December 2, 2025 - The U.S. Senate Subcommittee on Energy and Water Development Appropriations (SEWD) released a bill and corresponding report on Nov. 24, 2025, to fund the U.S. Department of Energy (DOE), U.S. Army Corps of Engineers and U.S. Bureau of Reclamation for fiscal year (FY) 2026. The bill was posted by the majority, as the committee was unable to come to a bipartisan agreement allowing it to move forward with a markup. SEWD Chair John Kennedy (R-LA) released a statement noting that his bill "would result in a 1.1% reduction in spending for the Appropriations Subcommittee on Energy and Water Development, making it the only FY 2026 Senate appropriations bill so far that cuts spending."

Note: In September, the Republican-controlled U.S. House of Representatives passed its own FY 2026 Appropriations Subcommittee on Energy and Water Development and Related Agencies (HEWD) bill without any Democratic support.

Sen. Patty Murray (D-WA), Ranking Member of both SEWD and the full Senate Appropriations Committee, expressed some concerns with the bill, especially its cuts to energy programs. However, she also acknowledged its inclusion of "important priorities [she] strongly advocated for," including 11 earmarks for Washington state, and committed to engaging in negotiations to bring the bill closer to passage. Some Democratic support will be needed as 60 votes are required to advance appropriations bills in the Senate.

The SEWD text and report contain several notable provisions regarding DOE funding programs and propose less aggressive cuts to clean energy programming than both the HEWD FY 2026 bill and the president's FY 2026 Budget Request. Also of note, both chambers' appropriations bills align with the previous DOE organization and leadership structure and do not yet reflect the newly released organization structure. More information about the reorganization is available in a previous Holland & Knight blog post.

Highlights and Notable Language

Grant Termination Guardrails and Indirect Cost Rates

SEWD's bill requires DOE to notify both HEWD and SEWD at least 120 days prior to the effective date of any grant termination. Of those 120 days, no fewer than 90 days shall be provided to work with grantees to restructure or rescope the award to better effectuate program goals or agency priorities. While restructuring or rescoping, recipients shall continue to be reimbursed for work done under the award. If there is no ability to restructure or rescope and, thus, the award is terminated, the bill states that DOE should prioritize those recipients if they apply to a future funding opportunity for the relevant program.

These policies would apply to projects funded by previous appropriations bills and appropriations provided by the Infrastructure Investment and Jobs Act (IIJA). They exclude Inflation Reduction Act (IRA) funding and awards announced after Nov. 1, 2024.

The SEWD bill also requires DOE to "apply the indirect cost rate to the same extent and in the same manner as was applied in fiscal year 2024." This provision follows DOE initiatives earlier this year to cap the indirect cost rate for FY 2025 awards to institutions of higher education and in certain state government programs, including the State Energy Program (SEP) and Weatherization Assistance Program (WAP).

Reprogramming of Previous Funding

The bill text reprograms unobligated funds from several IIJA provisions to other DOE initiatives or program budgets for FY 2026, including:

• $1.059 billion of unobligated funds from the Regional Direct Air Capture (DAC) Hub Program to the Office of Energy Efficiency and Renewable Energy (EERE), now under the new Office of Critical Minerals and Energy Innovation (CMEI)
• $1.5 billion in unobligated funds from the Carbon Dioxide Transportation Infrastructure Finance and Innovation Program (CIFIA), plus $900 million in unobligated Office of Nuclear Energy (NE) funds, to be reallocated to NE for the Advanced Nuclear Reactor Demonstrations Program (ARDP)
• $92.35 million of unobligated funds from the Regional Clean Hydrogen Hubs Program (H2Hubs) to NE
• $92.35 million of unobligated funds from H2Hubs to Fossil Energy (FE), under the new Hydrocarbons and Geothermal Energy Office (HGEO)
• $75 million of unobligated funds from H2Hubs to Grid Deployment, now primarily under the Office of Electricity (OE), for programming to enhance the domestic supply chain for grid components

Loan Programs

The Loan Programs Office (LPO), now under the Office of Energy Dominance Financing (EDF), has significant loan authority under the Title 17 loan guarantee program from the IRA and $1 billion in credit subsidy in the One Big Beautiful Bill Act (OBBB). The administration requested $750 million in additional credit subsidy through its FY 2026 budget request to support financing of small modular reactors and advanced nuclear reactors. SEWD's bill does not provide that credit subsidy, and in its report language, the committee calls on DOE to use Title 17 authority "to support critical minerals development, processing and recycling projects."

Also within EDF's purview, SEWD's bill does not include the administration's request to rescind unobligated credit subsidy for the Advanced Technology Vehicles Manufacturing (AVTM) Loan Program, while continuing to support the Tribal Energy Financing (TEFP) Program as well.

Additional Highlights

• For the first time, the SEWD bill recommends establishing the Manufacturing and Energy Supply Chains Office (MESC) and proposes a funding level of $19 million, primarily for workforce capacity and competitiveness.
• The Office of Clean Energy Demonstrations (OCED) was also dissolved during DOE's realignment. Despite the office's statutory authorization, an identical recommendation across SEWD, HEWD and the White House budget request is to provide zero funding to OCED for FY 2026. As outlined above, SEWD recommends reprogramming some of OCED's unobligated balances.
• SEWD makes clear its support for the CarbonSAFE program. In its report, the committee directs DOE to issue funding opportunities with remaining IIJA funds for CarbonSAFE projects and continue advancing projects through the program's four phases.
• The more than $100 million in congressionally directed spending (also known as earmarks) in the report funds a broadly bipartisan set of projects, indicating further potential for Democratic support of the package.

Topline Funding Summary

Next Steps

While we don't expect a formal committee markup of the Senate Energy and Water bill, the House and Senate will begin to conference their respective appropriations bills, with the goal of passing as many as possible before the current continuing resolution runs out at the end of January. House Appropriations Chairman Tom Cole (R-OK) has expressed some optimism for that goal and a preference for prioritizing HEWD's package among the earlier bills moved forward.