8. Use of Collateral

We use margin deposits, prepayments and letters of credit as credit support with and from our counterparties for commodity procurement and risk management activities. In addition, we have granted additional first priority liens on the assets currently subject to first priority liens under our Corporate Revolving Facility as collateral under certain of our power and natural gas agreements that qualify as “eligible commodity hedge agreements” under our Corporate Revolving Facility and certain of our interest rate swap agreements in order to reduce the cash collateral and letters of credit that we would otherwise be required to provide to the counterparties under such agreements. The counterparties under such agreements share the benefits of the collateral subject to such first priority liens pro rata with the lenders under our Corporate Revolving Facility, First Lien Notes, Term Loan and New Term Loan.

The table below summarizes the balances outstanding under margin deposits, natural gas and power prepayments, and exposure under letters of credit and first priority liens for commodity procurement and risk management activities at June 30, 2011, and December 31, 2010 (in millions):


	June 30, 2011		December 31, 2010
Margin deposits(1)	$	133	$	162
Natural gas and power prepayments		49		43
Total margin deposits and natural gas and power prepayments with our counterparties(2)	$	182	$	205

Letters of credit issued(3)	$	492	$	588
First priority liens under power and natural gas agreements(4)		—		—
First priority liens under interest rate swap agreements		299		356
Total letters of credit and first priority liens with our counterparties	$	791	$	944

Margin deposits held by us posted by our counterparties(1)(5)	$	—	$	6
Letters of credit posted with us by our counterparties		36		66
Total margin deposits and letters of credit posted with us by our counterparties	$	36	$	72

_________

(1)

Balances are subject to master netting arrangements and presented on a gross basis on our Consolidated Condensed Balance Sheets. We do not offset fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting arrangement for financial statement presentation.

(2)

At June 30, 2011 and December 31, 2010, $158 million and $183 million were included in margin deposits and other prepaid expense, respectively, and $24 million and $22 million were included in other assets at June 30, 2011 and December 31, 2010, respectively, on our Consolidated Condensed Balance Sheets.

(3)

When we entered into our Corporate Revolving Facility on December 10, 2010, the letters of credit issued under our First Lien Credit Facility were either replaced by letters of credit issued by the Corporate Revolving Facility or back-stopped by an irrevocable standby letter of credit issued by a third party. Our letters of credit issued under our Corporate Revolving Facility used for our commodity procurement and risk management activities at December 31, 2010 include those that were back-stopped of approximately $63 million. The back-stopped letters of credit were returned and extinguished during the first quarter of 2011.

(4)	At June 30, 2011, and December 31, 2010, the fair value of our commodity derivative instruments collateralized by first priority liens included assets of $99 million and $193 million, respectively; therefore, there was no collateral exposure at June 30, 2011, or December 31, 2010.

(5)	Included in other current liabilities on our Consolidated Condensed Balance Sheets.

Future collateral requirements for cash, first priority liens and letters of credit may increase or decrease based on the extent of our involvement in hedging and optimization contracts, movements in commodity prices, and also based on our credit ratings and general perception of creditworthiness in our market.