The Department of Energy announced it would abandon its controversial "indirect costs" policy that had capped reimbursement for administrative and staffing costs at 10% of a project's total budget, potentially cutting millions of dollars from state energy programs nationwide. The agency also agreed to dismiss its pending appeal of a September 2025 federal court ruling that struck down the funding restrictions.
Attorney General James had argued that DOE violated federal law by implementing the cap without proper authorization, threatening funding that Congress had already approved for state-run energy programs designed to help families lower utility bills and strengthen infrastructure against extreme weather. "The federal government tried to slash funding for vital state-run energy programs" despite "skyrocketing energy costs nationwide," James said in a statement.
The litigation began in August 2025 when James led a multistate coalition in federal court challenging DOE's new policy in the U.S. District Court for the District of Oregon. The states secured a victory in September 2025 when the court ruled in their favor and invalidated the indirect costs cap, finding that DOE lacked authority to impose the funding restrictions.
The case represents part of broader tensions between federal agencies and states over energy policy implementation and funding allocation. State energy programs typically use federal dollars for weatherization assistance, infrastructure upgrades, and emergency preparedness initiatives that require significant administrative overhead to manage effectively.
"By withdrawing its policy and dropping its appeal, the federal government is finally acknowledging what the court already made clear: it cannot ignore the law to cut funding that Congress has already approved," James stated. She characterized the resolution as "a major victory for families in New York and across the country who rely on these programs."
With DOE's withdrawal of both the policy and its appeal, the September 2025 district court ruling stands as final, ensuring states will continue receiving full federal reimbursement for administrative costs associated with energy programs. The settlement brings the litigation to a close without establishing binding precedent on broader questions of agency funding authority.