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So there was a separate automatic transfer switch as part of the installation. That actually makes sense. The auto transfer switch would wait for good power from the gen set before switching from utility to generator power. I suspect you're right about the heaters all working off utility...

That sounds probably true. It's worth looking into getting the stock VR fixed, though - it's probably very simple electronically speaking because this unit falls in just the right age range: new enough to be transistorized, but not so new that everything is a potted, unrepairable custom IC...