The National Electrical Code (Â© NFPA) has long required that the grounded conductor (neutral) be isolated from the grounding system except at the service panel. The 2002 version of this code can be found in sections 250.24A5, 250.142B and 408.20.
First we must understand that the grounded (neutral) conductor is a current carrying conductor (that’s why it is insulated). Current always wants to return to the source (the transformer) any way it can. With 120-volt circuits the neutral is the path back to the transformer for current. The amount of current that goes out of the transformer must return, otherwise there is a fault to ground (current traveling through metal components not designed to be part of the current path). The electrical device uses the voltage (analogous to pressure) to create work. A properly installed equipment grounding conductor will pickup any fault current and provide a path back to the transformer to complete the circuit and hopefully clear the circuit by tripping the breaker. This is why equipment grounds are bonded (electrically continuous) with panels; to protect the panel in the event they become energized.
Properly Wired Subpanel
Illustration Courtesy Code Check Electrica
Â© Taunton Press
When neutrals and grounds are bonded (connected) together, the return neutral current will split (not necessarily equally) and run on parallel paths through the grounding and neutral system back to the main panel and up the neutral to the transformer. This parallel travel can cause unbalanced conditions in the system because the current remaining in the neutral will not counterbalance the current in the hot wire. The resulting imbalance creates a magnetic field that can interfere with sensitive electronic equipment, especially audio and video equipment. In a metal conduit system, the imbalance will induce current into the conduit, which could cause the conduit to overheat. In some cases, neutral current travel on the grounding system and other metal systems, such as piping or ductwork, can be a shock hazard.
Equipment grounds and neutrals should ONLY be connected together in service panels (this first panel with a disconnect after the meter). This is where the path to the transformer combines for both normal circuit flow and possible faults to ground via the service entrance neutral conductor. The main panel should be bonded to the neutral terminal bar to provide a path for fault current should the enclosure become energized.