City of Santa Rosa, California - Page 1

                                   120 T.C. No. 12                                     

                               UNITED STATES TAX COURT                                 

                    CITY OF SANTA ROSA, CALIFORNIA, Petitioner v.                      
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                       

               Docket No. 7310-00B.              Filed May 13, 2003.                   

                    P petitions this Court pursuant to sec. 7478,                      
               I.R.C., seeking a declaration that interest on certain                  
               bonds will be exempt from taxation under sec. 103(a),                   
               I.R.C.  P proposes to issue bonds of $140 million to                    
               finance the construction of a pipeline.  The pipeline                   
               will dispose of wastewater generated in P’s subregional                 
               sewage and water reclamation system.  P has entered                     
               into an agreement obligating P to deliver, and a                        
               utility company to accept, an average of 11 million                     
               gallons of wastewater per day.  The utility company                     
               will use the wastewater to activate geysers and produce                 
               steam for the generation of electricity.  P will                        
               receive no payments from the utility company for the                    
               wastewater.  P will enter into agreements with                          
               irrigators along the pipeline obligating P to supply                    
               wastewater for consideration not to exceed 5 percent of                 
               the debt service on the bonds.  At least 95 percent of                  
               the debt service on the bonds will be paid by sewer                     
               demand fees imposed on users of P’s sewage system.  The                 
               sewage ratepayers use the pipeline as members of the                    
               general public.  The pipeline is an integral part of                    

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