Options for DOE award “Cancellations”

The current administration has enacted two sets of “cuts” to clean energy demonstrations. The first was a broad set against industrial demonstrations and some carbon capture, the most recent was against projects in blue states at the start of the shutdown.

What you need to know, in short:

1. The recent cancellations were largely in blue states as a retaliatory measure for the federal shutdown

2. Cancellations are not final. Example: blue states that fought CDC cuts kept most of their money

3. Since many or most these award cancellations will be successfully appealed in some form, these cancellations are largely just political theater

4. Some of the projects that were cancelled were actually terrible. I know because I was the Director of Analysis at the DOE at the time and my team recommended against making many of the awards. These duds don’t have a chance of winning an appeals process and should back out now

Next steps and implications for “cancelled” projects:

1. Submit the appeal. A “cancelled” project has 30 days to start the appeal process. For the recent batch, that mean there is less than two weeks to finalize

   1. If a project is already falling apart - like major change in vendors or project leads, call it a day and walk away

2. Assess the value and cost of continuing the appeal. To try to settle for just the Phase I feasibility funding (5% of total award), it may be as simple as going through the motions, but for a small award even this won’t be worth it. To get more, you will need to get a competent, experienced lawyer. For some projects this could be a talented local lawyer to your district, for the largest it means a flagship DC firm with experience in district or federal claims courts

   1. A DOE awarded H2 project at this point has no feasible chance of making the 45V timeline - OCED/DOE will hold up any NEPA permitting to prevent 45V timeline compliance. If I were running an H2 project looking for 45V, I’d run the #’s on whether award funding or 45V is more lucrative - keeping in mind that some projects are spending $66 on reporting for every $100 they receive under the current administration. In short - an H2 project likely should continue with local and state permitting

3. Go through the motions of the appeal. The DOE is going to make your life miserable with all the hoop-jumping. That includes having the appeals hearing in-person at Germantown, Maryland - difficult to get to as it’s not near an airport. As a result, small headline size projects aren’t worth defending

4. Litigate (I can recommend a DC based team that has a former DOE lawyer on staff)

5. Worst case scenario of a successful appeals is getting the entirety of Phase 1 or Budget Period 1 funding - about 5% of total headline size meant for feasibility

6. Best case scenario is more complicated - but results in damages awarded that are a significant chunk of the total award

   1. Having DC local law firms may be necessary to achieve best case scenario - and their hourly rate means only very large projects should consider appeals

Why awardees of good projects will win in court

Congress controls funding. The current congress is not keen on defending their constitutionally-granted right of controlling funding, but the court system is keen to defend awardees on this basis. There are five reasons why these cuts that work against the current administration

1. These awards are contracts. Only Congress or the courts have the ability to unilaterally change the contracts - and the administration is getting torn apart in the courts for unilateral changes (see CDC example above)

2. “Change in administrative goals” - IE new president does not like project - is not a valid reason for contract cancellation. Largely this is what they are using, and it is very vulnerable to litigation

3. The original $20B for demonstrations provided by the Infrastructure Investment and Jobs Act (IIJA) had no sunset on when the money had to be spent. In other words, any cancelled funding will still exist and a future administration could re-run the award process. The implication here is that the money has to go out one way or another. This is statutory as in it is written in the law, not an interpretation by another administration. It will be very clear to courts that this money is meant to go out, not be clawed back without reasonable cause

   1. IRA projects usually have sunset dates on the funding - so that money is gone and will not come back without new legislation

4. The timing of the cuts - at the start of the shutdown - makes it look suspect since these funds were never supposed to sunset and they are appropriated already. Courts will frown upon this

5. The target of the cuts - almost entirely blue states - drives home the point that this was retaliatory. Some courts will go beyond frowning and will question the intelligence and preparation of the career Department of Justice and DOE lawyers who are stuck with defending this

A very important point: most subsidies and awards have a sunset date whereby the money is un-appropriated if it is not spent by a certain date. In these cases, an administration can stall until the funds expire. IRA funding is subject to this. For IIJA projects, this is not the case. There is no expiry date. The current administration has two paths forward for cut projects:

1. Convince Congress to rescind the funding - which won’t happen since the Republicans in control of congress lost their unquestioned support during the passing of the “one big beautiful bill”

2. Re-run the funding after rescinding it - which will get them into a very quick lawsuit that ties it up until the next administration

3. Leave it to the next administration to re-run

None of these are good scenarios for cutting IIJA funded projects - they all point to the cuts being capricious and poorly thought out. These scenarios will come up during initial litigation of cancellations. The defendants (the DOE) will have significant trouble defending most of their cuts.

Reasons to move forward without the government funding

For many awardees, the best path forward will be to either cut their project at the current feasibility stage and recover what money they can. For others, the best path will be to move forward while litigating. Hypothetically, if a project were to litigate with the outcome that the court forces DOE to honor and run the contract, the current DOE will put up barriers to project execution with two goals. First, make the money as difficult to get as possible. Currently the DOE awardees are spending 66 cent of every dollar they are awarded to do paperwork for the DOE, and the DOE can make it worse. Moreover, going back to courts to prove the DOE is slowing progress will add more cost.

In this case, it would be preferable for both sides for the contract to be cancelled with damages to the awardees. The current administration could claim a win for successful cancellation of projects while ignoring the damages awarded, and the awardees could get the same amount of money after accounting for the cost of doing business with the federal government as damages in awards. There is no guarantee any awardees will be able to pull this off, but it is one potential outcome according to some of the lawyers I’ve spoken with.

If the headline size of the awards looks too small, but a project is still profitable owing to the high cost of power we’re now facing, many projects will be better off moving forward without any federal funding and without even bothering with the appealing process. The appeals process will be purposefully annoying, and if the higher power prices make a project ROI attractive, avoiding the extra year or more of DOE paperwork will be the smarter decision.