18 August 1997 External T.I. 9710405 - CHANGE IN USE OF STEAM.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether steam producer or vendor would, in determining the Class 34 heat rate standard of 7000 BTU/kWh or less, take into consideration the steam host's use of steam?

Position:

NO.

Reasons:

The fossil fuel used by the steam producer\vendor would be allocated to the electrical energy & steam produced by the steam producers\vendors Class 34 equipment.

Class 34/43.1 Secretariat
Natural Resources Canada
Building 3, Room 213A 971040
1 Haanel Drive Wm. P. Guglich

Nepean, Ontario
K1A 1M1

Attention: Richard Fry

August 18, 1997

Dear Sirs:

Re: Change of Use of Steam by Steam Host

This is in reply to your letter of April 11, 1997 concerning the heat rate calculation, for purposes of paragraph (d) of Class 34, where there is a change in use of steam by a steam host.

We understand that a steam host is currently using steam in its industrial process. The steam host now proposes to use this steam to generate about 1 MW of electricity. You requested our views as to whether the steam vendor would be required to include this 1 MW of electricity in calculating the Class 34 heat rate standard of 7000 BTU/kWh or less.

OUR COMMENTS

Clause (d)(ii)(B) of Class 34 refers to the consumption of fossil fuel "chargeable" to electrical energy on an annual basis in respect of the property. The word "chargeable" within the context of Clause (d)(ii)(B) of Class 34 means allocated, whereas the term "in respect of the property" refers to the steam vendor's Class 34 property. Therefore, if the steam vendor uses fossil fuel to produce electrical energy and steam, the fossil fuel consumed must be allocated between the electrical energy and the steam. However, in our view, no portion of the fossil fuel used by the steam vendor would be allocated to the electrical energy produced by a steam host, since such electrical energy is not produced by the steam vendor's Class 34 property. Consequently, it is our view that in the situation described in your letter, the steam vendor would not be required to include the 1 MW of electricity produced by the steam host, in calculating the Class 34 heat rate standard of 7000 BTU/kWh or less.

You should note that in certain instances, such as, where the steam vendor and the steam host deal at arm's length it may not be possible for the steam vendor to obtain information about the steam host's utilization of the steam, since the steam host may not wish to reveal specific information regarding its industrial process.

We trust our comments will be of assistance to you.

Yours truly,

Carole Chouinard
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch