EAS Energy East Corp

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes     X       No         

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes             No     X   

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

The number of shares of common stock (Par value $.01 per share) outstanding as of July 30, 2008, was 158,346,335.

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements in certain circumstances. This Form 10-Q contains certain forward-looking statements that are based upon management's current expectations and information that is currently available. Whenever used in this report, the words "estimate," "expect," "believe," "anticipate," or similar expressions are intended to identify such forward-looking statements.

In addition to the assumptions and other factors referred to specifically in connection with such statements, factors that involve risks and uncertainties that could cause actual results to differ materially from those contemplated in any forward-looking statements are discussed in our Form 10-K for the fiscal year ended December 31, 2007, Item 1A - Risk Factors and Item 7A - MD&A - Quantitative and Qualitative Disclosures About Market Risk, and also include, among others:

• the occurrence of any event, change or other circumstances that could give rise to the termination of our Merger agreement with Iberdrola,
• the outcome of any legal or regulatory proceedings that have been instituted following the announcement of the Merger,
• our ability to compete in the rapidly changing and competitive electric and/or natural gas utility markets,
• increased state and FERC regulation,
• the operation of the NYISO and retroactive NYISO billing adjustments,
• the operation of ISO-NE as an RTO and CMP's continued participation in ISO-NE,
• our continued ability to recover NUG and other costs,
• changes in fuel supply or cost and the success of strategies to satisfy power requirements,
• our ability to expand our products and services including our energy infrastructure in the Northeast,
• the effect of rising commodity costs on customer usage and uncollectible expense,
• market risk from changes in value of financial or commodity instruments, derivative or nonderivative, caused by fluctuations in interest rates or commodity prices,
• the ability of third parties to continue to supply electricity and natural gas,
• our ability to obtain adequate and timely rate relief and/or the continuation of current rate plans,
• the possible discontinuation or further modification of fixed-price supply programs in New York,
• environmental incidents,
• legal or administrative proceedings,
• changes in the cost or availability of capital,
• economic growth or contraction in the areas in which we do business,
• extreme weather-related events such as floods, hurricanes, ice storms or snow storms,
• weather variations affecting customer energy usage,
• changes in authoritative accounting guidance,
• acts of terrorism,
• the effect of volatility in the equity and fixed income markets on the cost of pension and other postretirement benefits,
• the effects of changes in the credit markets on our variable rate debt,
• the inability of our internal control framework to provide absolute assurance that all incidents of fraud or error will be detected and prevented, and
• other considerations that may be disclosed from time to time in our publicly disseminated documents and filings.

We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

In management's opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary for a fair statement of the interim periods presented. All such adjustments are of a normal, recurring nature. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

Our financial statements consolidate our majority-owned subsidiaries after eliminating all intercompany transactions.

On June 25, 2007, we announced that we had entered into a Merger agreement with Iberdrola, S.A., and Green Acquisition Capital, Inc. pursuant to which we will become a wholly-owned subsidiary of Iberdrola upon receipt of required regulatory approvals and satisfaction of other closing conditions.

Consummation of the Merger is subject to various customary closing conditions, including the absence of injunctions or restraints imposed by governmental entities, the receipt of required regulatory approvals and the absence of any event that would reasonably be expected to have a material adverse effect on Energy East. To date, all regulatory approvals have been received except approval from the NYPSC. Until the Merger is completed, Energy East will continue to operate as a separate company.

The accompanying unaudited financial statements should be read in conjunction with the financial statements and notes contained in the report on Form 10-K filed for the fiscal year ended December 31, 2007. Due to the seasonal nature of our operations, financial results for interim periods are not necessarily indicative of trends for a 12-month period.

CMP Stipulation on ARP 2008 : As part of the stipulation establishing CMP's new five-year rate plan, ARP 2008, CMP was required to write off $5.2 million of previously deferred costs. This write-off was recognized in the second quarter of 2008.

We determine basic EPS by dividing net income by the weighted-average number of shares of common stock outstanding during the period. The weighted-average common shares outstanding for diluted EPS include the incremental effect of restricted stock and stock options issued and exclude stock options issued in tandem with SARs. Historically, we have issued stock options in tandem with SARs and substantially all stock option plan participants have exercised the SARs instead of the stock options. The numerator we use in calculating both basic and diluted EPS for each period is our reported net income.

The reconciliation of basic and dilutive average common shares for each period follows:

We exclude from the determination of EPS options that have an exercise price that is greater than the average market price of the common shares during the period. Shares excluded from the EPS calculation for the three months ended June 30 were 2.8 million in 2008 and 2.1 million in 2007, and for the six months ended June 30 were 2.0 million in 2008 and 2.1 million in 2007.

Income taxes were $3.5 million less for the quarter ended June 30, 2008, and $2.8 million less for the quarter ended June 30, 2007, than they would have been at the statutory rate of 39.9%. The effective tax rate was 21.8% for the quarter ended June 30, 2008, and 29.9% for the quarter ended June 30, 2007. Income taxes were $12.1 million less for the six months ended June 30, 2008, and $5.9 million less for the six months ended June 30, 2007, than they would have been at the statutory rate. The effective tax rate was 34.5% for the six months ended June 30, 2008, and 37.5% for the six months ended June 30, 2007. Those rates are not necessarily indicative of what the effective rate will be in future years.

Differences between the statutory rate and the effective rate for the periods ended June 30, 2008 and 2007 were primarily due to:

FIN 48: Gross unrecognized tax benefits as of December 31, 2007, were $23.5 million and include income taxes of $18.0 million, interest of $5.3 million and a penalty of $0.2 million. Gross unrecognized tax benefits as of June 30, 2008, were $22.3 million and include income taxes of $15.8 million, interest of $6.3 million and a penalty of $0.2 million. Including interest and penalty, $11.6 million of the gross unrecognized tax benefits would affect the effective tax rate, if recognized. The $2.2 million decrease in the gross income tax amount is primarily due to the unfavorable settlement of a state amended return refund claim.

We have been audited through 2000 for New York state income taxes and through 2001 for federal income taxes. The statute of limitations in Connecticut, Maine and Massachusetts has expired for all years through 2003. Our New York state returns for 2001 through 2004 and federal returns for 2002 through 2005 are currently under review. We anticipate that the reviews will be completed within the next 12 months. Approximately $11.6 million of our gross income tax reserves relate to the years currently under audit, with the majority relating to combined state reporting issues. We cannot predict the ultimate outcome of the reviews.

New York State Tax Legislation : On April 23, 2008, the state of New York enacted its 2008-2009 budget, which included an increase in the maximum capital-based tax from $1 million to $10 million effective January 1, 2008. We anticipate being taxed under the capital-based tax method in 2008, versus the income-based tax method and expect the legislation will increase our income tax expense by approximately $2.0 million.

A variable interest entity is an entity that is not controllable through voting interests and/or in which the equity investor does not bear the residual economic risks and rewards. A business enterprise is required to consolidate a variable interest entity if the enterprise has a variable interest that will absorb a majority of the entity's expected losses.

We have power purchase contracts with NUGs. However, we were not involved in the formation of and do not have ownership interests in any NUGs. We have evaluated all of our power purchase contracts with NUGs and determined that most of the purchase contracts are not variable interests for one of the following reasons: the contract is based on a fixed price or a market price and there is no other involvement with the NUG, the contract is short-term in duration, the contract is for a minor portion of the NUG's capacity or the NUG is a governmental organization or an individual. Two of our NUG contracts expired in 2007. We are not able to determine if we have variable interests with respect to power purchase contracts with four remaining NUGs because we are unable to obtain the information necessary to: (1) determine if any of the four NUGs is a variable interest entity, (2) determine if an operating utility is a NUG's primary beneficiary or (3) perform the accounting required to consolidate any of those NUGs. We routinely request necessary information from the four NUGs, and will continue to do so, but no NUG has yet provided the requested information. We did not consolidate any NUGs as of June 30, 2008, or December 31, 2007.

We continue to purchase electricity from the four NUGs at above-market prices. We are not exposed to any loss as a result of our involvement with the NUGs because we are allowed to recover through rates the cost of our purchases. Also, we are under no obligation to a NUG if it decides not to operate for any reason. The combined contractual capacity for the four NUGs is approximately 261 MWs. The combined purchases from the four remaining NUGs totaled approximately $135 million for the six months ended June 30, 2008, and $124 million for the six months ended June 30, 2007.

NYISO Billing Adjustment : The NYISO frequently bills market participants on a retroactive basis when it determines that billing adjustments are necessary. Such retroactive billings can cover several months or years and cannot be reasonably estimated. NYSEG and RG&E record transmission or supply revenue or expense, as appropriate, when revised amounts are available. The two companies have developed an accrual process that incorporates available information about retroactive NYISO billing adjustments as provided to all market participants. However, on an ongoing basis, they cannot fully predict either the magnitude or the direction of any final billing adjustments.

SGF Bankruptcy Proceeding : In January 2008 the trustee in the SGF Chapter 7 bankruptcy proceeding brought adversarial proceedings seeking repayment of alleged preferential payments made in the one-year period preceding the bankruptcy filing to SGF affiliates in amounts totaling $14 million. We have evaluated the claims and filed responsive pleadings on April 1, 2008. We do not believe there is merit to the claims, but cannot predict the outcome of this matter.

Partial Acceptance Document in the Merger Proceeding : On March 14, 2008, the joint petitioners in the Merger proceeding - Iberdrola, Energy East, NYSEG and RG&E - filed a partial acceptance document in an effort to narrow the issues raised in the proceeding. The joint petitioners accepted certain ratepayer benefits and/or conditions that would be effective immediately upon closing of the Merger. The significant benefits and conditions included in the partial acceptance were:

• Divestiture of all of the New York fossil fuel generation that we own, including RG&E's Russell Station;
• Positive benefit adjustments of $201 million in the form of regulatory asset write-offs and increases in regulatory reserves, translating into approximately $55 million (4.4% on average) in immediate annual delivery rate reductions; and
• Iberdrola would support and encourage investments by Iberdrola Renewables (through its voting interest in Iberdrola Renewables) of $100 million in wind generation in the state of New York within the next three years subject to certain conditions.

DPS Staff Allegations Concerning Earnings Sharing Calculations : The DPS Staff in its testimony and briefs in the Merger proceeding has alleged that NYSEG did not properly compute the amount due to customers under the electric ESM in NYSEG's electric rate plan that was in effect from 2002 through 2006. The Staff claims that its preliminary analysis shows an additional $67 million, including interest, should have been allocated to customers. NYSEG vigorously disputes the Staff's claim. For each year 2002 through 2006 NYSEG made annual compliance filings, as required by the NYPSC. The DPS Staff has never formally presented its findings to NYSEG indicating its disagreements with NYSEG's 2002 through 2006 electric annual compliance filings. The DPS Staff stated in its direct testimony in the Merger proceeding that its audits have not been completed and the Staff will provide its response to NYSEG no later than NYSEG's next rate case. In its Briefs on Exceptions, filed on June 26, 2008, the Staff for the first time is now asking the NYPSC to decide the annual compliance filing issue in the Merger proceeding. The petitioners strongly opposed the Staff's approach and requested in their Briefs Opposing Exceptions, filed on July 3, 2008, that the NYPSC not decide this matter in the Merger proceeding and adhere to the original Staff testimony which stated that the Staff will present its findings no later than NYSEG's next rate case. NYSEG is unable to predict when or how the issue will be resolved. The Staff also raised issues in the Merger proceeding with regard to the ESM under the RG&E electric rate plan currently in effect, but has not

completed its analysis. RG&E believes that it has been properly calculating the amount due to customers in its annual compliance filings since 2004, but cannot predict how the matter will be resolved.

Alleged Overcharges by TEN Companies : The state of Connecticut (State) filed suit in February 2007 against Energy East and its subsidiaries TEN Companies, Inc., CNG and CTG Resources, Inc. for an alleged $14 million overcharge for heating and cooling services supplied to state buildings since 1992. Subsequently, the State provided an expert's report that claims the overcharges amounted to $30 million. In December 2007 the State filed a second action seeking injunctive relief to prevent TEN Companies from exercising its right to allow each of the various heating and cooling contracts to expire on their respective expiration dates and to require TEN Companies to continue to provide heating and cooling service under the contracts. In March 2008 the trial court denied that injunction. The State appealed the trial court's decision to the Connecticut Appellate Court and Connecticut Supreme Court and both appeals were summarily rejected. The Connecticut Legislature passed temporary legislation preventing TEN Companies from discontinuing service and was considering permanent legislation that would make TEN Companies a utility subject to regulation by the DPUC when the legislative session ended.

On May 7, 2008, TEN Companies and the State signed a memorandum of understanding (MOU) agreeing to stay the action through September 30, 2008, to allow the parties to finalize an agreement for the State's purchase of certain heating and cooling equipment that serves certain state buildings at a specified purchase price of $10.6 million, along with other terms specified in the MOU. On May 9, 2008, the parties jointly filed a motion to stay all pending litigation until September 30, 2008, which the court approved the same day. TEN Companies expects to finalize the agreement by the September 30, 2008 deadline, at which time all pending suits will be dismissed. We cannot predict the outcome of this proceeding, nor can we predict whether the Connecticut legislation will be reintroduced and enacted.

CNG Overearnings : In June 2008 CNG filed its monthly financial report showing that CNG exceeded its allowed return on equity by more than 100 basis points for the sixth consecutive 12-month period. As a result, the DPUC initiated an overearnings investigation. A statute allows the DPUC to adjust CNG's rates, on an interim basis, for the amount of excess revenues. An expedited hearing was conducted on July 7, 2008. On July 25, 2008, the DPUC issued a draft decision that would require CNG to reduce annual rates by $15.5 million. A final decision is expected on August 6, 2008.

SCG Overearnings : In July 2008 SCG filed its monthly financial report showing that it exceeded its allowed return on equity by more than 100 basis points for the sixth consecutive 12-month period. As a result, the DPUC initiated an overearnings investigation. A statute allows the DPUC to adjust SCG's rates, on an interim basis, for the amount of excess revenues. The DPUC has established a schedule to consider this issue with hearings on August 15, 2008, and a final decision on September 3, 2008. In its July 2008 monthly financial report filing SCG indicated that it will be filing a general rate case, with its letter of intent filing on August 1, 2008. SCG cannot predict the outcome of the overearnings investigation or its subsequent rate case.

Homer City : On June 23, 2008, NYSEG received a letter from subsidiaries of Edison Mission Energy regarding a notice of violation (NOV) from the United States Environmental Protection Agency (EPA) claiming that certain modifications to the Homer City Electric Generation Station (Homer City) during the time it was owned by NYSEG and Pennsylvania Electric Company were done in violation of EPA's new source review regulations. Homer City was sold in 1999 to Edison Mission Energy by NYSEG and Pennsylvania Electric Company. Edison Mission Energy asserts that it is entitled to indemnification for fines, penalties and certain costs arising out of the violations alleged in the NOV under the terms of the asset purchase agreement for Homer City. This appears to be the same claim that Edison Mission Energy made to NYSEG in October 2000. At that time NYSEG believed that it did not retain liability for these material claims. NYSEG continues to believe that the costs sought by Edison Mission Energy are not liabilities of NYSEG.

EITF 06-10 : Effective January 1, 2008, we began applying the consensus of EITF 06-10, which the FASB ratified in late March 2007. EITF 06-10 requires an employer to recognize a liability for a postretirement benefit related to a collateral assignment split-dollar life insurance arrangement. In a collateral assignment split-dollar life insurance arrangement, the employee, versus the employer, owns and controls the insurance policy. EITF 06-10 also requires an employer to recognize and measure an asset based on the nature and substance of the collateral assignment split-dollar life insurance arrangement. Entities should recognize the effects of applying the consensus through either (1) a change in accounting principle through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption or (2) a change in accounting principle through retrospective application to all prior periods. CNG is the only Energy East subsidiary with collateral assignment split-dollar life insurance arrangements. We elected to recognize the effects of applying the consensus as a change in accounting principle through a cumulative-effect adjustment that resulted in a decrease in retained earnings of $2.3 million. The application of EITF 06-10 did not affect results of operation or cash flows.

Statement 141(R) and Statement 160 : In December 2007 the FASB issued Statement 141(R) and Statement 160, both the result of a joint project between the FASB and the International Accounting Standards Board. The objective of Statement 141(R) is "to improve the relevance, representational faithfulness, and comparability of information that a reporting entity provides in its financial reports about a business combination and its effects." Some key changes that will result from the application of Statement 141(R) are: all transaction costs and most restructuring costs will be expensed, acquired in-process research and development costs will not be expensed at acquisition, and equity securities issued as part of the purchase price will be measured on the closing date instead of the announcement date. Statement 141(R) will apply to business combinations for which the acquisition date is on or after the beginning of an entity's first annual reporting period beginning on or after December 15, 2008 (our annual reporting period beginning January 1, 2009). It may not be applied before that date and must be applied prospectively.

Statement 160 is intended "to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements" about noncontrolling (sometimes called minority) interests. Minority interest earnings will no longer be excluded from net income as a result of applying Statement 160. Statement 160 is effective for fiscal years (including interim periods) beginning on or after December 15, 2008 (our fiscal year beginning January 1, 2009), with earlier adoption prohibited and prospective application required, except that the presentation and disclosure requirements are to be applied retrospectively. We expect that our application of both Statements will not affect our financial position, results of operation or cash flows.

Statement 161 : In March 2008 the FASB issued Statement 161, which requires enhanced disclosures about an entity's derivative instruments and hedging activities to enable investors to better understand their effects on the entity's financial position, financial performance and cash flows. It is intended to improve transparency about the location and amounts of derivative instruments in the financial statements and how the entity accounts for derivative instruments and related hedged items. Requirements include: disclosure of fair values of derivative instruments and their gains and losses in a tabular format, disclosure of derivative features that are credit risk-related, and cross-referencing within notes to enable financial statement users to locate important information about derivative instruments. Statement 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 (our fiscal year beginning January 1, 2009). Early application is encouraged. Disclosures for earlier periods presented for comparative purposes are encouraged but not required at initial adoption. In years after initial adoption, comparative disclosures are required only for periods subsequent to initial adoption. Our adoption of Statement 161 will not affect our financial position, results of operation or cash flows.

In September 2006 the FASB issued Statement 157, which we adopted effective January 1, 2008, for financial assets and financial liabilities. Changes from current practice that result from the application of Statement 157 relate to the definition of fair value, the methods used to measure fair value and expanded disclosures about fair value measurements. Statement 157 applies under other accounting pronouncements that require or permit fair value measurements in which the FASB previously concluded that fair value is the relevant measurement attribute, but does not require any new fair value measurements. Our adoption of Statement 157 and related FASB Staff Positions (FSPs) had no effect on our financial position, results of operation or cash flows.

The FASB issued FSP FAS 157-2 in February 2008. FSP FAS 157-2 delays the effective date of Statement 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in an entity's financial statements on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. Nonfinancial assets and nonfinancial liabilities include all assets and liabilities other than those that meet the definition of a financial asset or financial liability as defined in paragraph 6 of Statement 159. FSP FAS 157-2 also requires additional disclosures concerning application of the provisions of Statement 157. FSP FAS 157-2 was effective upon issuance.

Valuation techniques : We value our noncurrent investments available for sale - auction rate securities at par due to the variable rate earned on the investments. Such securities ordinarily earn interest at rates established at periodic auctions, typically every seven or 35 days. However, periodic auctions for the securities began to fail during the first quarter of 2008 and we began earning formulaic failure rates on our investments. We held $3.9 million of those securities at June 30, 2008, which are earning pretax equivalent rates of 3.77%. At January 1, 2008, we included the fair value of those investments in Level 1. Due to uncertainties that began to develop in the auction rate securities markets and the need for management to use judgment to value the securities, we began to include the fair value measurements in Level 3 in the first quarter of 2008. In the first quarter of 2008 we classified the securities as current due to our expectation that they would be sold within twelve months. We began classifying our auction rate securities as noncurrent as of June 30, 2008.

We measure the fair value of our noncurrent investments available for sale - other using quoted market prices in active markets for identical assets and include the measurements in Level 1. The investments primarily consist of money market funds, but also include some fixed income and equity investments.

We determine the fair value of our various derivative assets and liabilities utilizing market approach valuation techniques:

• NYSEG, RG&E and our energy marketing subsidiaries enter into electric energy derivative contracts to hedge the forecasted purchases required to serve their electric load obligations. Those companies hedge their electric load obligations using derivative contracts that are settled based upon Locational Based Marginal Pricing published by the NYISO. Forward market price quotes for some NYISO locations are not actively traded and not readily available outright from market dealers. We derive forward market prices for some locations based on the historical relationship of prices in those locations to prices in locations where an active market exists. The resulting value represents the derived forward market price for each location, which we use to value the open derivative contracts. Because we adjust quoted market prices for our own load characteristics, we include these fair value measurements in Level 3.
• NYSEG, RG&E and our energy marketing subsidiaries enter into natural gas derivative contracts to hedge the forecasted purchases required to serve their natural gas load obligations. The forward market prices used to value our open natural gas derivative contracts are exchange-based prices for the identical derivative contracts traded actively on the New York Mercantile Exchange. Because we use prices quoted in an active market, we include these fair value measurements in Level 1.
• We enter into treasury-related derivative contracts to hedge the forecasted issuance of debt, to manage the risk of changes in interest rates associated with existing debt, and to maintain desired fixed-to-floating rate ratios. We value those derivatives based on indicative values provided by transaction counterparties and calculated based upon proprietary models that use well-recognized financial principles and reasonable, market-based estimates of relevant future market conditions. We assess the reasonableness of the transaction counterparty valuations utilizing a model that constructs forward LIBOR (London Interbank Offer Rate) rates from a spot LIBOR curve, applies the forward rates to construct pro forma cash flows and discounts the pro forma cash flows to the present using forward rates. Because the valuations provided by the counterparties are only indicative and do not represent prices at which the counterparties would be willing to transact, we include these fair value measurements in Level 3.

The amounts of realized and unrealized gains and losses included in earnings for the periods (above), which are reported in the various categories indicated are:

As of June 30, 2008, NYSEG and RG&E have outstanding $776 million of tax-exempt pollution control notes, of which $278 million have coupons fixed to maturity, $100 million are auction rate notes under a special rate period where the rate is fixed until January 2010, $296 million are 7-day auction rate notes and $102 million are 35-day auction rate notes.

In response to market disruptions triggered by downgrades of bond insurers that began in the first quarter of 2008, NYSEG and RG&E have restructured portions of their auction rate portfolios.

• In May 2008 NYSEG converted its $70 million NYSERDA Pollution Control Revenue Bonds, 2004 Series B maturing in December 2028 to a 5.35% fixed rate to maturity; the bonds become callable at par in May 2013. The coupon was subsequently swapped to a floating rate.
• In May 2008 RG&E converted its $50 million NYSERDA Pollution Control Revenue Bonds, 2004 Series B maturing in May 2032 to a 5.375% fixed rate to maturity; the bonds become callable at par in May 2013. The coupon was subsequently swapped to a floating rate.
• In July 2008 NYSEG converted three series of NYSERDA Pollution Control Refunding Revenue Bonds and one series of Indiana County Industrial Development Authority Pollution Control Revenue Refunding Bonds, totaling $187 million in principal amount, from 7-day auction rate mode to weekly variable rate demand notes (VRDNs). In connection with those conversions, certain banks have issued letters of credit to provide credit and liquidity enhancement for the VRDNs. The letters of credit are issued pursuant to a $190 million revolving credit agreement that expires in August 2009 among NYSEG, certain lenders and JPMorgan Chase Bank, N.A., as administrative agent.

As of July 24, 2008, NYSEG and RG&E were paying rates averaging 5.3% on the remaining $211 million of 7- and 35-day auction rate debt. NYSEG and RG&E are taking the steps necessary to place orders in the auctions for the remaining outstanding 7- and 35-day auction rate bonds in accordance with SEC guidance to issuers of auction rate debt.

Our accounts receivable include unbilled revenues of $154 million at June 30, 2008, and $273 million at December 31, 2007, and are shown net of an allowance for doubtful accounts of $57 million at June 30, 2008, and $51 million at December 31, 2007.

Note 11. Retirement Benefits

We have funded noncontributory defined benefit pension plans that cover substantially all of our employees. The plans provide defined benefits based on years of service and final average salary. We also have other postretirement health care benefit plans covering substantially all of our employees. The health care plans are contributory with participants' contributions adjusted annually.

Our electric delivery segment consists of our regulated transmission, distribution and generation operations in New York and Maine, and our natural gas delivery segment consists of our regulated transportation, storage and distribution operations in New York, Connecticut, Maine and Massachusetts. We measure segment profitability based on net income. Other includes primarily our energy marketing companies, and interest income, intersegment eliminations and our other nonutility businesses. Selected information for our business segments includes: