Seattle City Light 2016 ANNUAL REPORT | Audited Financial Statements 50 THE CITY OF SEATTLE—CITY LIGHT DEPARTMENT NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 - 50 - Federal Arbitrage Regulations—Revenue bonds are subject to federal arbitrage regulations and the Department has complied with these regulations. $0.3 million in federal arbitrage rebate liability was recorded in 2016 and no arbitrage rebate liability was recorded in 2015. Other—There were no liens on property or revenue pertaining to parity bonds and all bond covenants were in compliance for the Department’s prior lien bonds as of December 31, 2016 and 2015, respectively. Fair Value— Debt is recorded and presented in the financial statements at carrying value net of premiums and discounts and shown below with fair values as provided by the Department’s financial advisor, Piper Jaffray & Company. The fair value for the Department’s bonds are estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Department for debt of the same remaining maturities. Carrying amounts and fair values at December 31, 2016 and 2015, were as follows: ($ in millions) Carrying Carrying Amount Fair Value Amount Fair Value Long-term debt: Prior lien bonds 2,276.5 $ 2,298.1 $ 2,196.7 $ 2,304.6 $ 2016 2015 Amortization—Discounts and premiums are amortized using the effective interest method over the term of the bonds. The excess of costs incurred over the carrying value of bonds refunded on early extinguishment of debt is amortized as a component of interest expense using the effective interest method over the terms of the issues to which they pertain. Charges on advance refunding amortized to interest expense totaled $4.6 million in 2016 and $2.9 million in 2015. Charges on advance refunding in the amount of $30.3 million and $16.4 million are included as a component of Deferred Outflows of Resources on the 2016 and 2015 balance sheets, respectively.