On 2009-06-16, iwdplz wrote:

The general home inspector says that since the main panel in the
basement doesn't have a main breaker, it is a code violation.
Instead the main breaker is outside near the pole which the home
inspector is calling a "supplementary disconnect."

An important distinction to understand is that once the service
conductors from the utility hit the first disconnect and circuit
breaker, any conductors after that point are feeder conductors, not
service conductors. Outside feeders are covered by Article 225, not
Article 230 (Service conductors).

Another point to note is that generally if the main lug only panel has
no more than six breakers in it, it can count as a disconnect; it
doesn't need to have a main breaker.

The relevant part of the National Electric Code is Article 225 Part
II. From the 2008 version, here are 225.31 and 225.32:

225.31 Disconnecting Means. Means shall be provided for
disconnecting all ungrounded conductors that supply or pass through
the building or structure.

225.32 Location. The disconnecting means shall be installed either
inside or outside of the building or structure served or where the
conductors pass through the building or structure. The disconnecting
means shall be at a readily accessible location nearest the point of
entrance of the conductors. For the purposes of this section, the
requirements in 230.6 shall be utilized.

[230.6 defines when a conductor is considered outside a building.]

If the pole with the disconnect is right next to the house (some
jurisdictions use a standard of within 5 feet), then usually that is
interpreted to satisfy these requirements. Otherwise, you definitely
need a main disconnect at the house which should be outside or inside
"nearest the point of entrance of the conductors". This last phrase
is open to interpretation and varying by jurisdiction; some might
allow a maximum of 15 feet inside, others more like 15 inches.

I don't know the history of these requirements, but I expect they were
in force in 1999.

He says the main panel needs to be replaced which would cost
thousands.

Many panels can be field configured with a main breaker or as main
lugs only, so it is possible that a simple kit will add a main
breaker. Failing that, depending on the routing of the feeder from
the pole disconnect to the main-lug-only panel inside the house, you
might be able to install a stand-alone disconnect before the existing
panel, so you don't need to mess with the panel branch circuits at
all.

Cheers, Wayne