Federal Legal Action Initiated by California and Other States Against Department of Energy Over Proposed Budget Reductions
States Challenge DOE Funding Cap in Lawsuit
A coalition of 18 states, led by their attorneys general and governors, has filed a lawsuit against the U.S. Department of Energy (DOE) to block a new funding cap policy announced on May 8, 2025. The policy, which caps indirect and employee benefit costs at 10% of a project's total budget, would significantly reduce federal support for state-run energy programs, potentially endangering essential energy initiatives.
The lawsuit, filed in the U.S. District Court in Eugene, Oregon, names the California Energy Commission (CCE) as a co-plaintiff. The coalition argues that the funding cap violates federal regulations requiring agencies to honor negotiated indirect cost rates between states and the federal government.
The states emphasize that these programs are vital for energy affordability, climate resilience, and equity, particularly for underserved communities. Key plaintiffs include Oregon Attorney General Dan Rayfield, California Attorney General Rob Bonta, Minnesota Attorney General Keith Ellison, Michigan Attorney General Dana Nessel, and New York Attorney General Letitia James, who have all publicly criticized the DOE's arbitrary funding cuts imposed by the Trump Administration.
The lawsuit aims to halt the funding cap immediately and restore the previously negotiated and legally required reimbursement rates for these programs. CEC Chair David Hochschild suggests that the Trump administration's proposed reimbursement rates are inherently problematic, as they would undermine federally funded state-run energy programs.
If the cuts take effect, states would be forced to cover the cost of programs that had long been funded by the federal government. The attorneys general emphasize that every court to have ruled on similar blanket limits has found them unlawful, unjustified, and disruptive to essential public programs.
The coalition argues that the new policy would have both immediate and long-term consequences, especially for underserved communities that rely on these programs most. Bonta's office highlights previous successful challenges to the Trump administration's cuts and limits on other programs.
The lawsuit includes the attorneys general of Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Michigan, Minnesota, Nevada, New Mexico, New York, North Carolina, Oregon, Washington, Wisconsin, and the District of Columbia, as well as the governors of Kentucky and Pennsylvania.
In summary, the lawsuit challenges the DOE's new 10% cap on indirect and employee benefit costs for state energy programs, arguing it is unlawful and harmful, and seeks to restore full funding levels critical to these programs' continuity and effectiveness.
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