By Hank Russell
Attorney General Letitia James filed a lawsuit against the U.S. Department of Energy (DOE) to block the agency from imposing a new funding cap that she said slashes support for vital state-run energy programs, which could ultimately raise costs for New York households. Energy Secretary Chris Wright was named the defendant in the suit.
The DOE policy would prevent states from using critical federal funds by limiting reimbursement for key administrative and staffing costs that have long been covered by these federal energy programs, according to the lawsuit. James and the coalition argue that by capping certain funding for these programs, DOE is jeopardizing states’ ability to keep them running, which threatens consumers’ access to critical benefits and savings. The attorneys general are asking the court to vacate this unlawful cap and restore the legally required reimbursement rates for these essential energy programs.
Joining James in filing this lawsuit are the attorneys general of California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Michigan, Minnesota, Nevada, New Mexico, North Carolina, Oregon, Washington, Wisconsin, and the District of Columbia, as well as the governors of Kentucky and Pennsylvania. The suit was filed in U.S. District Court for the District of Oregon.
For decades, federal law has required agencies like DOE to negotiate agreements with states that set fair reimbursement rates for federally funded, state-run programs, said James and the coalition. This includes the basic administrative or staffing costs needed to run federally funded programs, known as “indirect” costs, and employee benefits for program staff, known as “fringe” costs. These have never been subject to a cap.
On May 8, 2025, DOE announced a new policy that ignores this longstanding practice, capping indirect and employee benefit costs at 10 percent of a project’s total budget, regardless of previously negotiated rates or actual need.
If allowed to stand, according to James and the coalition, 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. 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. State budgets would face sudden shortfalls, and agencies would be forced to spend more time and money navigating DOE’s new budget rules, leaving fewer resources for direct consumer assistance.
In New York, the damage would be immediate and severe, James and the coalition said. The New York State Energy Research and Development Authority (NYSERDA) estimates the new cap would slash about $1.6 million from one grant alone, the State Energy Program (SEP) formula grant, creating an unexpected cost burden the state cannot meet. Last year, NYSERDA was awarded more than $1.8 million for indirect and fringe costs. Under the new policy, that funding would be cut to just $314,000, a fraction of what is needed to perform the work.
The SEP award is a major funding source for New York’s energy planning, emergency preparedness, and energy security work. It helps fund 26 staff positions — from administrators to nuclear safety specialists — who develop the State Energy Plan, monitor and respond to fuel supply disruptions, work with federal agencies to protect public safety near nuclear plants, and manage New York’s Strategic Fuel Reserve.
This funding also helps the state ensure the state’s energy systems can withstand extreme weather or disasters, determine how electricity prices and market rules are set, and run annual practice drills so the state can respond quickly if the power grid or fuel supply is disrupted. Without full federal support, NYSERDA could be forced to cancel or delay programs that enable the state to meet energy demand while prioritizing affordability.
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, and also additional federal regulations regarding fringe. 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.
The attorneys general are asking the court to vacate DOE’s new policy and bar implementation of any unlawful reimbursement caps.
“New Yorkers count on state energy programs to save money on their bills, prepare homes for extreme weather, and move toward clean, affordable energy,” James said. “The Department of Energy’s cuts threaten to pull the rug out from under those efforts. We’re taking them to court to protect the funding that keeps these programs running for families across New York.”
New York State Energy Research and Development Authority President and CEO Doreen M. Harris added, “During the peak of hurricane season, the Trump administration is putting in jeopardy the state’s capacity to plan for the impacts to our gasoline system and take appropriate action to protect New Yorkers and our economy. This attempt by the U.S. Department of Energy to undermine essential and critical energy planning and emergency response services should not go unchallenged.”
Long Island Life & Politics reached out to the Energy Department and is waiting to hear back.