States secure win against feds in energy grant dispute

(CN) — Several states won a legal bout Monday against the federal government over a rule they say improperly limited grant dollars for energy projects.

The case — which included New York, California, Oregon and other states as plaintiffs — involved a policy flash, a tweak to an existing rule. At issue was a change to the state energy program, under which the federal Department of Energy gives financial assistance to states for energy conservation projects.

In May, the Energy Department issued a policy flash that limited payments or reimbursement of allowable and reasonable indirect costs to a maximum of 10% of the total money awarded to a state.

In the past, grants have included indirect costs that far exceed 10% of the total project price. In fact, U.S. District Judge Mustafa T. Kasubhai, of the District of Oregon, noted in his ruling that if the policy flash were in effect last year, the Energy Department would have rejected 47 out of 56 grant applications.

The states sued in August, saying the new policy violated the law. The Energy Department pushed back with a motion to dismiss the case.

Kasubhai on Monday ruled in favor of the states and denied the motion to dismiss.

“The court finds that a declaratory judgment is appropriate here because such relief will ‘serve a useful purpose in clarifying and settling’ the legality of the policy flash and ‘will terminate and afford relief from the uncertainty, insecurity, and controversy’ caused by it,” the judge said in his ruling.

Kasubhai pointed to existing law, noting that a federal grant includes both allowable direct and indirect costs. Regulations provide a method for states to recover indirect costs through a negotiation process with the energy department.

The May policy flash significantly affected the states.

“Summarizing the common impacts in general terms, the policy flash has or will have the effect of forcing plaintiffs’ energy agencies to reduce staff, which plaintiffs contend hinders their ability to complete projects and further longstanding programmatic goals,” the judge said. “Many plaintiffs also note that they will be required to secure additional funding sources as a result of the policy flash.”

The states argued that because the policy flash clashed with existing regulations, it was unlawful.

Kasubhai called the policy flash clear. The Energy Department wouldn’t reimburse indirect costs over 10%. If states sought reimbursement over that cap, their grant applications would be discarded.

Additionally, the judge said the policy flash failed to comply with existing requirements. The federal government must make its policies and general decision-making criteria publicly available. Also, it must obey negotiated rates and justify any changes from them.

“Here, defendants have done no such thing,” Kasubhai said. “The policy flash does not identify or set forth a scheme to implement a procedure or identify criteria to ‘seek and justify’ deviations, but instead simply announces a categorical rule.”

The judge in his decision also denied the Energy Department’s motion to dismiss. It had argued that Kasubhai lacked jurisdiction, as the law didn’t allow him to review decisions under the purview of an agency’s discretion or aren’t the final decision by an agency. The states disagreed, arguing that guidance adopted by the Energy Department provides a standard for courts to review.

“Indeed, defendants acknowledge that the policy flash does nothing to alter the set amount of funds allocated to each state every year,” Kasubhai said, adding later: “Instead, the policy flash dictates the types and proportions of costs it will allow those appropriated funds to be used for.”

That meant the policy flash fell under existing regulations, and not agency discretion.

As for the finality of the policy flash, Kasubhai said it updated rules that dictated financial awards given to state and local governments and was effective immediately.

“On its own terms, the policy flash does much more than indicate an intent to make a future decision; it is a decision to update defendants’ policy to include a cost cap for new and conditional awards,” the judge said.

A spokesperson for New York Attorney General Letitia James on Monday referred to a statement James made in late September about the same federal case.

“Once again, my office has successfully stopped the federal government from illegally cutting off funding that New Yorkers rely on,” James said at the time.

An attorney for the energy department in an automated email said he’d been furloughed because of the government shutdown.

The U.S. Department of Justice, in response to an inquiry, stated that its email wouldn’t be monitored regularly because of the government shutdown.