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I had a panel with 150 amp breaker. The ungrounded conductors were 2/0 aluminum but the neutral was 1/0 Aluminum. I listed it as 150 amps but I am wondering if the 1/0 neutral is a defect. I did a little research and found this use to be common but it’s not allowed anymore. Do I list this as a defect? Is it a major issue? What are your thoughts?

There is no defect. The neutral is sized to carry to connected neutral current and may be smaller than the ungrounded conductors. SEU cable is typically constructed with a neutral conductor that is one or two sizes smaller than the phase conductors.

http://www.homedepot.com/p/Southwire-By-the-Foot-4-0-4-0-2-0-Gray-Starnded-Al-SEU-Cable-13097199/205001801

To expand, a 240 circuit does not add any load to the neutral which allows it to be smaller. Part of a load calculation will size the neutral based on its current.

Thank you. I just don’t recall having seen that before.

You would have if you ever used Type SE-U or SE-R Cable. UL 854 permits the construction.