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What is the 125% rule, and why does it matter?
You must size a conductor so it’s large enough to handle the load. When sizing branch circuits, you must multiply the continuous load(s) by 125% [210.19(A)(1)]. The same rule applies to feeders [215.2(A)(1). Then you add up the loads to determine the total load.
So if your circuit has 40 kVA of continuous load and 20 kVA of noncontinuous load, the total isn’t 60 kVA. It’s 70 kVA.
The NEC defines a continuous load as one that’s expected to be on for three hours or more . It’s not necessary to conduct extensive research into load usage. You just need to make reasonable assumptions about the load. For example, you would expect office lights to run at least three hours. It’s unlikely that the trash baler will run for more than a few minutes at a time.
Why does this rule exist? The idea behind it is heat dissipation. A running load is producing heat in the conductor. When it’s not running, the conductor is cooling.
Nothing in the NEC prevents you from sizing all loads at 125%. Doing so will result in oversized conductors. This may reduce voltage drop, and thus improve efficiency. But it may unreasonably increase construction costs.
A good way to look at this rule is you make it the default. Where you know that loads are noncontinuous, you size them at 100% instead of 125% to get a construction cost-savings.