California Democrats have embraced a new form of favoritism: contracts for businesses that are state-certified as being owned by LGBTQ+ individuals.

The scheme operates through the California Public Utilities Commission (CPUC), which regulates privately owned utility companies.

In 1986, Gov. George Deukmejian signed Assembly Bill 3678,which required certain CPUC-regulated utilities to submit annual “plans” for buying goods and services from female- and minority-owned companies. Two years later, CPUC created its “Supplier Diversity Program,” which would enforce the law and set contracting “goals” for large utilities.

Under a series of Democratic governors, the program has expanded to include gay-owned businesses. In September 2014, then-Gov. Jerry Brown signed legislation requiring CPUC to recognize “LGBT-owned businesses” as eligible for supplier-diversity benefits.

Five years later, Gov. Gavin Newsom expanded the program, “encouraging” other companies involved in the energy sector to award contracts to gay-owned firms.

In the years that followed, CPUC faced activist pressure as it implemented the LGBTQ+ expansion. BuildOUT California, a since-rebranded LGBT building-industry organization, sent a letter to the commission arguing that “homophobia” existed within “the ranks of the utility companies.” The state’s legislative LGBTQ caucus suggested in a 2021 letter that even considering lower procurement targets was “an insult to the LGBTQ+ community.”

By 2022, CPUC had fully implemented the expansion. In practice, this meant establishing a “goal” for utility companies with annual revenues exceeding $25 million to buy things from state-certified LGBTQ+ businesses: 0.5% of procurement in 2022; 1% in 2023; and 1.5% in 2024 and beyond.

This scheme raises an obvious question: How does a business qualify as officially gay?

Paperwork. Supplier Clearinghouse, a group that certifies firms for the CPUC program, features a list of qualifications linked on its website. Applicants can secure certification by providing a letter from an “LGBT organization” attesting to their sexual preferences; proof that a newspaper identified them as “LGBT”; or three letters from “personal contacts” written “on company letterhead” attesting to their homosexual orientation. Corporate officials who “falsely represent” their business as gay face up to a year in county jail.

Supplier Clearinghouse also accepts gay-certification letters from the National LGBTQ+ & Allied Chamber of Commerce. The chamber has its own list of accepted documents, including human resources complaints or police records claiming LGBT discrimination. As NGLCC states on its website, “Certification is a journey, not a destination.”

LGBT-owned companies in California play other roles. In 2022, San Diego Gas & Electric (SDG&E) spent $8.6 million, or 0.36% of procurement, on LGBTQ+ businesses, apparently including one that produced a training video on supplier diversity. “Never fear when your Ambassador for Excellence is here,” an animated character says in the video. “I can show you exactly how to source diverse vendors.”

Other certified LGBTQ+ businesses in California include a sign-language interpreter, a kombucha maker, and a “coaching” firm whose services include a “series” to help people “manage” their feelings about “[t]he latest election cycle.”

In California, preferential public contracting is technically illegal. In 1996, voters approved Proposition 209, which banned the state from granting preferential treatment based on race, sex, or ethnicity in public employment, education, and contracting. More than two decades later, in 2020, voters rejected an effort to repeal the ban. 

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CPUC’s arm-twisting regulations violate the spirit of the law. The commission lists several specific “goals” for utilities’ contracting rates: 15% to minority-owned firms; 5% to women-owned firms; 1.5% to disabled-veteran-owned firms; and, most recently, 1.5% to LGBT-owned firms.

CPUC claims that these goals are not a “requirement” or “quota.” In practice, however, the agency cajoles utilities into compliance by requiring them to collect extensive demographic data, submit detailed annual reports, list their plans for increasing procurement from favored groups, and explain “any circumstances that may have resulted in not meeting” their procurement “goals.” 

Despite the commission’s efforts, however, utilities and businesses don’t seem interested in LGBTQ+ certification. Large utilities’ procurement with LGBTQ+ businesses decreased by 5% in 2024. Supplier Clearinghouse lists 3,750 Minority Business Enterprises, but only 451 firms certified as LGBTQ+.

CPUC did not respond to our request for comment by deadline.

The state imposed these rules based on the view that government spending should not merely purchase goods and services, but should also engineer social outcomes. Under this framework, buying a hammer from a firm owned by a black transgender lesbian has more social value than buying the same hammer from a firm owned by a straight white man.

But Californians don’t need an energy system determined by sexual orientation; they need an energy system that works. Utility regulators should be in the business of regulating utilities, not verifying contractors’ sexual preferences.

Companies should award contracts based on competence, quality, and cost — not the sexuality of the business owners.

Christopher F. Rufo is a senior fellow at the Manhattan Institute, a contributing editor of City Journal, and the author of America’s Cultural Revolution. Austen Hufford is a senior investigative reporter at City Journal.