The policy concerns funding the federal government gives states to help them run their own energy efficiency programs.
Federal agencies reimburse states for some of the indirect costs of those programs like staff, office supplies, and other administration.
Those reimbursement rates often come from negotiations between states and the federal government.
But the new policy flash from the Energy Department is capping them going forward at 10 percent of the amount awarded for a project.
The lawsuit argues that violates existing federal regulations by ignoring negotiated rates and being too strict for what would be allowable as part of a federal award.
The Energy Department says the policy change is to be more responsible with taxpayer dollars.
States say it would put programming at risk.
