ETN550
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I think Ike has it figured out. Running the house on L1 / L2 with a frame ground on the generator will work fine. You automatically get the ground reference by making a connection to the neutral (bonded to ground) at the house. Phantom voltage sounds correct based on your findings. Different meters will read differently when these stray voltages are measured and have no real current backing them up.
So when running, frame grounded, L1 hot to house L2 neutral to house, load it up some, confirm L2, L0, and L3 output lugs as Zero to frame ground and you have proved 1) Your House ground and gen ground are both solid, and 2) the generator head is floating and not grounded. If so, you may bond the L2 at the generator to the generator ground if your code or application requires it.
Think of it this way: When none of the output lugs are grounded to the frame (internally or externally) the gen head has no reference. Depending on leakage, the L1 and L2 measurement to ground could be anywhere from 0 to 120 each but the sum of L1 to GND + L2 to GND = 120. By grounding an output lug the generator head is now referenced to ground. Since Neutral is referenced to ground in the house the selected L2 lug becomes neutral when grounded to the previously grounded gen frame.
Grounding the frame only protects the operator if the operator is grounded and touches the frame when there is a direct internal short (failure) in the generator head.
Grounding the output lug serves the purpose of matching the house and establishing the common reference between house and generator head.
So when running, frame grounded, L1 hot to house L2 neutral to house, load it up some, confirm L2, L0, and L3 output lugs as Zero to frame ground and you have proved 1) Your House ground and gen ground are both solid, and 2) the generator head is floating and not grounded. If so, you may bond the L2 at the generator to the generator ground if your code or application requires it.
Think of it this way: When none of the output lugs are grounded to the frame (internally or externally) the gen head has no reference. Depending on leakage, the L1 and L2 measurement to ground could be anywhere from 0 to 120 each but the sum of L1 to GND + L2 to GND = 120. By grounding an output lug the generator head is now referenced to ground. Since Neutral is referenced to ground in the house the selected L2 lug becomes neutral when grounded to the previously grounded gen frame.
Grounding the frame only protects the operator if the operator is grounded and touches the frame when there is a direct internal short (failure) in the generator head.
Grounding the output lug serves the purpose of matching the house and establishing the common reference between house and generator head.