Is 2/0 wire required for a 200A panel with a 150A nominal load?
According to 2017 NEC Article 310.15 (B)(7). The sizing of the conductors can permitted to be sized in accordance with 301.15(B)(7) (1)through (7). Meaning it must meet the requirements of (1)-(7). If it does meet those requirements. Then a 200A service feeders taken from Table 310.15(B)(16) column 2 could be a 2/0.

The calculation would be 200A (which is normally a 3/0)*.83 (310.15(B)(7)(1))= 166A. Using Table 310.15 column 2 the next largest conductor would be a 2/0 (175A).

I really can't be more specific but you would have to detail all of the requirements of 310.15 (B)(7) (1)-(7). I am not sure what you mean with "local power authority" but if it is your authority having jurisdiction (AHJ) aka the electrical inspector. Then they have the final say about what is to be installed. I suggest you have your contractor and AHJ and reach a conclusion.

Hope this helps.