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1) All sub-panels require a 4 wire circuit, 2 hots, 1 neutral and 1 equipment grounding conductor.
2) A sub-panel is both 120 and 240 volts. A neutral wire is required.
3) If you only want (1) one 120 volt branch circuit, you can use one of the black wires as the hot, the 2nd black wire will need to be re-identified as a neutral wire using white electricians tape at each end and you would need the ground.
4) You would also need to use a 15 amp single pole circuit breaker in the main electrical panel and pigtail some 14 AWG copper onto each of the existing black wires in order for the conductors to fit onto the 15 amp circuit breaker and the receptacle screw terminals.
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I had considered turning one of the black wires into a nuetral. Thanks for confirming that. But what I don't understand is how could the original installers get by with not running a 4 wire 220 cable in the first place. Wouldn't that be against electrical code to do that? When I removed the cable to the main panel from the heater I only saw the 3 wires. It was connected to a 2 circuit breaker. It also had a 3 wire cable running from it to the outside unit. running off this same junction.
1) You mentioned that it was a heater. If a 240 volt heater, then no neutral wire is required, only the 2 hot's and 1 ground.
2) If it was a sub-panel using both 120 and 240 volts, yes, that is an electrical code violation.
3) If they tapped into the circuit and extended it to the exterior for a receptacle, that's also a code violation and not safe.
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