President Donald Trump speaks during a lunch with African leaders in the State Dining Room of the White House, Wednesday, July 9, 2025, in Washington (AP Photo/Evan Vucci).
A coalition of states is suing the Trump administration for placing caps on federal reimbursements for a bevy of energy programs.
On May 8, the Department of Energy (DOE) issued a “Policy Flash” that established “a maximum allowable dollar amount (stated in terms of a percentage of the total project award amount) that it will reimburse for allowable, allocable, and reasonable indirect costs.” The memorandum further went on to advise states and municipalities that the specific reimbursement “maximum percentage is 10 percent” and “inclusive of total indirect costs and fringe benefit costs.”
Buried under the bureaucratese, the plaintiffs states say, is an attack on “vital” state-run programs – one that is likely to raise costs for consumers in the states affected by the new policy.
On Friday, in a 38-page lawsuit, 19 states and the District of Columbia, asked a federal judge in Oregon to vacate the policy, declare it “unlawful,” and enjoin its application.
Love true crime? Sign up for our newsletter, The Law&Crime Docket, to get the latest real-life crime stories delivered right to your inbox.
The plaintiffs, led by New York Attorney General Letitia James, say the litigation is necessary because the DOE awards provide the states “with key services and programs” and the new policy will “unlawfully limit” those awards to the detriment of renewable energy initiatives.
In real terms, basic administrative or staffing costs needed to run federally funded programs are known as “indirect” costs; employee benefits for program staff are known as “fringe” costs.
“Because indirect and fringe costs awarded by the DOE to Plaintiff States fund crucial work like supporting energy security, lowering energy costs, reducing greenhouse gas pollution, and enabling the transition to clean energy sources, Plaintiffs bring this action to protect their states and institutions from DOE”s unlawful policy,” the lawsuit reads.
The plaintiffs claim DOE’s “historical practice” is to award indirect costs and fringe benefits to state energy agencies – and that the agency has long “accepted” those agencies’ “negotiated indirect cost rates with other cognizant federal agencies.”
In other words, the states have long received federal support for myriad energy programs. Now, they say, the Trump administration is abruptly trying to limit such support under a hard dollar amount.
The states say this change directly violates an Office of Management and Budget (OMB) regulation that says “a federal award be comprised of all allowable direct costs and allocatable indirect costs,” according to the lawsuit. The proposed change would also violate an OMB regulation requiring the federal government to “accept” state “agencies’ negotiated indirect cost rates,” the plaintiffs claim.
More Law&Crime coverage: ‘Need not spend much time on this’: Judge sarcastically blocks Trump admin from using ‘gender ideology’ executive order to cut domestic violence prevention funds
The upshot of this will be increased costs for consumers – with significant damage to renewable energy programs, the lawsuit says.
From the filing, at length:
Plaintiff States will be harmed by the Policy Flash because their State agencies cannot sustain DOE-sponsored grants if the maximum reimbursable dollar amount for indirect and fringe costs is capped at 10% of the total award amount. Plaintiff States rely on these grants to implement clean energy generation and energy efficiency projects; fund weatherization assistance grants to help reduce energy bills for income-qualified residents; provide technical assistance and modeling support for state energy planning processes; and support emergency preparedness efforts, including nuclear emergencies. Plaintiff States’ agencies will not be able to maintain these programs and activities at current levels and may be forced to abandon numerous projects and lay off staff.
“If allowed to stand, the cap would strip away the resources states rely on to keep programs operating and ensure federal dollars reach the people they are meant to help,” James’ office added in a press release. “It would force states to make deep cuts to staffing and operations, sharply reducing their ability to deliver energy efficiency rebates, technical assistance, and weatherization services to households and small businesses. Projects to modernize the electric grid, expand renewable energy, and strengthen resilience against extreme weather could be delayed or cancelled.”
Each of the states lay out their own cases for what the cuts are likely to do to their budgets and renewable energy programs.
“[F]or example, the loss to Colorado would be approximately $367,000,” the lawsuit goes on. “If applied, the Colorado Energy Office will not be able to adequately support its current staffing needs across several teams. This will severely interfere with Colorado’s ability to promote energy efficiency and implement renewable energy across the state, as implementation of the Policy Flash will be deeply damaging to CEO’s ability to staff ongoing programs to support energy security, lower energy costs, reduce greenhouse gas pollution, and enable a state-wide transition to clean energy.”
The litigation is premised on two violations of the Administrative Procedure Act, the federal statute governing agency actions.
The lawsuit notes that four times since President Donald Trump returned to the White House, four different courts have “swiftly intervened” and chastised federal agencies – including the DOE – for issuing caps on the recovery of indirect costs, each time “enjoining or vacating these policies as unlawful on these same grounds.”
“Attorney General James and the coalition argue that the new policy is unlawful, violating federal regulations that require agencies to honor negotiated indirect cost rates between states and the federal government, mirroring similar caps that federal courts have recently struck down,” the press release goes on. “The attorneys general emphasize that every court to have ruled on the merits of such blanket limits has found them unlawful, unjustified, and disruptive to essential public programs.”
