under the FMLA or such other leave
(which in any event shall not extend more than twelve (12) weeks after the
Auction Closing Date), whichever is applicable, and (ii) to perform the
essential functions of their job, with or without a reasonable accommodation.

            (l) Buyer shall be responsible, with respect to the Purchased DLC
Assets, for performing and discharging all requirements under the WARN Act and
under applicable state and local laws and regulations for the notification of
its employees of any "employment loss" within the meaning of the WARN Act which
occurs following the Auction Closing Date.

            (m) Buyer is responsible for extending and continuing to extend
COBRA Continuation Coverage to all DLC Transferred Union and DLC Transferred
Non-Union Employees, and qualified beneficiaries of such employees who become
entitled to such COBRA Continuation Coverage following the Auction Closing Date.

            (n) The provisions of this Section 7.11 shall not be construed as
being for the benefit for any person other than the Parties hereto, and shall
not be enforceable by persons other than such Parties (including, without
limitations, the DLC Transferred Union Employees and DLC Transferred Non-Union
Employees.)

      7.11A FE Subsidiaries' Employees

            (a) The FE Subsidiaries may submit an offer of continuing employment
with an FE Subsidiary or an Affiliate thereof to those employees who work at or
in support of the FE Plants and who are identified on Schedule 7.11A(a),
provided that such offer shall not be contingent on any

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such employee waiving his or her rights to consider a competing offer of
employment from Buyer. Upon the acceptance by any such employee of an FE
Subsidiary's offer of continuing employment, the applicable FE Subsidiary shall
provide written notice thereof to Buyer and shall modify Schedule 7.11A(a) to
reflect the same.

            (b) At least ninety (90) days prior to the Auction Closing Date,
Buyer shall provide the applicable FE Subsidiary with notice of its staffing
level requirements, listed by classification and operation, and shall be
required to offer employment only to that number of employees of the applicable
FE Subsidiary who are covered by the UWUA, Local 140 collective bargaining
agreement with FE ("Local 140 CBA") and who are either (i) employed in positions
relating to the FE Plant, New Castle (collectively, "FE Union Employees") or
(ii) if employed at another location, perform substantially all their work in
support of the New Castle Plant, and in each case, who are necessary to satisfy
Buyer's staffing level requirements. In each classification, FE Union Employees
shall be so offered employment in order of their seniority as provided for in
the Local 140 CBA. Each employee who becomes employed by Buyer pursuant to this
section shall be referred herein as an "FE Transferred Union Employee."

            (c) At least ninety (90) days prior to the Auction Closing Date,
Buyer shall provide the applicable FE Subsidiary with notice of its staffing
level requirements, listed by classification and operation, and shall be
required to make either an FE Non-Qualifying or an FE Qualifying Offer of
employment only to that number of salaried employees of the applicable FE
Subsidiary who are listed in, or are in a function or whose employment
responsibilities are listed in, Schedule 7.11A(c) (collectively, "FE Non-Union
Employees"), which Schedule 7.11A(c) shall also set forth such employees' salary
and responsibilities, and who are necessary to satisfy Buyer's staffing level
requirements. Each employee who becomes employed by Buyer pursuant to this
section shall be referred herein as an "FE Transferred Non-Union Employee."
Buyer shall inform the FE Subsidiaries of those FE Non-Union Employees to whom
Buyer has made offers of employment not later than ninety (90) days prior to the
Auction Closing Date.

            (d) All offers of employment made by Buyer pursuant to Sections
7.11A (b) and (c) shall be made in accordance with all applicable laws and
regulations and shall remain open for a period of ten (10) working days. Any
such offer which is accepted within such ten (10) working day period shall
thereafter be irrevocable until the earlier of the Auction Closing Date or the
termination of this Agreement pursuant to its terms. Following the acceptance of
such offers Buyer shall provide written notice thereof to the aplicable FE
Subsidiary and the applicable FE Subsidiary shall provide Buyer with access to
the files and records of employees accepting such offers, to the extent
permitted by contract, the Local 140 CBA and/or applicable law. Schedule
7.11A(d) sets forth the collective bargaining agreements, and amendments
thereto, to which the applicable FE Subsidiary is a party in connection with the
Purchased FE Assets.

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            (e) With respect to FE Transferred Union Employees and FE
Transferred NonUnion Employees, the following shall be applicable:

                  (i) For such FE Transferred Union Employees, Buyer shall
      recognize UWUA, Local 140 as the exclusive collective bargaining
      representative and shall assume the terms and conditions of the Local 140
      CBA, to the extent applicable to such FE Transferred Union Employees,
      until the expiration of said agreement and will further comply with all
      applicable legal obligations with respect to collective bargaining under
      federal labor law thereafter. Moreover, should Buyer subsequently sell,
      convey or otherwise transfer its interest in the New Castle Plant to any
      other entity prior to the expiration of the Local 140 CBA, Buyer shall
      make the foregoing commitments a condition of such sale, conveyance or
      transfer.

                  (ii) Buyer will establish and maintain benefit plans
      (including a severance plan) for FE Transferred Union Employees and FE
      Transferred Non-Union Employees under either the Local 140 CBA or any
      other similar FE document which are substantially equivalent to the FE
      Plans in effect for such employees immediately prior to the Auction
      Closing Date and provide at least the same level of benefits or coverage
      as the FE Plans for the duration of the Local 140 CBA, in the case of FE
      Transferred Union Employees, or December 31, 2001, in the case of FE
      Transferred Non-Union Employees (such period being hereinafter referred to
      as the "FE Continuation Period"). Subject to applicable law and the Local
      140 CBA, nothing in the foregoing shall prevent Buyer from using different
      benefit providers or from establishing new benefit plans or using its
      existing benefit plans as the means of meeting its obligation hereunder.
      The commitments under this paragraph shall, however, require the following
      during the FE Continuation Period:

            (A) With respect to the applicable FE Subsidiary's health care
      plans, Buyer agrees to waive all limitations as to pre-existing conditions
      and actively-at-work exclusions and waiting periods for such employees,
      except that Buyer may require the employee or his/her dependents who, on
      the Auction Closing Date, is then in the process of satisfying any similar
      exclusion or waiting period under the FE Subsidiary's health care plans to
      satisfy fully the balance of the applicable time period for such exclusion
      or waiting period under the Buyer's plan. With respect to the calendar
      year in which the Auction Closing Date occurs, all health care expenses
      incurred by any such employees and/or any eligible dependent thereof in
      the portion of the calendar year preceding the Auction Closing Date that
      were qualified to be taken into account for purposes of satisfying any
      deductible or out-of-pocket limit under the FE Subsidiary's health care
      plans shall be taken into account for purposes of satisfying any
      deductible or out-of-pocket limit under the Buyer's health care plan for
      such calendar year.

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<PAGE>   95
            (B) With respect to service and seniority, Buyer shall recognize
      each such employee's service and seniority with the FE Subsidiary for all
      non-pension purposes, including the determination of eligibility and
      extent of service or seniority-related welfare benefits such as vacation
      and sick pay benefits and to agree to give each such employee full credit
      for all vacation benefits banked, accrued, and unused, as of the Auction
      Closing Date.

            (C) With respect to pension benefits, Buyer shall provide each such
      employee with a pension benefit that, when combined with the benefit
      accrued by such employee under the FE Subsidiary's pension plan as it
      exists on the date hereof, is at least equal in value to the pension
      benefit such employee would have accrued if such employee had remained
      employed with the FE Subsidiary and continued to be covered by such FE
      Subsidiary's pension plan (as it exists on the date hereof). In providing
      such benefits, Buyer shall recognize each such employee's combined service
      and earnings with the applicable FE Subsidiary and Buyer. Further, Buyer
      shall provide to any such employee who is laid off by Buyer and who, at
      the time of such layoff, is between the ages of 50-54 and has ten or more
      years of combined service with the applicable FE Subsidiary and Buyer, a
      retirement benefit from Buyer's pension plan, beginning at age 55, that is
      at least equal to the subsidized early retirement benefit that such
      employee would have received under the FE Subsidiary's pension plan had
      such employee continued to be covered by such plan as it exists on the
      date hereof. The determination of the benefit required by this Section
      7.11A(e)(ii)(C) shall be made in good faith by the accounting firm then
      acting as the independent auditor of Buyer, which determination shall be
      final and binding on the parties hereto and each affected employee.
      Notwithstanding the fact that the commitments set forth in this Section
      7.11A(e)(ii) are limited generally to the duration of the FE Continuation
      Period, the commitments set forth in this Section 7.11A(e)(ii)(C) shall be
      limited to the duration of the FE Continuation Period in the case of FE
      Transferred Union Employees and shall survive the expiration of the FE
      Continuation Period in the case of FE Transferred Non-Union Employees.

            (D) With respect to post-retirement medical and life insurance
      programs, Buyer shall provide to any such employee who retires from
      Buyer's employment prior to the expiration of the Local 140 CBA with
      respect to FE Transferred Union Employees, and December 31, 2001 with
      respect to FE Transferred Non-Union Employees, and is at least age 55 and
      has ten or more years of combined service with the FE Subsidiary and
      Buyer, benefits, to the extent possible, that are substantially equivalent
      to the FE Subsidiary's post-retirement medical and life insurance programs
      that such employee would have received, if such employee had continued to
      be covered by the FE Subsidiary's programs as they existed on the date
      hereof.

            (E) With respect to the FE Subsidiary's Savings Plan, Buyer shall
      take any and all necessary action to cause the trustee of any defined
      contribution plan of Buyer in which any

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<PAGE>   96
      such employee becomes a participant by virtue of this section, to accept a
      direct "rollover" of all or a portion of said employee's "eligible
      rollover distribution" within the meaning of Section 402 of the Code from
      the FE Savings Plan, if requested to do so by such employee, or to accept
      a direct plan-to-plan transfer from the FE Savings Plan of the account
      balances of any such employee and the assets of such plans related
      thereto, if requested to do so by the applicable FE Subsidiary or by such
      employee. Buyer agrees that the property so rolled over and the assets so
      transferred may include (i) promissory notes evidencing loans from the FE
      Savings Plan to such employees that are outstanding as of the Auction
      Closing Date, and (ii) shares of FE common stock in which the account
      balances of such employees are invested as of the Auction Closing Date.
      However, any defined contribution plan of Buyer or its Affiliates
      accepting such a rollover or transfer shall not be required to (i) make
      any further loans to any such employee after the Auction Closing Date or
      (ii) permit any additional investment to be made in FE common stock on
      behalf of any such employee after the Auction Closing Date. The FE
      Subsidiaries hereby represent to Seller and the Buyer that the FE Savings
      Plan is intended to be qualified within the meaning of Section 402 of the
      Code.

            (f) Buyer shall pay or provide to FE Transferred Union Employees
and/or FE Transferred Non-Union Employees the benefits more particularly
described in paragraphs (i), (ii) and (iii), as applicable.

                  (i) With respect to severance benefits, Buyer is required to
      provide for any such employee who is terminated as a result of an overall
      reduction in work force due to decreased employment needs of Buyer prior
      to the expiration of the Local 140 CBA, with respect to FE Transferred
      Union Employees, and December 31, 2001, with respect to FE Transferred
      Non-Union Employees, severance benefits at the level for such employees in
      effect as of the date hereof. FE Transferred Non-Union Employees shall
      also be entitled to such severance benefits if, prior to December 31,
      2001, Buyer reduces the pay rate for such employee and such employee
      within seven (7) days thereafter terminates employment. Any employee
      provided severance benefits under this section may be required to execute
      a release of claims against the applicable FE Subsidiary or Buyer, in such
      form as Buyer shall prescribe, as a condition for the receipt of such
      benefits.

                  (ii) Each FE Transferred Union Employee or FE Transferred
      Non-Union Employee who accepts employment with Buyer, shall be provided by
      the Buyer with a transition bonus of $2,500, less applicable taxes,
      payable as soon as practicable following the Auction Closing Date. In no
      event shall any such employee receive more than one transition bonus as a
      result of the transfer of employment from an FE Subsidiary to Buyer.

                  (iii) Each FE Transferred Non-Union Employee who is initially
      assigned, or assigned within twelve (12) months of the Auction Closing
      Date, by Buyer to a principal

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<PAGE>   97
      place of work that requires such employee to relocate his/her residence
      will be reimbursed by Buyer for all relocation expenses in accordance with
      the FE Subsidiary's relocation plans in effect as of the date hereof. For
      purposes of the foregoing, a required relocation of residence shall
      include a change in the principal place of work that is more than 30 miles
      farther from such employee's principal place of work immediately prior to
      the Auction Closing Date and requires a commute from his/her current
      residence of at least one hour in each direction.

            (g) With respect to any FE Union Employees who do not receive an
offer of employment from Buyer pursuant to subsection (b) hereof and with
respect to any FE Non-Union Employees who decline an FE Non-Qualifying Offer
pursuant to subsection (c) hereof, and are thereafter terminated, Buyer shall
reimburse the applicable FE Subsidiary for the aggregate estimated cost that
such FE Subsidiary will or may incur in providing the severance, pension, and
banked, accrued or unused vacation benefits described in Schedule 5.8(a) to the
FE Union Employees and FE Non-Union Employees therein described (collectively
the "Termination Benefits"). The estimated cost of such pension benefits shall
be calculated by the actuarial firm regularly engaged to provide actuarial
services to the applicable FE Subsidiary with respect to its pension plans, and
shall be determined using the same assumptions as to mortality, turnover,
interest rate and other actuarial assumption as used by such firm in determining
the cost of benefits under the FE Subsidiary's pension plans for purposes of
their most recently issued financial statements prior to the Auction Closing
Date.

            (h) The applicable FE Subsidiary shall be responsible, with respect
to the Purchased FE Assets, for performing and discharging all requirements
under the WARN Act and under applicable state and local laws and regulations for
the notification of its employees of any "employment loss" within the meaning of
the WARN Act which occurs prior to the Auction Closing Date.

            (i) Buyer shall not be responsible for extending COBRA Continuation
Coverage to any employees and former employees of any of the FE Subsidiaries, or
to any qualified beneficiaries of such employees and former employees, who
become or became entitled to COBRA Continuation Coverage on or before the
Auction Closing Date, including those for whom the Auction Closing Date occurs
during their COBRA election period.

            (j) Individuals who are otherwise "FE Union Employees", as defined
in Section 7.11A(b) or "FE Non-Union Employees", as defined in Section 7.11A(c)
but who on any date are not actively at work due to a leave of absence covered
by the Family and Medical Leave Act (FMLA), or due to any other authorized leave
of absence, shall nevertheless be treated as "FE Union Employees" or as "FE
Non-Union Employees", as the case may be, on such date if they are able (i) to
return to work within the protected period under the FMLA or such other leave
(which in any

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event shall not extend more than twelve (12) weeks after the Auction Closing
Date), whichever is applicable, and (ii) to perform the essential functions of
their job, with or without a reasonable accommodation.

            (k) The FE Subsidiaries are responsible for extending and continuing
to extend COBRA Continuation Coverage to all employees and former employees, and
qualified beneficiaries of such employees and former employees of the FE
Subsidiaries, who become or became entitled to such COBRA Continuation Coverage
on or before the Auction Closing Date, including those for whom the Auction
Closing Date occurs during their COBRA election period.

            (l) The FE Subsidiaries shall pay to each employee of such FE
Subsidiaries to whom the Buyer offers employment pursuant to this Section 7.11A,
all unpaid salary, bonus and holiday compensation, workers' compensation or
other compensation or employment benefits that are payable in cash which have
accrued to such employees through and including the Auction Closing Date, at
such times as provided under the terms of the applicable compensation or benefit
programs. With respect to workers compensation claims of such employees that
require payments that continue beyond the Auction Closing Date, the Buyer shall
be responsible for such payments. The FE Subsidiaries shall be responsible for
initiating the transfer of the claims and the associated risk and liability to
the Buyer with either the Ohio or the Pennsylvania Bureau of Workers'
Compensation, as appropriate.

            (m) The following provisions shall apply with respect to employees
who are covered by the UWUA Local 270 Collective Bargaining Agreement ("Local
270 CBA") who are employed in positions at the FE Plant of Avon Lake or, if
employed at another location, perform substantially all their work in support of
the FE Plant of Avon Lake ("Local 270 Employees"). Buyer shall not be obligated
to assume the Local 270 CBA or to recognize UWUA Local 270 as the exclusive
collective bargaining agent for Local 270 Employees unless otherwise required by
federal law as a result of the actions of Buyer. Buyer further shall not be
required to make offers of employment to Local 270 Employees. Buyer shall inform
the FE Subsidiaries of those Local 270 Employees, if any, to whom Buyer has made
offers of employment not later than ninety (90) days prior to the Auction
Closing Date.

            (n) Reserved.

            (o) The provisions of this Section 7.11A shall not be construed as
being for the benefit for any person other than the Parties hereto, and shall
not be enforceable by persons other than such Parties (including, without
limitations, the FE Union Employees and FE Non-Union Employees).

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            (p) The applicable FE Subsidiaries agree to indemnify and hold
harmless Buyer and Seller from any and all remedies or damages that may be
applied or charged to, or imposed on, Buyer and/or Seller as the result of any
unfair labor practice charge (i) filed by UWUA Local 270 or its members against
FE and/or an FE Subsidiary, or to which Buyer and/or Seller is added as a party,
or (ii) filed against Buyer and/or Seller arising out of facts and circumstances
that gave rise to unfair labor practice charges filed against FE and/or an FE
Subsidiary; provided, however, that (x) such indemnity obligation to Buyer shall
not apply to any unfair labor practice charge caused by the actions of Buyer,
and (y) such indemnity obligation to Seller shall not apply to any unfair labor
practice charge caused by the actions of Seller.

      7.12 Risk of Loss.

            (a) From the date hereof through the Auction Closing Date, all risk
of loss or damage to the assets included in the Purchased Assets shall be borne
by Seller and the FE Subsidiaries, as applicable, other than loss or damage
caused by the acts or negligence of Buyer or any Buyer Representative, which
loss or damage shall be the responsibility of Buyer.

            (b) If, before the Auction Closing Date, all or any portion of the
Purchased Assets are (i) taken by eminent domain or are the subject of a pending
or (to the Knowledge of Seller with respect to the Purchased DLC Assets or to
the Knowledge of any FE Subsidiary with respect to the Purchased FE Assets)
contemplated taking which has not been consummated, or (ii) damaged or destroyed
by fire or other casualty, Seller, with respect to the Purchased DLC Assets and
such FE Subsidiary, with respect to its Purchased FE Assets, shall (x) notify
Buyer promptly in writing of such fact, (y) assign or pay, as the case may be,
any proceeds thereof to Buyer at the Auction Closing and (z) either restore the
damage or assign the insurance proceeds therefor (and pay the amount of any
deductible and/or self-insured amount in respect of such casualty) to Buyer at
the Auction Closing. Notwithstanding the above, if such taking or casualty
results in a Material Adverse Effect to Seller, with respect to the Purchased
DLC Assets, or such FE Subsidiary, with respect to the Purchased FE Assets, then
Seller and Buyer, with respect to the Purchased DLC Assets, and such FE
Subsidiary, Buyer and Seller with respect to the Purchased FE Assets, shall
negotiate to settle the loss resulting from such taking or casualty (and such
negotiation shall include, without limitation, the negotiation of a fair and
equitable payment to Buyer to offset such loss). If no such settlement is
reached within sixty (60) days after Seller, with respect to the Purchased DLC
Assets, and such FE Subsidiary, with respect to the Purchased FE Assets, has
notified Buyer of such taking of casualty, then Buyer or Seller may terminate
this Agreement pursuant to Section 10.1(h). In the event of damage or
destruction which Seller, with respect to the Purchased DLC Assets, and such FE
Subsidiary, with respect to the Purchased FE Assets, elects to restore, Seller
will have the right to postpone the Auction Closing for up to six (6) months and
Buyer will have the right to inspect and observe, or have its Representatives
inspect or observe, all repairs necessitated by any such damage or destruction.

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      7.13 Reserved

      7.14 Tax Exempt Financing.

            (a) Buyer understands and agrees that:

                  (i) the Exempt Facilities have been financed, and refinanced,
      in whole or in part, with the proceeds of the issuance and sale by various
      governmental agencies or authorities of industrial development revenue
      bonds or private activity bonds (collectively, the "Revenue Bonds") the
      interest on which, with certain exceptions, is excluded from gross income
      for purposes of federal income taxation; and Seller or an FE Subsidiary
      (as indicated on Schedule 7.14) is the economic obligor in respect of such
      bonds;

                  (ii) The basis for such exclusion is the use of the Exempt
      Facilities for the purpose of (A) the abatement or control of atmospheric
      pollution or contamination (B) the abatement or control of water pollution
      or contamination, (C) sewage disposal and/or (D) the disposal of solid
      waste, such qualifying purposes being discussed in more detail in (b)
      below;

                  (iii) The use of the Exempt Facilities for a purpose other
      than a qualifying purpose indicated in subsection (ii) above could impair
      (A) such exclusion from gross income of the interest on such bonds,
      possibly with retroactive affect, unless appropriate remedial action were
      taken (which could include prompt defeasance or redemption of such bonds)
      and/or (B) the deductibility of payment by Seller or the applicable FE
      Subsidiary of interest based on the restrictions in Section 150 (b) of the
      Code; and

                  (iv) Any breach by Buyer of its obligations under this Section
      7.14 could result in the incurrence by Seller or the applicable FE
      Subsidiary of additional costs and expenses, including without limitation,
      increased interest costs, loss of the interest deduction for tax purposes
      and transaction costs relating to any refinancing, redemption and/or
      defeasance of all or part of the Revenue Bonds, and Buyer will be liable
      to Seller or the applicable FE Subsidiary, as the case may be, for such
      additional costs and expenses.

            (b)   (i) Buyer agrees that it shall not use, or permit the use of,
      the Exempt Facilities for any purpose other than

            (A) abating or controlling atmospheric or water pollution or
            contamination by removing, altering, disposing of or storing
            pollutants, contaminants, waste or heat, all as contemplated in U.S.
            Treasury Regulations Section 1.103-8(g);

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            (B) the collection, storage, treatment, utilization, processing or
            final disposal of solid waste, all as contemplated in U.S. Treasury
            Regulations Section 1.103-8(f); or

            (C) the collection, storage, treatment, utilization, processing or
            final disposal of sewage, all as contemplated in U.S. Treasury
            Regulations Section 1.103-8(f)

unless Buyer has obtained at its own expense an opinion addressed to Seller or
the applicable FE Subsidiary, as the case may be, of nationally recognized bond
counsel reasonably acceptable to Seller or the applicable FE Subsidiary, as the
case may be, ("Bond Counsel") that such use will not impair (x) the exclusion
from gross income of the interest on any issue of Revenue Bonds for Federal
income tax purposes or (y) the deductibility of Seller's or the applicable FE
Subsidiary's, as the case may be, payments of interest based on the restrictions
in Section 150(b) of the Code.

                  (ii) Buyer reasonably expects, as of the date of this
      Agreement, that the Exempt Facilities will continue to be used for the
      qualifying purposes set forth in subsection (i) above, and for no other
      purpose, for the remainder of their useful lives.

            (c) It is expressly understood and agreed that the provisions of
clause (b) above shall not prohibit Buyer from suspending the operation of the
Exempt Facilities on a temporary basis, or from terminating the operation of the
Exempt Facilities on a permanent basis and shutting down, retiring, abandoning
and/or decommissioning the Exempt Facilities; provided, however, that if the
Exempt Facilities, in whole or in part, are dismantled and sold, including any
sale for scrap, and if the operation of the Plant served by such Exempt
Facilities shall not theretofore have been, and is not then being, terminated on
a permanent basis, then the proceeds of such sale of the Exempt Facilities shall
within six months from the date of sale be expended to acquire replacement
property to be used for the same qualifying purpose as the Exempt Facilities so
sold, unless Buyer has obtained at its own expense an opinion addressed to
Seller or the applicable FE Subsidiary, as the case may be, of Bond Counsel that
the failure to take this action will not impair (x) the exclusion from gross
income of the interest on any issue of Revenue Bonds for Federal income tax
purposes or (y) the deductibility of Seller's or the applicable FE Subsidiary's,
as the case may be, payments of interest based on the restrictions in Section
150(b) of the Code.

            (d) Buyer agrees that it shall not issue, or have issued on its
behalf, any tax-exempt bonds to finance or refinance its acquisition of the
Exempt Facilities; provided that it is expressly understood and agreed that this
clause (d) shall not prohibit the use of tax-exempt bonds to finance or
refinance any improvement to the Exempt Facilities made after the date of
acquisition or to any assets other than the Exempt Facilities.

            (e) Buyer agrees that it shall give Seller or the applicable FE
Subsidiary, as the case may be, at least 120 days' prior written notice of any
suspension or termination of the operation

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of the Exempt Facilities, or any part thereof, and of any sale, exchange,
transfer or other disposition of the Exempt Facilities, or any part thereof,
including, but not limited to, a sale for scrap.

            (f) If Seller or the applicable FE Subsidiary, as the case may be,
shall desire to refund any Revenue Bonds, Buyer shall cooperate with Seller or
the applicable FE Subsidiary, as the case may be, and with Bond Counsel with
respect to the refunding bonds and shall provide upon request any
representations, agreements or covenants that are reasonably requested
concerning its compliance to such date and/or in the future with the
representations, agreements and covenants made herein.

            (g) If Buyer shall sell, exchange, transfer or otherwise dispose of
the Exempt Facilities to a third party, Buyer shall cause to be included in the
documentation relating to such transaction covenants and agreements on the part
of such third party substantially indentical to those on the part of Buyer
contained in this Section 7.14.

            (h) The covenants and agreements on the part of Buyer contained in
this Section 7.14 shall continue in effect so long as any of the Revenue Bonds,
including any refunding bonds issued hereafter to refund any Revenue Bonds,
shall remain outstanding. Seller or the applicable FE Subsidiary, as the case
may be, shall notify Buyer promptly when there shall be no Revenue Bonds
outstanding.

      (i) Other than as contemplated in this Section 7.14, Buyer shall have no
liability under the Revenue Bonds.

                                  ARTICLE VIII

                                   CONDITIONS

      8.1 Conditions to Obligations of Buyer. The obligation of Buyer to effect
purchase of the Purchased Assets and the other transactions contemplated by this
Agreement shall be subject to the fulfillment of the following conditions, or
waiver thereof, by Buyer at or prior to the Auction Closing Date:

            (a) The Exchange Closing shall have occurred;

            (b) The waiting period under the HSR Act applicable to the
consummation of the sale of the Purchased Assets contemplated hereby shall have
expired or been terminated;

            (c) No preliminary or permanent injunction or other order or decree
by any Governmental Authority which prevents the consummation of the sale of the
Purchased Assets

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contemplated herein shall have been issued and remain in effect (each Party
agreeing to use its reasonable best efforts to have any such injunction, order
or decree lifted) and no statute, rule or regulation shall have been enacted by
any state or federal government or Governmental Authority prohibiting the
consummation of the sale of the Purchased Assets;

            (d) Buyer shall have received all of Buyer's Required Regulatory
Approvals, in form and substance reasonably satisfactory to it and on terms and
conditions that do not create a Regulatory Material Adverse Effect or an Asset
Material Adverse Effect for Buyer.

            (e) Seller and each of the FE Subsidiaries shall have in all
material respects performed and complied with each of their covenants and
agreements contained in this Agreement which are required to be performed and
complied with by Seller and the FE Subsidiaries, as applicable, on or prior to
the Auction Closing Date;

            (f) The representations and warranties of Seller and each FE
Subsidiary set forth in this Agreement shall be true and correct in all material
respects as of the Auction Closing Date as though made at and as of the Auction
Closing Date;

            (g) Buyer shall have received certificates from an authorized
officer of each of the Seller and each FE Subsidiary, dated the Auction Closing
Date, to the effect that, to such officer's Knowledge, the conditions set forth
in Section 8.1(e) and (f) have been satisfied by Seller, FE and the FE
Subsidiaries, as applicable;

            (h) Buyer shall have received an opinion from Seller's counsel,
dated the Auction Closing Date and reasonably satisfactory in form and substance
to Buyer and its counsel, substantially to the effect that:

                  (i) Seller is a corporation duly incorporated, validly
      existing and in good standing under the laws of the Commonwealth of
      Pennsylvania and Seller has full corporate power and authority to own,
      lease and operate its material assets and properties and to carry on its
      business as is now conducted, and to execute and deliver the Agreement and
      each of the Ancillary Agreements to which it is a party and to consummate
      the transactions contemplated hereby and thereby; and the execution and
      delivery of the Agreement and the Ancillary Agreements by Seller and the
      consummation of the sale of the Purchased Assets contemplated hereby and
      thereby have been duly and validly authorized by all necessary corporate
      action required on the part of Seller;

                  (ii) The Agreement and each of the Ancillary Agreements to
      which it is a party have been duly and validly executed and delivered by
      Seller and constitute legal, valid and binding agreements of Seller,
      enforceable against Seller in accordance with their

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      terms, except as may be limited by applicable bankruptcy, insolvency,
      fraudulent conveyance, reorganization, moratorium or other similar laws
      affecting or relating to enforcement of creditors' rights generally and
      general principles of equity (regardless of whether enforcement is
      considered in a proceeding at law or in equity);

                  (iii) The execution, delivery and performance of the Agreement
      and each of the Ancillary Agreements to which Seller is a party by Seller
      does not (A) conflict with the Articles of Incorporation or Bylaws of
      Seller or (B) to the knowledge of such counsel, constitute a violation of
      or default under those agreements or instruments set forth on a Schedule
      attached to the opinion and which have been identified to such counsel as
      all the agreements and instruments which are material to the business or
      financial condition of Seller;

                  (iv) The Bill of Sale, the DLC Assignment and Assumption
      Agreement, the Warranty Deeds and other transfer instruments described in
      Section 3.7 are in proper form to transfer to Buyer such title as was held
      by Seller to the Purchased DLC Assets; and

                  (v) No consent or approval of, filing with, or notice to, any
      Governmental Authority is necessary for the execution and delivery of this
      Agreement and each of the Ancillary Agreements to which Seller is a party
      by Seller or the consummation by Seller of the transactions contemplated
      hereby and thereby, other than (A) such consents, approvals, filings or
      notices set forth in Schedules 4.3(a) and 4.3(b) or which, if not obtained
      or made, will not prevent Seller from performing its material obligations
      under this Agreement and each of the Ancillary Agreements to which Seller
      is a party and (B) such consents, approvals, filings or notices which
      become applicable to Seller or the Purchased DLC Assets as a result of the
      specific regulatory status of Buyer (or any of its Affiliates) or as a
      result of any other facts that specifically relate to the business or
      activities in which Buyer (or any of its Affiliates) is or proposes to be
      engaged.

In rendering the foregoing opinion, Seller's counsel may rely on opinions of
local law reasonably acceptable to Buyer.

            (i) Buyer shall have received an opinion from each FE Subsidiary's
counsel, dated the Auction Closing Date and reasonably satisfactory in form and
substance to Buyer and its counsel, substantially to the effect that:

                  (i) Such FE Subsidiary is a corporation duly incorporated,
      validly existing and in good standing under the laws of its state of
      incorporation and is qualified to do business in any other state in which
      it operates any of the Purchased FE Assets and has the full corporate
      power and authority to own, lease and operate its material assets and

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      properties, and to carry on its business as now being conducted, and to
      execute and deliver the Agreement and each of the Ancillary Agreements to
      which it is a party and to consummate the transactions contemplated hereby
      and thereby; and the execution and delivery of the Agreement and the
      Ancillary Agreements to which such FE Subsidiary is a party by such FE
      Subsidiary, and the consummation of the transactions contemplated hereby
      and thereby have been duly and validly authorized by all necessary
      corporate action required on the part of such FE Subsidiary;

                  (ii) The Agreement and each Ancillary Agreement to which such
      FE Subsidiary is a party has been duly and validly executed and delivered
      by such FE Subsidiary and constitute legal, valid and binding agreements
      of such FE Subsidiary, enforceable against such FE Subsidiary in
      accordance with their terms, except as may be limited by applicable
      bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
      or other similar laws affecting or relating to enforcement of creditors'
      rights generally and general principles of equity (regardless of whether
      enforcement is considered in a proceeding at law or in equity);

                  (iii) The execution, delivery and performance of the Agreement
      and each Ancillary Agreement to which such FE Subsidiary is a party by
      such FE Subsidiary does not (A) conflict with the Articles of
      Incorporation, Bylaws or Code of Regulations, as currently in effect, of
      such FE Subsidiary or (B) to the knowledge of such counsel constitute a
      violation of or default under those agreements or instruments set forth on
      a Schedule attached to the opinion and which have been identified to such
      counsel as all the agreements and instruments which are material to the
      business or financial condition of such FE Subsidiary;

                  (iv) The Bill of Sale, the Warranty Deeds and other transfer
      documents described in Section 3.8 are in proper form to transfer to Buyer
      such title as was held by such FE Subsidiary to the FE Real Property;

                  (v) The applicable FE Assignment and Assumption Agreement and
      other transfer documents described in Section 3.8 are in proper form for
      Buyer to assume the Assumed FE Liabilities; and

                  (vi) No consent or approval of, filing with, or notice to, any
      Governmental Authority is necessary for the execution and delivery of the
      Agreement and each of the Ancillary Agreements to which such FE Subsidiary
      is a party by such FE Subsidiary or the consummation by such FE Subsidiary
      of the transactions contemplated hereby, other than (A) such consents,
      approvals, filings or notices set forth in Schedules 5.3(a) and 5.3(b) or
      which, if not obtained or made, will not prevent such FE Subsidiary from
      performing its material obligations under the Agreement and each of the
      Ancillary Agreements to which such FE

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<PAGE>   106
      Subsidiary is a party and (B) such consents, approvals, filings or notices
      which become applicable to such FE Subsidiary or its Purchased FE Assets
      as a result of the specific regulatory status of Buyer (or any of its
      Affiliates) or as a result of any other facts that relate specifically to
      the business or activities in which Buyer (or any of its Affiliates) is or
      proposes to be engaged;

In rendering the foregoing opinion, such FE Subsidiary's counsel may rely on
opinions of local law reasonably acceptable to Buyer.

            (j) Seller shall have delivered, or caused to be delivered, to Buyer
at the Closing, Seller's closing deliveries described in Section 3.7.

            (k) Seller and/or the FE Subsidiaries, as the case may be, shall
have delivered, or caused to be delivered, Seller's and/or the FE Subsidiaries'
closing deliveries described in Section 3.8.

            (l) Buyer shall have received from a title company ALTA title
owner's policies on the DLC Real Property, subject only to the Permitted
Encumbrances, standard printed exceptions and other Encumbrances as are
reasonably acceptable to Buyer. A Permitted Encumbrance that is not removed
prior to the Auction Closing shall be deemed reasonably acceptable to Buyer as
aforesaid unless such Permitted Encumbrance would have a Material Adverse
Effect. Buyer shall provide Seller with a copy of the preliminary title reports
and surveys for the DLC Real Property as soon as they are available.

            (m) Buyer shall have received from a title company ALTA title
owner's policies on the FE Real Property, subject only to the Permitted
Encumbrances, standard printed exceptions and other Encumbrances as are
reasonably acceptable to Buyer. A Permitted Encumbrance which is not removed
prior to the Auction Closing shall be deemed reasonably acceptable to Buyer as
aforesaid unless such Permitted Encumbrance would have a Material Adverse
Effect. Buyer shall provide FE with a copy of the preliminary title reports and
surveys for the FE Real Property as soon as they are available.

            (n) Buyer shall have received from Dames and Moore a letter in form
and substance acceptable to Buyer that allows Buyer to rely on the Environmental
Reports prepared by Dames and Moore.

            (o) The Auction Closing Date (i) shall not occur before April 30,
2000, and (ii) shall only occur on or after the date that is at least ninety
(90) days following the issuance of a final and nonappeallable order in the
matter of Allegheny Energy, Inc. v. DQE, Inc., Civil Action No. 98-1639
(W.D.Pa.) or in any other proceeding in which Allegheny Energy, Inc. requests
specific

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<PAGE>   107
performance of the Agreement and Plan of Merger, dated as of April 5, 1998, by
and between DQE, Inc. and Allegheny Energy, Inc. or otherwise seeks to enjoin,
restrain or preclude the Auction Closing.

            (p) Buyer shall have received enforceable, perpetual easements in
recordable form, and otherwise in form and substance acceptable to Buyer, for
the accommodation of those Purchased DLC Assets existing at Elrama on the
Auction Closing Date on, over or under the property that separates Parcel A from
Parcel C and Parcel B from Parcel D as such property is shown on the survey
referred to on Schedule 1.1(181) for Elrama.

            (q) Buyer shall have received any consents of third parties required
for the assignment to Buyer of any of the Agreements listed in Schedules 4.11(b)
and 5.11(b), in form and substance acceptable to Buyer, unless the failure to
receive such consent(s) would not, individually or in the aggregate, create a
Material Adverse Effect.

      8.2 Conditions to Obligations of Seller. The obligations of Seller to
effect the sale of the Purchased Assets and the other transactions contemplated
by this Agreement shall be subject to the fulfillment of the following
conditions, or the waiver thereof, by Seller at or prior to the Auction Closing
Date:

            (a) The Exchange Closing shall have occurred;

            (b) The waiting period under the HSR Act applicable to the
consummation of the sale of the Purchased Assets contemplated hereby shall have
expired or been terminated;

            (c) No preliminary or permanent injunction or other order or decree
by any Governmental Authority which prevents the consummation of the sale of the
Purchased Assets contemplated herein shall have been issued and remain in effect
(each of Seller and Buyer agreeing to use its reasonable best efforts to have
any such injunction, order or decree lifted) and no statute, rule or regulation
shall have been enacted by any state or federal government or Governmental
Authority in the United States prohibiting the consummation of the sale of the
Purchased Assets;

            (d) Seller shall have received all of the DLC Required Regulatory
Approvals, in form and substance reasonably satisfactory to it and on terms and
conditions that do not create a Regulatory Material Adverse Effect for Seller;

            (e) All consents and approvals for the execution, delivery and
performance of this Agreement and the Ancillary Agreements, and for the
consummation of the sale of the Purchased Assets contemplated hereby required
under the terms of any note, bond, mortgage, indenture, material agreement or
other instrument or obligation to which the Seller is a party or by

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<PAGE>   108
which the Seller, or any of the Purchased Assets, may be bound, shall have been
obtained, other than those which if not obtained, would not, individually and in
the aggregate, create a Material Adverse Effect;

            (f) Buyer shall have in all material respects performed and complied
with the covenants and agreements contained in this Agreement which are required
to be performed and complied with by Buyer on or prior to the Auction Closing
Date;

            (g) The representations and warranties of Buyer set forth in this
Agreement shall be true and correct in all material respects as of the Auction
Closing Date as though made at and as of the Auction Closing Date;

            (h) Seller shall have received a certificate from an authorized
officer of Buyer, dated the Auction Closing Date, to the effect that, to such
officer's Knowledge, the conditions set forth in Sections 8.2(f) and (g) have
been satisfied by Buyer;

            (i) Buyer shall have assumed, as set forth in and subject to Section
7.11, all of the applicable obligations under the IBEW CBA as they relate to DLC
Transferred Union Employees;

            (j) Seller shall have received an opinion from Buyer's counsel dated
the Auction Closing Date and reasonably satisfactory in form and substance to
Seller and its counsel, substantially to the effect that:

                  (i) Buyer is a Delaware corporation, duly organized, validly
      existing and in good standing under the laws of the state of its
      organization and is qualified to do business in the Commonwealth of
      Pennsylvania and the State of Ohio and has the full corporate power and
      authority to own, lease and operate its material assets and properties,
      and to execute and deliver the Agreement and the Ancillary Agreements to
      which Buyer is a party and to consummate the transactions contemplated
      hereby and thereby; and the execution and delivery of the Agreement and
      the Ancillary Agreements to which Buyer is a party by Buyer, and the
      consummation of the transactions contemplated hereby and thereby have been
      duly and validly authorized by all necessary corporate action required on
      the part of Buyer

                  (ii) The Agreement and each of the Ancillary Agreements to
      which Buyer is a party have been duly and validly executed and delivered
      by Buyer, and constitute legal, valid and binding agreements of Buyer,
      enforceable against Buyer in accordance with their terms, except as such
      enforceability may be limited by applicable bankruptcy, insolvency,
      fraudulent conveyance, reorganization, moratorium or other similar laws
      affecting or relating

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      to enforcement of creditors' rights generally and general principles of
      equity (regardless of whether enforcement is considered in a proceeding at
      law or in equity);

                  (iii) The execution, delivery and performance of the Agreement
      and each of the Ancillary Agreements to which Buyer is a party by Buyer
      does not (A) conflict with the Articles of Incorporation or Bylaws (or
      other organizational documents), as currently in effect, of Buyer or (B)
      to the knowledge of such counsel, constitute a violation of or default
      under those agreements or instruments set forth on a Schedule attached to
      the opinion and which have been identified to such counsel as all the
      agreements and instruments which are material to the business or financial
      condition of Buyer;

                  (iv) The DLC Assignment and Assumption Agreement, the Bill of
      Sale, the Warranty Deeds, and other transfer instruments described in
      Section 3.9 are in proper form for Buyer to assume the Assumed DLC
      Liabilities and for Seller to transfer to Buyer such title as was held by
      Seller to the Purchased DLC Assets;

                  (v) The FE Assignment and Assumption Agreement and other
      transfer instruments described in Section 3.9 are in proper form for Buyer
      to assume the Assumed FE Liabilities; and

                  (vi) No consent or approval of, filing with, or notice to, any
      Governmental Authority is necessary for Buyer's execution and delivery of
      this Agreement and each of the Ancillary Agreements to which Buyer is a
      party or the consummation by Buyer of the transactions contemplated hereby
      and thereby, other than (A) such consents, approvals, filings or notices
      set forth in Schedules 6.3(a) and 6.3(b) or which, if not obtained or
      made, will not prevent Buyer from performing its obligations under this
      Agreement and each of the Ancillary Agreements to which Buyer is a party;
      and (B) such consents, approvals, filings or notices which become
      applicable to Seller or the Purchased DLC Assets as a result of the
      specific regulatory status of Buyer (or any of its Affiliates) or as a
      result of any other facts that specifically relate to the business or
      activities in which Buyer (or any of its Affiliates) is or proposes to be
      engaged.

In rendering the foregoing opinion, Buyer's counsel may rely on opinions of
local law reasonably acceptable to Seller.

            (k) Buyer shall have delivered, or caused to be delivered, to Seller
at the Auction Closing, Buyer's closing deliveries described in Section 3.9.

      8.3 Conditions of Obligations of the FE Subsidiaries. The obligations of
the FE Subsidiaries to effect the transfer and delivery of the Purchased FE
Assets and certain other applicable transactions contemplated by this Agreement
shall be subject to the fulfillment of the

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<PAGE>   110
following conditions, or the waiver thereof, by the FE Subsidiaries at or prior
to the Auction Closing Date:

            (a) The Exchange Closing shall have occurred;

            (b) No preliminary or permanent injunction or other order or decree
by any federal or state court which prevents the transfer and delivery of the
Purchased FE Assets contemplated herein shall have been issued and remain in
effect (each of the FE Subsidiaries and Buyer agreeing to use its reasonable
best efforts to have such injunction, order or decree lifted) and no statute,
rule or regulation shall have been enacted by any state of federal or
Governmental Authority in the United States prohibiting the consummation of the
sale of the Purchased FE Assets;

            (c) The FE Subsidiaries shall have received all of the FE Required
Regulatory Approvals on terms and conditions that do not create a Regulatory
Material Adverse Effect for the FE Subsidiaries;

            (d) All consents and approvals for the execution, delivery and
performance of this Agreement and the Ancillary Agreements, and for the
consummation of the transfer and delivery of the Purchased FE Assets
contemplated hereby required under the terms of any note, bond, mortgage,
indenture, material agreement or other instrument or obligation to which an FE
Subsidiary is party or by which any of the FE Subsidiaries, or any of the
Purchased FE Assets, may be bound, shall have been obtained, other than those
which if not obtained, would not, individually and in the aggregate, create a
Material Adverse Effect;

            (e) Buyer shall have in all material respects performed and complied
with the covenants and agreements applicable to the FE Subsidiaries contained in
this Agreement which are required to be performed and complied with by Buyer on
or prior to the Auction Closing Date;

            (f) The representations and warranties of Buyer set forth in this
Agreement shall be true and correct in all material respects as of the Auction
Closing Date as though made at and as of the Auction Closing Date;

            (g) Each of the FE Subsidiaries shall have received a certificate
from an authorized officer of Buyer, dated the Auction Closing Date, to the
effect that, to such officer's Knowledge, the conditions set forth in Sections
8.3(e) and (f) have been satisfied by Buyer;

            (h) Buyer shall have assumed, as set forth in and subject to Section
7.11A, all of the applicable obligations under the Local 140 CBA as they relate
to the FE Transferred Union Employees;

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            (i) The FE Subsidiaries shall have received an opinion from Buyer's
counsel reasonably acceptable to the FE Subsidiaries, dated the Auction Closing
Date and satisfactory in form and substance to the FE Subsidiaries and its
counsel, substantially to the effect that:

                  (i) Buyer is a Delaware corporation, duly organized, validly
      existing and in good standing under the laws of the state of its
      organization and is qualified to do business in the Commonwealth of
      Pennsylvania and the State of Ohio and has the full corporate power and
      authority to own, lease and operate its material assets and properties,
      and to execute and deliver the Agreement and the Ancillary Agreements to
      which it is a party, and to consummate the transactions contemplated
      hereby and thereby; and the execution and delivery of the Agreement and
      Ancillary Agreements to which Buyer is a party and the consummation of the
      transactions contemplated hereby and thereby have been duly and validly
      authorized by all necessary corporate action required on the part of
      Buyer;

                  (ii) The Agreement and each of the Ancillary Agreements to
      which Buyer is a party have been duly and validly executed and delivered
      by Buyer, and constitute legal, valid and binding agreements of Buyer,
      enforceable against Buyer in accordance with their terms, except as may be
      limited by applicable bankruptcy, insolvency, reorganization, moratorium,
      fraudulent conveyance or other similar laws affecting or relating to
      enforcement of creditor's rights generally and general principles of
      equity (regardless of whether enforcement is considered in a proceeding at
      law or in equity);

                  (iii) The execution, delivery and performance of the Agreement
      and each of the Ancillary Agreements to which Buyer is a party by Buyer
      does not (A) conflict with the Articles of Incorporation or Bylaws (or
      other organizational documents), as currently in effect, of Buyer or (B)
      to the knowledge of such counsel, constitute a violation of or default
      under those agreements or instruments set forth on a Schedule attached to
      the opinion and which have been identified to such counsel as all the
      agreements and instruments which are material to the business or financial
      condition of Buyer;

                  (iv) The FE Assignment and Assumption Agreement and other
      transfer instruments described in Section 3.9 are in proper form for Buyer
      to assume the Assumed FE Liabilities and for the FE Subsidiaries to
      transfer Buyer such title as was held by the FE Subsidiaries to the FE
      Real Property; and

                  (v) No consent or approval of, filing with, or notice to, any
      Governmental Authority is necessary for Buyer's execution and delivery of
      this Agreement and each of the Ancillary Agreements to which Buyer is a
      party or the consummation by Buyer of the transactions contemplated hereby
      and thereby, other than (A) such consents, approvals, filings or notices
      set forth in Schedules 6.3(a) and 6.3(b) or which, if not obtained or
      made,

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<PAGE>   112
      will not prevent Buyer from performing its obligations under this
      Agreement and each of the Ancillary Agreements to which Buyer is a party,
      and (B) such consents, approvals, filings or notices which become
      applicable to FE or the FE Subsidiaries or the Purchased FE Assets as a
      result of the specific regulatory status of Buyer (or any of its
      Affiliates) or as a result of any other facts that specifically relate to
      the business or activities in which Buyer (or any of its Affiliates) is or
      proposes to be engaged.

In rendering the foregoing opinion, Buyer's counsel may rely on opinions of
local counsel reasonably acceptable to the FE Subsidiaries.

            (j) Buyer shall have delivered, or caused to be delivered, to FE and
the FE Subsidiaries at the Auction Closing, Buyer's closing deliveries described
in Section 3.9.

                                   ARTICLE IX

                                 INDEMNIFICATION

      9.1 Indemnification and Release of Seller by Buyer.

            (a) Buyer shall indemnify, defend and hold harmless Seller, its
officers, directors, employees, shareholders, Affiliates and agents (each, a
"DLC Indemnitee") from and against any and all Indemnifiable Losses asserted
against or suffered by any DLC Indemnitee (each, a "DLC Indemnifiable Loss") in
any way relating to, resulting from or arising out of or in connection with (i)
any breach by Buyer of any covenant or agreement of Buyer contained in this
Agreement or the representations and warranties contained in Section 6.1, 6.2
and 6.3, (ii) the Assumed DLC Liabilities, (iii) the Assumed FE Liabilities,
(iv) any loss or damages resulting from or arising solely out of any Inspection
of the Purchased Assets, and (v) any Third Party Claims against a DLC Indemnitee
arising solely out of or in connection with Buyer's ownership or operation of
the Plants and other Purchased Assets on or after the Auction Closing Date.

            (b) Buyer, for itself and on behalf of its Representatives and
Affiliates, does hereby release, hold harmless and forever discharge Seller, its
Representatives and Affiliates, from any and all Indemnifiable Losses of any
kind or character, whether known or unknown, hidden or concealed, in any way
relating to, resulting from or arising out of any Environmental Condition or
violation of Environmental Law relating to the Purchased Assets, other than any
liabilities or obligations described in Sections 2.4(e), (g) and (h). Buyer
hereby waives any and all rights and benefits with respect to such Indemnifiable
Losses that it now has, or in the future may have conferred upon it by virtue of
any statute or common law principle which provides that a general release does
not extend to claims which a party does not know or suspect to exist in its
favor at the time of executing the release, if Knowledge of such claims would
have materially affected such party's settlement with the obligor. In this
connection, Buyer hereby acknowledges that it is aware

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that factual matters now unknown to it may have given or may hereafter give rise
to Indemnifiable Losses that are currently unknown, unanticipated and
unsuspected, and it further agrees that this release has been negotiated and
agreed upon in light of that awareness and nevertheless hereby intends to
release Seller and its Representatives and Affiliates from the Indemnifiable
Losses in the manner contemplated by this paragraph.

      9.2 Indemnification and Release of FE Indemnitees by Buyer.

            (a) Buyer shall indemnify, defend and hold harmless the FE
Subsidiaries, their officers, directors, employees, shareholders, Affiliates and
agents (each, an "FE Indemnitee") from and against any and all Indemnifiable
Losses asserted against or suffered by any FE Indemnitee (each, an "FE
Indemnifiable Loss") in any way relating to, resulting from or arising out of or
in connection with (i) any breach by Buyer of any covenant or agreement of Buyer
contained in this Agreement or the representations and warranties contained in
Section 6.1, 6.2 and 6.3, (ii) the Assumed FE Liabilities, (iii) any loss or
damages resulting from or arising solely out of any Inspection of the Purchased
FE Assets, and (iv) any Third Party Claims against an FE Indemnitee arising
solely out of or in connection with Buyer's ownership or operation of the FE
Plants and other Purchased FE Assets on or after the Auction Closing Date.

            (b) Buyer, for itself and on behalf of its Representatives and
Affiliates, does hereby release, hold harmless and forever discharge the FE
Subsidiaries, their Representatives and Affiliates, from any and all
Indemnifiable Losses of any kind or character, whether known or unknown, hidden
or concealed, in any way relating to, resulting from or arising out of any
Environmental Condition or violation of Environmental Law relating to the
Purchased FE Assets, other than any liabilities or obligations described in
Sections 2.4A(e), (g) and (h). Buyer hereby waives any and all rights and
benefits with respect to such Indemnifiable Losses that it now has, or in the
future may have conferred upon it by virtue of any statute or common law
principle which provides that a general release does not extend to claims which
a party does not know or suspect to exist in its favor at the time of executing
the release, if Knowledge of such claims would have materially affected such
party's settlement with the obligor. In this connection, Buyer hereby
acknowledges that it is aware that factual matters now unknown to it may have
given or may hereafter give rise to Indemnifiable Losses that are currently
unknown, unanticipated and unsuspected, and it further agrees that this release
has been negotiated and agreed upon in light of that awareness and nevertheless
hereby intends to release the FE Subsidiaries and their Representatives and
Affiliates from the Indemnifiable Losses in the manner contemplated by this
paragraph.

      9.3 Indemnification of Buyer by Seller.

            (a) Seller shall indemnify, defend and hold harmless Buyer, its
officers, directors, employees, shareholders, Affiliates and agents (each, a
"Buyer Indemnitee") from and against any and all Indemnifiable Losses asserted
against or suffered by any Buyer Indemnitee (each, a "Buyer Indemnifiable Loss")
in any way relating to, resulting from or arising out of or in connection with
(i) any breach by Seller of any covenant or agreement of Seller contained in
this Agreement or the representations and warranties contained in Section 4.1,
4.2 and 4.3, (ii) the Excluded DLC Liabilities, (iii) noncompliance by Seller
with any bulk sales or transfer laws as provided in Section

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11.14, and (iv) any Third Party Claims against a Buyer Indemnitee arising out of
or in connection with Seller's ownership or operation of the Excluded DLC Assets
on or after the Auction Closing Date.

            (b) Seller shall indemnify, defend and hold harmless each Buyer
Indemnitee from and against any and all Buyer Indemnifiable Losses in any way
relating to, resulting from or arising out of or in connection with (i) any
costs and expenses incurred after the date of this Agreement, and in furtherance
of consummation of the transactions contemplated herein, up to a maximum amount
of ten million dollars ($10,000,000), in the event of a Special Termination (as
hereinafter defined), and (ii) any claims asserted against a Buyer Indemnitee
arising out of or relating to the Agreement and Plan of Merger, dated as of
April 5, 1998, by and between DQE, Inc. and Allegheny Energy, Inc.. A "Special
Termination" shall be deemed to have occurred if

      (i) Buyer terminates this Agreement pursuant to Section 10.1(j) hereof, or

      (ii) Buyer or Seller terminate this Agreement pursuant to Section
      10.1(b)(i) hereof, or the Auction Closing fails to occur because the
      condition set forth in any of Sections 8.1(c), 8.2(c) or 8.3(b) has not
      been satisfied, in either case because of an injunction, order or decree
      of a court in connection with the litigation described in Section 8.1(o)
      hereof.

      9.4 Indemnification of Buyer by FE Subsidiaries. Each FE Subsidiary with
respect to itself and all matters related to the Purchased FE Assets to be
transferred to Buyer by such FE Subsidiary shall indemnify, defend and hold
harmless each Buyer Indemnitee from and against any and all Buyer Indemnifiable
Losses in any way relating to, resulting from or arising out of or in connection
with (i) any breach by such FE Subsidiary of any covenant or agreement of such
FE Subsidiary contained in this Agreement or the representations and warranties
contained in Section 5.1, 5.2 and 5.3, (ii) the Excluded FE Liabilities, (iii)
noncompliance by such FE Subsidiary with any bulk sales or transfer laws as
provided in Section 11.14, and (iv) any Third Party Claims against a Buyer
Indemnitee arising out of or in connection with such FE Subsidiary's ownership
or operation of the Excluded FE Assets on or after the Auction Closing Date.

      9.5 Indemnification of Seller by the FE Subsidiaries. Each FE Subsidiary
severally with respect to itself under this Agreement and all its obligations
related to the Purchased FE Assets to be transferred to Buyer by such FE
Subsidiary, shall indemnify, defend and hold harmless each DLC Indemnitee from
and against any and all DLC Indemnifiable Losses in any way relating to,
resulting from or arising out of or in connection with a claim by Buyer or any
Third Party against a DLC Indemnitee arising out of or in connection with
Purchased FE Assets or the Assumed FE Liabilities, provided, however, that after
the Auction Closing, Seller cannot enforce this Section 9.5 against any of the
FE Subsidiaries if such claim is in any way relating to, resulting from or
arising out of the liabilities assumed by Buyer.

      9.6 Release of Seller by the FE Subsidiaries.

            Each FE Subsidiary, for itself and on behalf of its Representatives
and Affiliates, does hereby release, hold harmless and forever discharge Seller,
its Representatives and Affiliates, from any and all Indemnifiable Losses
resulting from, arising out or relating to the Assumed FE Liabilities. Except as
otherwise provided in Section 9.2, each FE Subsidiary hereby waives any and

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all rights and benefits with respect to such Indemnifiable Losses that it now
has, or in the future may have conferred upon it by virtue of any statute or
common law principle which provides that a general release does not extend to
claims which a party does not know or suspect to exist in its favor at the time
of executing the release, if Knowledge of such claims would have materially
affected such party's settlement with the obligor. In this connection, each of
the FE Subsidiaries hereby acknowledges that it is aware that factual matters
now unknown to it may have given or may hereafter give rise to Indemnifiable
Losses that are currently unknown, unanticipated and unsuspected, and it further
agrees that this release has been negotiated and agreed upon in light of that
awareness and nevertheless hereby intends to release Seller, its Representatives
and Affiliates from Indemnifiable Losses in the manner contemplated by this
paragraph.

      9.7 Certain Limitations on Indemnification.

            (a) Notwithstanding anything to the contrary contained herein:

                  (i) Any Indemnitee shall use Commercially Reasonable Efforts
      to mitigate all losses, damages and the like relating to a claim under
      these indemnification provisions, including availing itself of any
      defenses, limitations, rights of contribution, claims against third
      persons and other rights at law or equity. The Indemnitee's Commercially
      Reasonable Efforts shall include the reasonable expenditure of money to
      mitigate or otherwise reduce or eliminate any loss or expenses for which
      indemnification would otherwise be due, and the Indemnifying Party shall
      reimburse the Indemnitee for the Indemnitee's reasonable expenditures in
      undertaking the mitigation.

                  (ii) Any Indemnifiable Loss shall be net of (A) the dollar
      amount of any insurance or other proceeds actually receivable by the
      Indemnitee or any of its Affiliates with respect to the Indemnifiable
      Loss, and (B) income tax benefits to the Indemnitee, to the extent
      realized by the Indemnitee. Any party seeking indemnity hereunder shall
      use Commercially Reasonable Efforts to seek coverage (including both costs
      of defense and indemnity) under applicable insurance policies with respect
      to any such Indemnifiable Loss.

            (b) The expiration, termination or extinguishment of any covenant or
agreement shall not affect the Parties' obligations under Sections 9.1 through
9.6 hereof if the Indemnitee provided the Indemnifying Party with proper notice
of the claim or event for which indemnification is sought prior to such
expiration, termination or extinguishment.

            (c) Except to the extent otherwise provided in Article X, the rights
and remedies of Seller, Buyer, and the FE Subsidiaries under this Article IX are
exclusive and in lieu of any and all other rights and remedies which each of
Seller, Buyer, and the FE Subsidiaries may have under this Agreement or
otherwise for monetary relief, with respect to (i) any breach of or failure to
perform any covenant, agreement, representation or warranty set forth in this
Agreement, after the occurrence of the Auction Closing, or (ii) the Assumed
Liabilities or the Excluded Liabilities, as the case may be. The indemnification
obligations of the Parties set forth in this Article IX apply only to matters
arising out of this Agreement but do not extend to matters arising out of any of
the Ancillary Agreements. Any Indemnifiable Loss arising under or pursuant to an
Ancillary Agreement

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shall be governed by the indemnification obligations, if any, contained in such
Ancillary Agreement under which the Indemnifiable Loss arises.

            (d) Notwithstanding anything to the contrary contained herein, no
party (including an Indemnitee) shall be entitled to recover from any other
party (including an Indemnifying Party) for any liabilities, damages,
obligations, payments, losses, costs, or expenses under this Agreement any
amount in excess of the actual compensatory damages, court costs and reasonable
attorney's and other advisor fees suffered by such party. Each of Buyer, Seller,
and the FE Subsidiaries waives any right to recover punitive, incidental,
special, exemplary and consequential damages arising in connection with or with
respect to this Agreement. The provisions of this Section 9.7(d) shall not apply
to indemnification for a Third Party Claim.

      9.8 Defense of Claims.

            (a) If any Indemnitee receives notice of the assertion or
commencement of any Third Party Claim made or brought by any Person who is not a
party to this Agreement or any Affiliate of a Party to this Agreement with
respect to which indemnification is to be sought from an Indemnifying Party, the
Indemnitee shall give such Indemnifying Party reasonably prompt written notice
thereof, but in any event such notice shall not be given later than ten (10)
calendar days after the Indemnitee's receipt of notice of such Third Party
Claim. Such notice shall describe the nature of the Third Party Claim in
reasonable detail and shall indicate the estimated amount, if practicable, of
the Indemnifiable Loss that has been or may be sustained by the Indemnitee. The
Indemnifying Party will have the right to participate in or, by giving written
notice to the Indemnitee, to elect to assume the defense of any Third Party
Claim at such Indemnifying Party's expense and by such Indemnifying Party's own
counsel, provided that the counsel for the Indemnifying Party who shall conduct
the defense of such Third Party Claim shall be reasonably satisfactory to the
Indemnitee. The Indemnitee shall cooperate in good faith in such defense at such
Indemnitee's own expense. If an Indemnifying Party elects not to assume the
defense of any Third Party Claim, the Indemnitee may compromise or settle such
Third Party Claim over the objection of the Indemnifying Party, which settlement
or compromise shall conclusively establish the Indemnifying Party's liability
pursuant to this Agreement.

            (b)   (i) If, within ten (10) calendar days after an Indemnitee
      provides written notice to the Indemnifying Party of any Third Party
      Claims, the Indemnitee receives written notice from the Indemnifying Party
      that such Indemnifying Party has elected to assume the defense of such
      Third Party Claim as provided in Section 9.8(a), the Indemnifying Party
      will not be liable for any legal expenses subsequently incurred by the
      Indemnitee in connection with the defense thereof; provided, however, that
      if the Indemnifying Party shall fail to take reasonable steps necessary to
      defend diligently such Third Party Claim within twenty (20) calendar days
      after receiving notice from the Indemnitee that the Indemnitee believes
      the Indemnifying Party has failed to take such steps, the Indemnitee may
      assume its own defense and the Indemnifying Party shall be liable for all
      reasonable expenses thereof.

                  (ii) Without the prior written consent of the Indemnitee, the
      Indemnifying Party shall not enter into any settlement of any Third Party
      Claim which would lead to liability or create any financial or other
      obligation on the part of the Indemnitee

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      for which the Indemnitee is not entitled to indemnification hereunder. If
      a firm offer is made to settle a Third Party Claim without leading to
      liability or the creation of a financial or other obligation on the part
      of the Indemnitee for which the Indemnitee is not entitled to
      indemnification hereunder and the Indemnifying Party desires to accept and
      agree to such offer, the Indemnifying Party shall give written notice to
      the Indemnitee to that effect. If the Indemnitee fails to consent to such
      firm offer within ten (10) calendar days after its receipt of such notice,
      the Indemnifying Party shall be relieved of its obligations to defend such
      Third Party Claim and the Indemnitee may contest or defend such Third
      Party Claim. In such event, the maximum liability of the Indemnifying
      Party as to such Third Party Claim will be the amount of such settlement
      offer plus reasonable costs and expenses paid or incurred by Indemnitee up
      to the date of said notice.

            (c) Any claim by an Indemnitee on account of an Indemnifiable Loss
which does not result from a Third Party Claim (a "Direct Claim") shall be
asserted by giving the Indemnifying Party reasonably prompt written notice
thereof, stating the nature of such claim in reasonable detail and indicating
the estimated amount, if practicable, but in any event such notice shall not be
given later than ten (10) calendar days after the Indemnitee becomes aware of
such Direct Claim, and the Indemnifying Party shall have a period of thirty (30)
calendar days within which to respond to such Direct Claim. If the Indemnifying
Party does not respond within such thirty (30) calendar day period, the
Indemnifying Party shall be deemed to have accepted such claim. If the
Indemnifying Party rejects such claim, the Indemnitee will be free to seek
enforcement of its right to indemnification under this Agreement.

            (d) If the amount of any Indemnifiable Loss, at any time subsequent
to the making of an indemnity payment in respect thereof, is reduced by
recovery, settlement or otherwise under or pursuant to any insurance coverage,
or pursuant to any claim, recovery, settlement or payment by, from or against
any other entity, the amount of such reduction, less any costs, expenses or
premiums incurred in connection therewith (together with interest thereon from
the date of payment thereof at the publicly announced prime rate then in effect
of Citibank) shall promptly be repaid by the Indemnitee to the Indemnifying
Party.

            (e) A failure to give timely notice as provided in this Section 9.8
shall not affect the rights or obligations of any Party hereunder except if, and
only to the extent that, as a result of such failure, the Party which was
entitled to receive such notice was actually prejudiced as a result of such
failure.

                                    ARTICLE X
                                   TERMINATION

      10.1 Termination.

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            (a) This Agreement may be terminated at any time prior to the
Auction Closing Date by mutual written consent of Seller and Buyer.

            (b) This Agreement may be terminated by Seller or Buyer if (i) any
federal or state court of competent jurisdiction shall have issued an order,
judgment or decree permanently restraining, enjoining or otherwise prohibiting
the Auction Closing, and such order, judgment or decree shall have become final
and nonappeallable; (ii) any statute, rule, order or regulation shall have been
enacted or issued by any Governmental Authority which prohibits the consummation
of the Auction Closing; (iii) the Auction Closing contemplated hereby shall have
not occurred on or before the day which is twelve (12) months from the date of
this Agreement (the "Termination Date"), provided that the right to terminate
this Agreement under this Section 10.1(b) (iii) shall not be available to any
Party whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Auction Closing to occur on or
before such date and provided, further, that if on the Termination Date (x) the
conditions to the Auction Closing set forth in Sections 8.1(d), 8.2(c) and
8.2(d) hereof shall not have been fulfilled but all other conditions to the
Auction Closing shall be fulfilled or shall be capable of being fulfilled, or
(y) the conditions to the Exchange Closing set forth in Sections 9.1(b), 9.2(a)
and 9.3(a) of the Exchange Agreement shall not have been fulfilled but all other
conditions to the Exchange Closing shall be fulfilled or shall be capable of
being fulfilled, then the Termination Date shall be the day which is eighteen
(18) months from the date of this Agreement, except as otherwise specifically
provided in Section 10.1(j) hereof.

            (c) Except as otherwise provided in this Agreement, this Agreement
may be terminated by the Buyer if any of the Buyer Required Regulatory
Approvals, the receipt of which is a condition to the obligation of the Buyer to
consummate the Auction Closing as set forth in Section 8.1(d), shall have been
denied (and a petition for rehearing or refiling of an application initially
denied without prejudice shall also have been denied).

            (d) This Agreement may be terminated by Seller, if any of the DLC
Required Regulatory Approvals, the receipt of which is a condition to the
obligation of Seller to consummate the Auction Closing as set forth in Section
8.2(d), shall have been denied (and a petition for rehearing or refiling of an
application initially denied without prejudice shall also have been denied) or
shall have been granted but are not in form and substance reasonably
satisfactory to Seller.

            (e) This Agreement may be terminated by Buyer if there has been a
violation or breach by Seller or an FE Subsidiary of any covenant,
representation or warranty contained in this Agreement which has resulted in a
Material Adverse Effect and such violation or breach is not cured by the earlier
of the Auction Closing Date or the date which is thirty (30) days after receipt
by Seller or an FE Subsidiary of notice specifying particularly such violation
or breach, and such violation or breach has not been waived by Buyer. All such
notices delivered to an FE Subsidiary pursuant to this Section 10.1(e) shall
also be simultaneously delivered to Seller.

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            (f) This Agreement may be terminated by Seller, if there has been a
violation or breach by Buyer of any covenant, representation or warranty
contained in this Agreement which has resulted in a Material Adverse Effect and
such violation or breach is not cured by the earlier of the Auction Closing Date
or the date which is thirty (30) days after receipt by Buyer of notice
specifying particularly such violation or breach, and such violation or breach
has not been waived by Seller.

            (g) This Agreement may be terminated by Seller if there shall have
occurred any change that is materially adverse to the business, operations or
conditions (financial or otherwise) of Buyer.

            (h) This Agreement may be terminated by the Party entitled to so
terminate this Agreement under the provisions of Section 7.12(b).

            (i) This Agreement may be terminated by Buyer if there shall have
occurred any change that constitutes an Asset Material Adverse Effect.

            (j) This Agreement may be terminated by Buyer in the event that

                  (i) the matter of Allegheny Energy, Inc. v. DQE, Inc., Civil
            Action No. 98-1639 (W.D.Pa.)("Merger Litigation") shall not have
            been resolved by a final and nonappeallable order by the date that
            is twelve (12) months from the date of this Agreement, provided,
            however, that if, on such date, the U.S. Court of Appeals for the
            Third Circuit shall have issued an order that finally resolves the
            Merger Litigation by denying Allegheny Energy, Inc.'s request for
            specific performance, but Allegheny Energy, Inc. shall have pending
            before the U.S. Supreme Court a petition for writ of certiorari in
            respect of such order, then Buyer may terminate this Agreement only
            on or after the date that is the earlier of (x) the date on which
            the U.S. Supreme Court grants such petition for writ of certiorari
            or (y) the date that is fifteen (15) months from the date of this
            Agreement, or

                   (ii) without limitation of Section 10.1(b)(i), there shall
            be, at any time prior to the date that is twelve (12) months from
            the date of this Agreement, a final and nonappeallable order in the
            Merger Litigation that prohibits the Auction Closing.

            The Parties agree, however, that if the Merger Litigation or other
litigation described in Section 8.1(o) is resolved by a final, nonappeallable
order that permits the Auction Closing to proceed prior to the date on which
termination would otherwise be permitted under this Section 10.1, then Buyer
may, at its option, extend any Termination Date that would otherwise apply under
this Section 10.1 by a period of up to ninety (90) days from the date of said
order, provided, however, that such extension shall not in any case extend the
term hereof for longer than a total of twenty-one (21) months from the date of
this Agreement.

      10.2 Procedure and Effect of No-Default Termination. In the event of
termination of this Agreement by either or both Seller and Buyer pursuant to
Section 10.1, written notice thereof shall

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forthwith be given by the terminating Party to the other Parties, whereupon, if
this Agreement is terminated pursuant to any of Sections 10.1(a) through (d) or
10.1(g) through (j), the liabilities of the Parties hereunder will terminate,
except as otherwise expressly provided in this Agreement, and thereafter none of
the Parties shall have any recourse against any other Party by reason of this
Agreement.

                                   ARTICLE XI

                            MISCELLANEOUS PROVISIONS

      11.1 Liability of FE Subsidiaries. Each FE Subsidiary shall be
individually responsible for its own obligations, covenants, representations and
warranties under this Agreement.

      11.2 Amendment and Modification. This Agreement may be amended, modified
or supplemented only by written agreement of the Parties.

      11.3 Waiver of Compliance; Consents. Except as otherwise provided in this
Agreement, any failure of any of the Parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the Party entitled to
the benefits thereof only by a written instrument signed by the Party granting
such waiver, but any such waiver of such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent failure to comply therewith.

      11.4 No Survival.

            (a) Except as provided in Section 11.4(b) and 11.4(c), each and
every representation, warranty and covenant contained in this Agreement shall
expire with, and be terminated and extinguished by the consummation of the sale
of the Purchased Assets and shall merge into the deed(s) pursuant hereto and the
transfer of the Assumed Liabilities pursuant to this Agreement and such
representations, warranties and covenants shall not survive the Auction Closing
Date; and none of Buyer, Seller, any FE Subsidiary or any officer, director,
trustee, Affiliate or agent of any of them shall be under any liability
whatsoever with respect to any such representation, warranty or covenant.

            (b) The covenants contained in Sections 3.3(c), 3.3(d), 3.4, 3.5,
3.6, 7.2(c), 7.3(a), 7.5, 7.6, 7.7(e), 7.8, 7.9, 7.11, 7.11A, 7.14, 10.2 and in
Articles IX and XI shall survive the delivery of the deed(s) and the Auction
Closing in accordance with their terms.

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            (c) The representations, warranties and disclaimers contained in
Sections 4.1, 4.2, 4.3, 5.1, 5.2, 5.3, 6.1, 6.2, 6.3 and claims arising under
7.1, 7.1A and 7.7(e) shall survive the Auction Closing for eighteen (18) months
from the Auction Closing Date.

      11.5 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by facsimile
transmission, or mailed by overnight courier or registered or certified mail
(return receipt requested), postage prepaid, to the recipient Party at its
address (or at such other address or facsimile number for a Party as shall be
specified by like notice; provided however, that notices of a change of address
shall be effective only upon receipt thereof):

            (a)     If to Seller, to:

                    Duquesne Light Company
                    411 Seventh Avenue
                    Pittsburgh, PA  15219
                    Telephone:  (412) 393-6000
                    Fax:  (412) 393-6760
                    Attention:  Morgan O'Brien

                    with a copy to:

                    Skadden, Arps, Slate, Meagher & Flom LLP
                    1440 New York Avenue, N.W.
                    Washington, D.C.  20005
                    Telephone:  (202) 371-7000
                    Fax:  (202) 393-5760
                    Attention:  Erica A. Ward

            (b)     if to the FE Subsidiaries, to:

                    FirstEnergy Corp.
                    76 South Main Street
                    Akron, OH  44308
                    Telephone:  (330) 384-5793
                    Fax: (330) 384-3875
                    Attention:  Anthony J. Alexander

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                    with copies to:

                  Winthrop, Stimson, Putnam
                      & Roberts
                  One Battery Park Plaza
                  New York, NY
                  Telephone:  (212) 858-1000
                  Fax:  (212) 858-1500
                  Attention:  Michael F. Cusick

                  Duquesne Light Company
                  411 Seventh Avenue
                  Pittsburgh, PA  15219
                  Telephone:  (412) 393-6000
                  Fax:  (412) 393-6760
                  Attention:  Morgan O'Brien

                  Skadden, Arps, Slate, Meagher & Flom LLP
                  1440 New York Avenue, N.W.
                  Washington, D.C.  20005
                  Telephone:  (202) 371-7000
                  Fax:  (202) 393-5760
                  Attention:  Erica A. Ward

            (c)     if to Buyer, to:

                    Orion Power Holdings, Inc.
                    7 East Redwood Street, 10th Floor
                    Baltimore, Maryland 21202
                    Telephone:  (410) 230-3507
                    Fax:  (410) 234-0994
                    Attention:  W. Thaddeus Miller

                    with a copy to:

                    Stroock & Stroock & Lavan LLP
                    180 Maiden Lane
                    New York, New York 10038

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                    Attention:  Michael S. Shenberg
                    Telephone:  (212) 806-5831
                    Fax: (212) 806-6006

      11.6 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the Parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any Party
hereto, including by operation of law, without the prior written consent of each
other Party, nor is this Agreement intended to confer upon any other Person
except the Parties hereto any rights, interests, obligations or remedies
hereunder. Except as expressly provided herein, no provision of this Agreement
shall create any third party beneficiary rights in any employee or former
employee of Seller or the FE Subsidiaries (including any beneficiary or
dependent thereof) in respect of continued employment or resumed employment, and
no provision of this Agreement shall create any rights in any such Persons in
respect of any benefits that may be provided, directly or indirectly, under any
employee benefit plan or arrangement except as expressly provided for
thereunder. Notwithstanding the foregoing, Buyer may (i) assign any or all of
its rights and obligations hereunder to one or more wholly owned Subsidiary(s)
(direct or indirect), (ii) assign any or all of its rights and obligations under
Sections 7.11 and 7.11A to Constellation Operating Services, Inc or an Affiliate
thereof, or (iii) make a security assignment to any lender providing financing
in respect of the Buyer's acquisition of the Purchased Assets and in either case
upon receipt of notice by Seller and the FE Subsidiaries from Buyer of any such
assignment, such assignee will be deemed to have assumed, ratified, agreed to be
bound by and perform all such obligations, and all references herein to "Buyer"
shall thereafter be deemed to be references to such assignee, in each case
without the necessity for further act or evidence by the Parties hereto or such
assignee, provided, however, that no such assignment shall relieve or discharge
the Buyer from any of its obligations hereunder. Each of Seller and the FE
Subsidiaries agree, at Buyer's expense, to execute and deliver such documents as
may be reasonably necessary to accomplish any such assignment, transfer, pledge
or other disposition of rights and interests hereunder so long as none of
Seller's or the FE Subsidiaries' rights are thereby altered, amended, diminished
or otherwise impaired.

      11.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the Commonwealth of Pennsylvania (without giving
effect to conflict of law principles) as to all matters, including but not
limited to matters of validity, construction, effect, performance and remedies
(except to such matters of real estate law that must be governed by the law of
the State of Ohio). THE PARTIES HERETO AGREE THAT VENUE IN ANY AND ALL ACTIONS
AND PROCEEDINGS RELATED TO THE SUBJECT MATTER OF THIS AGREEMENT SHALL BE IN THE
STATE AND FEDERAL COURTS IN AND FOR PITTSBURGH, PENNSYLVANIA, WHICH COURTS SHALL
HAVE EXCLUSIVE JURISDICTION FOR SUCH PURPOSE, AND THE PARTIES HERETO IRREVOCABLY

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SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND IRREVOCABLY WAIVE THE
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR
PROCEEDING. SERVICE OF PROCESS MAY BE MADE IN ANY MANNER RECOGNIZED BY SUCH
COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL
WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION
WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

      11.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

      11.9 Interpretation. The articles, section and schedule headings contained
in this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.

      11.10 Schedules and Exhibits. Except as otherwise provided in this
Agreement, all Exhibits and Schedules referred to herein are intended to be and
hereby are specifically made a part of this Agreement.

      11.11 Entire Agreement. This Agreement, the Ancillary Agreements and the
Exhibits, Schedules, documents, certificates and instruments referred to herein
or therein, embody the entire agreement and understanding of the Parties hereto
in respect of the transactions contemplated by this Agreement. There are no
restrictions, promises, representations, warranties, covenants or undertakings,
other than those expressly set forth or referred to herein or therein. This
Agreement and the Ancillary Agreements supersede all prior agreements and
understandings between the Parties other than the Confidentiality Agreement with
respect to such transactions.

      11.12 U.S. Dollars. Unless otherwise stated, all dollar amounts set forth
herein are United States (U.S.) dollars.

      11.13 Sewage Facilities. Pursuant to the provisions of Section 7a of the
Pennsylvania Sewage Facilities Act, 35 P.S. Section 750 (the "Facilities Act"),
Buyer is notified by Seller or the applicable FE Subsidiary, as the case may be,
that a "community sewage system" (as defined by Section 2 of the Facilities Act)
is not available on one or more lots comprising part of the Real Property at the
facilities listed in Schedule 11.13. Prior to construction of any buildings on
such lots, a permit to connect to a community sewage system or permit for
installation of an individual sewage system must be obtained pursuant to Section
7 of the Facilities Act. Before signing this Agreement, Buyer should contact the
local agency charged with administering the Facilities Act in the area of each
such facility and lot(s) to determine the procedure and requirements for
obtaining

                                      123
<PAGE>   125
a permit for an individual or community sewage system to service such lot(s), if
required for the intended uses and purposes of such lot(s).

      11.14 Bulk Sales Laws. Buyer acknowledges that, notwithstanding anything
in this Agreement to the contrary, Seller and the FE Subsidiaries will not
comply with the provision of the bulk sales laws of any jurisdiction in
connection with the transactions contemplated by this Agreement. Buyer hereby
waives compliance by Seller and the FE Subsidiaries with the provisions of the
bulk sales laws of all applicable jurisdictions to the extent permitted by law.

                                      124
<PAGE>   126
                    IN WITNESS WHEREOF, Buyer, Seller and each of the FE
Subsidiaries have caused this Agreement to be signed by their respective duly
authorized officers as of the date first above written.

ORION POWER HOLDINGS,  INC.              DUQUESNE LIGHT COMPANY

By: /s/  JACK A. FUSCO                     By:   /s/  MORGAN K. O'BRIEN
    ------------------------------             --------------------------------
Name: Jack A. Fusco                       Name: Morgan K. O'Brien
Title: Chief Operating Officer                  Title: Vice President, Finance

                                        THE CLEVELAND ELECTRIC
                                          ILLUMINATING COMPANY

                                          By:   /s/ ANTHONY J. ALEXANDER
                                              ----------------------------------
                                          Name: Anthony J. Alexander
                                          Title: Executive Vice President and
                                                    General Counsel

                                          OHIO EDISON COMPANY

                                          By:   /s/ ANTHONY J. ALEXANDER
                                              ----------------------------------
                                          Name: Anthony J. Alexander
                                          Title: Executive Vice President and
                                                    General Counsel

                                          PENNSYLVANIA POWER COMPANY

                                          By:   /s/ ANTHONY J. ALEXANDER
                                              ----------------------------------
                                          Name: Anthony J. Alexander
                                          Title: Executive Vice President and
                                                    General Counsel
<PAGE>   127
                         LIST OF EXHIBITS AND SCHEDULES

EXHIBITS

Exhibit A      Form of Bill of Sale
Exhibit B.1    Form of DLC Assignment and Assumption Agreement
Exhibit B.2    Form of FE Assignment and Assumption Agreement
Exhibit C.1    Form of DLC Connection Agreement
Exhibit C.2    Form of FE Connection Agreement
Exhibit D.1    Form of DLC Easement and Attachment Agreement
Exhibit D.2    Form of FE Easement and Attachment Agreement
Exhibit E      Form of DLC Must-Run Agreement and FE Must-Run Agreement
Exhibit F      Form of FIRPTA Affadavits
Exhibit G.1    Form of DLC Special Warranty Deed
Exhibit G.2    Form of FE Special Warranty Deed

SCHEDULES

1.1(38)      DLC Capital Spare Parts
1.1(71)      DLC Transferable Permits
1.1(104)     FE Capital Spare Parts
1.1(140)     FE Transferable Permits
1.1(181)     Permitted Encumbrances
1.1(186)     Power Sales Contract
1.1(197)     QF Contracts
2.1          DLC Assets
2.1(c)       DLC Tangible Personal Property
2.1(i)       DLC Purchased Asset Warranties and Guarantees
2.1(l)       DLC Intellectual Property
2.1A         FE Assets
2.1A(c)      FE Tangible Personal Property
2.1A(k)      FE Intellectual Property
2.2(a)       Excluded DLC Transmission Assets
2.2(b)       Certain Excluded DLC Equipment and Systems
2.2(f)       Diversity Contract
2.2A(a)      Excluded FE Transmission Assets
2.2A(b)      Certain Excluded FE Equipment and Systems
2.3(e)       Liabilities and Obligations Relating to Purchased DLC Assets
2.3(h)       DLC Governmental Orders
2.3A(e)      Liabilities and Obligations Relating to Purchased FE Assets
2.3A(g)      FE Governmental Orders
2.7(a)       DLC Inventories
2.7(b)       FE Inventories
4.3(a)       DLC Conflicts, Defaults and Violations

                                        1
<PAGE>   128
4.3(b)       DLC Required Regulatory Approvals
4.4          DLC Insurance Exceptions
4.5          DLC Real Property
4.6          DLC Environmental Matters
4.7          DLC Labor Matters
4.8          DLC Benefit Plans
4.9          DLC Real Property
4.10         DLC Notices of Condemnation
4.11(a)      Certain DLC Material Agreements
4.11(b)      Certain Non-assignable DLC Material Agreements
4.11(c)      Defaults under certain DLC Material Agreements
4.12         Legal Proceedings Involving DLC
4.13(a)      DLC Permit Violations
4.13(b)      DLC Material Permits (other than Transferable Permits)
4.14(b)      DLC Notices of Tax Deficiencies or Assessments
4.14(c)      Outstanding DLC Agreements or Waivers Extending Statute of
             Limitations for Taxes
4.14(d)      DLC Safe Harboring Lease/Exempt Use Property
4.14(e)      Taxing Jurisdications for DLC Assets Requiring Notification
4.15         DLC Intellectual Property Exceptions
5.3(a)       FE Conflicts, Defaults and Violations
5.3(b)       FE Required Regulatory Approvals
5.4          FE Insurance Exceptions
5.5          FE Real Property Leases
5.6          FE Environmental Matters
5.7          FE Labor Matters
5.8(a)       FE Benefit Plans
5.9          FE Real Property
5.10         FE Notices of Condemnation
5.11(a)      Certain FE Material Agreements
5.11(b)      Certain Non-assignable FE Material Agreements
5.11(c)      Defaults under certain FE Material Agreements
5.12         Legal Proceedings Involving FE
5.13(a)      FE Permit Violations
5.13(b)      FE Material Permits (other than Transferable Permits)
5.14(b)      FE Notices of Tax Deficiencies or Assessments

5.14(c)      Outstanding FE Agreements or Waivers Extending Statute of
             Limitations for Taxes
5.14(d)      FE Safe Harboring Lease/Tax Exempt Use Property
5.14(e)      Taxing Jurisdictions for FE Assets Requiring Notification
5.15         FE Intellectual Property Exceptions
6.3(a)       Buyer Conflicts, Defaults and Regulations
6.3(b)       Buyer Required Regulatory Approvals
7.1(a)       Permitted DLC Activities prior to Closing
7.1(c)       Exceptions to Permitted DLC Activities prior to Closing

                                       2
<PAGE>   129
7.1(c)(viii) Permitted DLC Capital Expenditures
7.1A(a)      Permitted FE Activities prior to Closing
7.1A(c)      Exceptions to Permitted FE Activities prior to Closing
7.1A(c)(viii)Permitted FE Capital Expenditures
7.6(a)       Permitted Buyer Activities prior to Closing
7.11(a)      DLC Employees
7.11(c)      DLC Non-Union Employees
7.11(d)      DLC Collective Bargaining Agreements
7.11A(a)     FE Subsidiaries' Employees
7.11A(c)     FE Non-Union Employees
7.11A(d)     FE Collective Bargaining Agreements
7.14         Exempt Facilities (DLC & FE)
11.13        Sewage Facilities (DLC & FE)

                                       3
<PAGE>   130
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                         Page
                                                                         ----
<S>                                                                      <C>
ARTICLE I   DEFINITIONS.............................................       2
      1.1   Definitions.............................................       2
      1.2   Certain Interpretive Matters............................      28

ARTICLE II  PURCHASE AND SALE.......................................      28
      2.1   Transfer of DLC Assets..................................      28
      2.1A  Transfer of FE Assets...................................      30
      2.1B  Delivery and Transfer of Purchased FE Assets............      31
      2.2   Excluded DLC Assets.....................................      32
      2.2A  Excluded FE Assets......................................      33
      2.3   Assumed DLC Liabilities.................................      35
      2.3A  Assumed FE Liabilities..................................      37
      2.4   Excluded DLC Liabilities................................      39
      2.4A  Excluded FE Liabilities.  ..............................      41
      2.5   Control of Litigation...................................      43
      2.6   Fuel Supplies...........................................      43
      2.7   Inventories.............................................      44

ARTICLE III THE CLOSING.............................................      45
      3.1   Closing.................................................      45
      3.2   Closing Payments........................................      45
      3.3   Adjustment to Purchase Price............................      46
      3.4   Reserved................................................      47
      3.5   DLC Prorations..........................................      47
      3.6   FE Prorations...........................................      48
      3.7   Deliveries by Seller....................................      49
      3.8   Deliveries by the FE Subsidiaries.......................      51
      3.9   Deliveries by Buyer.....................................      49
      3.10  Ancillary Agreement.....................................      52
      3.11  Work in Progress........................................      52

ARTICLE IV  REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLER...      54
      4.1   Incorporation; Qualification............................      54
      4.2   Authority...............................................      54
      4.3   Consents and Approvals; No Violation....................      55
      4.4   Insurance...............................................      55
      4.5   DLC Real Property Leases................................      56
      4.6   Environmental Matters...................................      56
      4.7   Labor Matters...........................................      57
      4.8   Benefit Plans:  ERISA...................................      57
      4.9   DLC Real Property.......................................      58
      4.10  Condemnation............................................      58
</TABLE>
<PAGE>   131
<TABLE>
<S>                                                                      <C>
      4.11  Contracts and Leases....................................      58
      4.12  Legal Proceedings.......................................      59
      4.13  Permits.................................................      59
      4.14  Taxes...................................................      60
      4.15  Intellectual Property...................................      60
      4.16  Capital Expenditures....................................      61
      4.17  Compliance With Laws....................................      61
      4.18  Title...................................................      61
      4.19  DISCLAIMERS REGARDING PURCHASED DLC ASSETS..............      61
      4.20  Year 2000 Compliance....................................      62
      4.21  SEC Filings; Financial Statements.......................      62

ARTICLE V   REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF FE
            AND THE FE SUBSIDIARIES.................................      63
      5.1   Incorporation; Qualification............................      63
      5.2   Authority...............................................      63
      5.3   Consents and Approvals; No Violation....................      64
      5.4   Insurance...............................................      64
      5.5   FE Real Property Leases.................................      65
      5.6   Environmental Matters...................................      65
      5.7   Labor Matters...........................................      66
      5.8   Benefit Plans:  ERISA...................................      66
      5.9   Real Property...........................................      67
      5.10  Condemnation............................................      67
      5.11  Contracts and Leases....................................      67
      5.12  Legal Proceedings.......................................      68
      5.13  Permits.................................................      68
      5.14  Taxes...................................................      69
      5.15  Intellectual Property...................................      70
      5.16  Capital Expenditures....................................      70
      5.17  Compliance With Laws....................................      70
      5.18  Title...................................................      70
      5.19  DISCLAIMERS REGARDING PURCHASED FE ASSETS...............      70
      5.20  Year 2000 Compliance....................................      71
      5.21  SEC Filings; Financial Statements.......................      71

ARTICLE VI  REPRESENTATIONS AND WARRANTIES OF BUYER.................      72
      6.1   Organization............................................      72
      6.2   Authority...............................................      73
      6.3   Consents and Approvals; No Violation....................      73
      6.4   Availability of Funds...................................      73
      6.5   Financial Representations...............................      73
      6.6   Legal Proceedings.......................................      74
      6.7   No Knowledge of Seller's Breach or FE's Breach..........      74
      6.8   Qualified Buyer.........................................      74
      6.9   Inspections.............................................      74
</TABLE>

                                       i
<PAGE>   132
<TABLE>
<S>                                                                      <C>
      6.10  WARN Act................................................      75

ARTICLE VII COVENANTS OF THE PARTIES................................      75
      7.1   Conduct of Business Relating to the Purchased DLC Assets      75
      7.1A  Conduct of Business Relating to the Purchased FE Assets.      77
      7.2   Access to Information...................................      80
      7.3   Confidentiality.........................................      82
      7.4   Public Statements.......................................      83
      7.5   Expenses................................................      83
      7.6   Further Assurances......................................      83
      7.7   Consents and Approvals..................................      85
      7.8   Fees and Commissions....................................      87
      7.9   Tax Matters.............................................      87
      7.10  Advice of Changes.......................................      88
      7.11  Seller Employees........................................      89
      7.11A  FE Subsidiaries' Employees.............................      94
      7.12  Risk of Loss............................................     101
      7.13  Exchange Agreement Obligations..........................     101
      7.14  Tax Exempt Financing....................................     101

ARTICLE VIII CONDITIONS.............................................     104
      8.1   Conditions to Obligations of Buyer......................     104
      8.2   Conditions to Obligations of Seller.....................     109
      8.3   Conditions of Obligations of the FE Subsidiaries........     112

ARTICLE IX  INDEMNIFICATION.........................................     114
      9.1   Indemnification and Release of Seller by Buyer..........     114
      9.2   Indemnification and Release of FE Indemnitees by Buyer..     115
      9.3   Indemnification of Buyer by Seller......................     116
      9.4   Indemnification of Buyer by FE Subsidiaries.............     116
      9.5   Indemnification of Seller by the FE Subsidiaries........     117
      9.6   Release of Seller by the FE Subsidiaries................     117
      9.7   Certain Limitations on Indemnification..................     117
      9.8   Defense of Claims.......................................     119

ARTICLE X   TERMINATION.............................................     121
      10.1  Termination.............................................     121
      10.2  Procedure and Effect of No-Default Termination..........     123

ARTICLE XI  MISCELLANEOUS PROVISIONS................................     123
      11.1  Liability of FE Subsidiaries............................     123
      11.2  Amendment and Modification..............................     123
      11.3  Waiver of Compliance; Consents..........................     123
      11.4  No Survival.............................................     124
      11.5  Notices.................................................     124
      11.6  Assignment..............................................     126
</TABLE>

                                       ii
<PAGE>   133
<TABLE>
<S>                                                                      <C>
      11.7  Governing Law...........................................     127
      11.8  Counterparts............................................     127
      11.9  Interpretation..........................................     127
      11.10 Schedules and Exhibits..................................     127
      11.11 Entire Agreement........................................     127
      11.12 U.S. Dollars............................................     128
      11.13 Sewage Facilities.......................................     128
      11.14 Bulk Sales Laws.........................................     128
</TABLE>

                                       iii

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