You've hit on a common point of confusion with NEC 250.32(B)(1), Exception No. 1. Let's break it down. The goal is to prevent objectionable current flow on metallic paths when a grounding electrode system is installed at the separate building or structure.

Understanding the Exception250.32(B)(1) normally requires an equipment grounding conductor (EGC) to be run with the feeder conductors to the separate building/structure. This EGC provides the low-impedance fault current path back to the source. However, Exception No. 1 allows you not to run the EGC with the feeders under specific circumstances, especially in existing installations.

The Conditions of Exception No. 1

To use Exception No. 1 in your described scenario (existing building fed by feeders without an EGC), the following all must be met:1. There are no continuous metallic paths between the buildings/structures

This is the core. The intent is to prevent a parallel path for fault current between the source building and the separate structure. This includes metallic water pipes, gas pipes, metallic conduit runs, metallic siding, and any other metal that continuously connects the two buildings.2.

The grounded conductor (neutral) of the feeder to the separate building is insulated

This is crucial. The neutral must be insulated from ground in the feeder between the source and the separate structure.3.

A grounding electrode system is installed at the separate building/structure

This is what triggers the question you're asking. This grounding electrode system (ground rod, concrete encased electrode, etc.) is connected to the equipment grounding bus (or similar) within the separate building/structure's panel.4.

Overcurrent Protection: The overcurrent protection of the feeder must not exceed ratings in 250.32(B)(1)(4)Why Doesn't This Always Create a Continuous Metallic Path to the Grounding System?

Your concern is valid. If you always create a metallic path connecting the two buildings, you cannot use Exception No. 1. Here's the key: The grounding electrode at the separate building is local

It's only connected to the grounding system within that separate building/structure. It is not directly or indirectly connected back to the source building's grounding electrode system through a continuous metallic path.

The metallic paths are the problem

Any continuous metallic path between the buildings creates a parallel path for fault current. If a fault occurs at the separate building and the grounding electrode becomes energized, the fault current has a parallel path back to the source along the metallic path, and also through the earth. This can result in objectionable current, and potentially dangerous touch voltages. The goal of the exception is to isolate the grounding systems.

Example Scenario & Application

Let's say you have an old garage (separate structure) fed from your house. The feeders to the garage only have two hots and a neutral (no EGC).1. No Continuous Metallic Paths

You ensure there's no metallic water pipe, gas pipe, or other continuous metallic connection between the house and the garage. The feeder wires are in PVC conduit.2.

Insulated Neutral

The neutral in the feeder is insulated (as it should be).3.

Grounding Electrode at Garage

You install a ground rod at the garage and connect it to the grounding bus in the garage's subpanel.4.

Feeder Protection

The overcurrent protection of the feeder does not exceed 100AIn this case, Exception No. 1 applies. The ground rod at the garage provides a local path to ground for the equipment grounding system in the garage, but is not connected back to the house's grounding system.

What If You Do Have Metallic Paths?

If there is a continuous metallic path (e.g., a metallic water pipe connecting the buildings), then you cannot use Exception No. 1. You must run an EGC with the feeder conductors from the house to the garage, bonded to the grounding electrode system at the house, and bonded to the equipment grounding bus at the garage.

In Summary

The core of Exception No. 1 is to isolate the grounding systems of the buildings unless you provide a dedicated EGC. The grounding electrode installed at the separate building is a local ground, not a connection back to the main grounding system through any metallic path. If you can't eliminate continuous metallic paths, you must run an EGC with the feeder.Always consult the NEC and local AHJ for specific interpretations and compliance in your jurisdiction. Flag for review