Is it acceptable to protect 1/0 at 260 Amps?

[pipe_bender]

Question for the group, sorry if this is really basic
So I opened up a very old, rusted service entrance wireway today to find a failed old 'rubber tape ball' splice, that has two taps one supplies a fused disconnect (60A) and the other a main breaker panel with a 200A main and 4/0 AL.
The thing is the service entrance conductors are 1/0 tinned copper RHH / RHW, and they were in contact with 4/0 Aluminum in a split bolt for god knows how long and fuzzed out into that white oxide dust causing the outage.
I can fix all that put in some 3/0 copper to the 200A panel but
Is it acceptable to protect 1/0 at 200 + 60 (260) Amps? I plan to replace the wireway and the AL wire the splices with Polaris blocks but not the service. I am going to run 3/0 CU to the 200A main.

Seen this before at a office building that had MLO panel as the service with six 3-pole breakers each to 'sub' panels.
the breakers added up to like 1200 amps but it was only like 2 sets of 250 McM copper (Old type TW)
Does or did this meet code at did it at one time?
Arnt we supposed to protect service conductors from overload?
The customer just wants a repair its a old industrial building that has several tenants, but might get bulldozed in the next few years to make way for a new building.
I could try to source a 150A main and remove the fused disconnect making it a proper 150A service but then a can of worms begins. I'd prefer to just do what was asked and only fix as necessary.
Thank you Mike and everyone for your advise.

 

[don_resqcapt19]

As long as the calculated load is less than the ampacity of the conductor, the sum of the service
OCPDs can exceed the ampacity of the service conductors.

 

[pipe_bender]

Thank you, so the 1/0 CU is OK then.
presumably the tap to the 200A breaker needs to be 3/0 ?
and the tap to the 60A disconnect needs to be #6 ?

 

[don_resqcapt19]

Thank you, so the 1/0 CU is OK then.
presumably the tap to the 200A breaker needs to be 3/0 ?
and the tap to the 60A disconnect needs to be #6 ?

Yes, the conductors to the individual service disconnects must have an ampacity at least equal to the rating of the OCPD in the service disconnect.
The only real issue is what the actual total calculated load is. To be sure the 1/0s are suitable you need to do a full load calculation, or get the demand information from the utility if that is available.