Authored by Christopher F. Rufo & Austen Hufford via City Journal,

Americans are used to handouts for favored groups. Affirmative action in university admissions, corporate “diversity” initiatives, and minority-owned contracting requirements direct opportunities, resources, and contracts to supposedly “oppressed” groups, such as women, Native Americans, blacks, and Hispanics.

In California, state Democrats have embraced another kind of favoritism: contracts for state-certified gay-owned businesses.

The scheme operates through the California Public Utilities Commission (CPUC), which regulates privately owned utility companies. California utilities spent more than $43 billion in 2024 on contractors—fuel suppliers, surveyors, engineers, and others—whose work helps deliver water, gas, electricity, and internet service to California’s 39 million residents.

In 1986, Governor George Deukmejian signed Assembly Bill 3678, which required certain CPUC-regulated utilities to submit annual “plans” for buying goods and services from woman- 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-Governor Jerry Brown signed legislation requiring CPUC to recognize “LGBT-owned businesses” as eligible for supplier-diversity benefits. Five years later, Governor Gavin Newsom expanded the program further, “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 gay 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 gay-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 LGBT businesses: 0.5 percent of procurement in 2022; 1 percent in 2023; and 1.5 percent in 2024 and beyond. If “large” CPUC-regulated utilities met these “goals” in 2024, they would have sent roughly $633 million to LGBT-owned firms.

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.”

Mary Ann Horton has experienced this “journey” firsthand. Horton, an early internet pioneer credited with helping develop the e-mail attachment, is a white male who “transitioned” and is now married to a woman. Horton’s company, Red Ace, is registered in California as a woman- and LGBT-owned business.

The application process, Horton told City Journal, required “a mess of documentation.” To prove that Red Ace was “lesbian-owned,” Horton sent Supplier Clearinghouse a domestic-partner affidavit. To establish that the business was woman-owned, Horton submitted a birth certificate, which had been reissued in Washington State post-“transition.” To prove transgender status, Horton filed a “therapist carry-letter,” a document from a medical professional certifying transgender identity.

These designations came with perks. After Red Ace secured these labels, Horton said, San Diego Gas & Electric brought the company on as a part-time cybersecurity contractor. During the hiring process, Horton told us, a company official said that being on the diversity list made the contract much easier to secure.

“If I was a straight, white male, I might be concerned I don’t have the same opportunity,” Horton said. “It worked out great for me.”

LGBT-owned companies in California play other roles. In 2022, SDG&E spent $8.6 million, or 0.36 percent of procurement, on LGBT 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 LGBT 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, they rejected an effort to repeal the ban.

CPUC’s arm-twisting regulations violate the spirit of the law. The commission lists several specific “goals” for utilities’ contracting rates: 15 percent to minority-owned firms; 5 percent to women-owned firms; 1.5 percent to disabled-veteran-owned firms; and, most recently, 1.5 percent to LGBT-owned firms. It 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 LGBT certification. Large utilities’ procurement with LGBT-owned businesses decreased by 5 percent in 2024. Supplier Clearinghouse lists 3,750 Minority Business Enterprises, but only 451 LGBT-certified firms.

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 delivered by gay contractors; 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.