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 various debt agreements as collateral under certain of our power and natural gas agreements and certain of our interest rate hedging instruments 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 various debt agreements.

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 as of December 31, 2019 and 2018 (in millions):



	2019		2018
Margin deposits⁽¹⁾	$	432	$	343
Natural gas and power prepayments	29		31
Total margin deposits and natural gas and power prepayments with our counterparties⁽²⁾	$	461	$	374

Letters of credit issued	$	906	$	1,166
First priority liens under power and natural gas agreements	42		92
First priority liens under interest rate hedging instruments	31		10
Total letters of credit and first priority liens with our counterparties	$	979	$	1,268

Margin deposits posted with us by our counterparties⁽¹⁾⁽³⁾	$	127	$	52
Letters of credit posted with us by our counterparties	25		27
Total margin deposits and letters of credit posted with us by our counterparties	$	152	$	79

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(1)

We offset fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting arrangement for financial statement presentation; therefore, amounts recognized for the right to reclaim, or the obligation to return, cash collateral are presented net with the corresponding derivative instrument fair values. See Note 10 for further discussion of our derivative instruments subject to master netting arrangements.


(2)	At December 31, 2019 and 2018, $117 million and $79 million, respectively, were included in current and long-term derivative assets and liabilities, $336 million and $286 million, respectively, were included in margin deposits and other prepaid expense and $8 million and $9 million, respectively, were included in other assets on our Consolidated Balance Sheets.


(3)	At December 31, 2019 and 2018, $3 million and $32 million, respectively, were included in current and long-term derivative assets and liabilities, $93 million and $20 million, respectively, were included in other current liabilities and $31 million and nil, respectively, were included in other long-term liabilities on our Consolidated 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.