You're both partially right, and your understanding of the tap rules is closer to the correct application for this specific scenario. Let's break down the NEC articles that apply and why your coworker's insistence on continuing the 500kcmil may be overkill, although not technically wrong.

Key NEC Articles



NEC 240.21 Overcurrent Protection of Conductor

This is the overarching article that governs overcurrent protection and includes tap rules.

NEC 240.21(B) Tap Rules

This section details the specific rules for tapping conductors.

Understanding the Tap Rules (Specifically 240.21(B)(1) - 10-Foot Tap Rule)

The 10-foot tap rule [240.21(B)(1)] allows for a reduction in conductor size provided certain conditions are met:1.

Length

The tap conductor is no longer than 10 feet.2.

Enclosure

The tap conductor is enclosed in a raceway or enclosure.3.

Ampacity

The tap conductor has an ampacity of not less than: The calculated load on the tap conductors, and Not less than the rating of the device supplied by the tap conductors or not less than the overcurrent protection at the termination of the tap conductors.4.

Overcurrent Protection

The tap conductor is not extended beyond the switchboard, panelboard, disconnect, or control devices they supply.5.

Jobsite Conditions

The tap conductor is not subject to physical damage.

Applying the Tap Rule to Your Scenario



Distribution Block as Tap Point

The distribution block in your junction box effectively becomes your tap point.

Length

You stated the distance from the distribution block to the disconnects is less than 10 feet.

Ampacity

This is where you need to do the math:

200A Disconnect

4/0 AL has an ampacity of 180 amps at 75°C (NEC Table 310.16, adjust for termination temperature limits 110.14(C)(1)). As you stated, this would be sufficient for the 200amp breaker in the fused disconnect.

100A Disconnect

#1 or #2 AL will work for the 100 amp disconnect.

Why Continuing the 500kcmil is Overkill (but not necessarily incorrect)

Continuing the 500kcmil to the disconnects ensures you're always carrying the full 300A ampacity. However, this is not required by the NEC if you properly apply the tap rules. The tap rules are designed to allow for cost savings and easier installations where the full ampacity of the feeder isn't needed downstream. The fuses in the disconnects are ultimately what protect the downstream conductors. If you're feeding a 200A load, there's no need to carry 300A of capacity to that disconnect.

Recommendation

Your interpretation of the tap rule is generally correct for the intended load. Using 4/0 AL for the 200A disconnect and #1 or #2 AL for the 100A disconnect, assuming you meet all the conditions outlined in the tap rule, is a code-compliant and more economical solution.

Important Considerations



Temperature Ratings

Pay close attention to the temperature ratings of your conductors, terminations (distribution blocks, disconnects), and equipment. Use the lowest temperature rating for determining the allowable ampacity of your conductors.

Termination Temperature

Check the termination temperature rating of the disconnects. Most are rated for 75°C. Therefore, you must use the 75°C ampacity of the conductors (NEC 110.14(C)(1)).

Calculations

Perform accurate load calculations to ensure the 200A and 100A disconnects are adequately sized for the equipment they will be feeding.

AHJ Approval

It's always a good practice to discuss this with your local Authority Having Jurisdiction (AHJ) to ensure they agree with your interpretation and application of the code. While you may be technically correct, different inspectors may have different interpretations.

In summary: You are correct in your interpretation of the 10' tap rule to apply to this situation. Your colleague may have a "better safe than sorry" mentality, but this would add unnecessary cost to this installation. Flag for review