hmchi,
A lot of good points have been brought up in this thread but the one that stands out to me at the moment is that mentioned by PHovnanian and added to by waross. I am not an expert, I am just thinking this through, trying to contribute some thoughts, and hoping to learn from the responses.
It would seem that there are two basics types of transfers, make-before-break and break-before-make. The 'normal' case (assuming no fault) would be make-before-break in which you would synchronize the cogen to the utility, close the utility tie breaker, then open the cogen generator breaker. Even if the time between closing the utility tie and opening the generator breaker is short, the two sources must be in synch, voltage and frequency, for the transfer to take place this way. It would seem by definition (?) to be impossible to intiate this type of transfer in the case of a tripping fault on the cogen side. Even if you could hold (force) the cogen on line long enough to perform a make-before-break transfer, it is unlikely that you could maintain synchronization to do this because the fault would most likely affect cogen frequency or voltage (or both). I believe this would be true whether the fault was mechanical (prime mover) or electrical.
The second case, break-before-make, is much more forgiving. In this case, a trip on the cogen side would initiate closing of the utility breaker once the cogen breaker is open. This type of transfer can be very fast, but it is not guaranteed fast enough to prevent some loads from dropping. Of course, if your loads include synchronous motors, you will be guaranteed to drop those since they will fall out of sync the moment power is lost.
Finally, there is a worst case scenario that applies to both types of transfer. If the original fault was electrical and it has not been cleared, it seems that all you would accomplish is connecting to the utility long enough to trip the utility breaker. During this time, your fault is being fed power from a much larger source, resulting in much greater damage. That being said, I am not sure if I would want to automatically intitiate a transfer unless I could block transfer when the cogen trip is from an overcurrent relay.
What do you guys think?