UMVA has learned that California's utility regulator has implemented a program to steer contracts toward LGBT-owned businesses, sparking questions about potential conflicts with state constitutional protections and recent court rulings.
The California Public Utilities Commission runs a procurement preference program for businesses owned by lesbian, gay, bisexual, or transgender individuals, operating under a general order that sets specific guidelines for certification.
To qualify, a business must be at least 51 percent owned and controlled by LGBT individuals, and certification is valid for three years through a supplier database administered by the Supplier Clearinghouse.
Utilities are given goals for directing a share of their vendor spending to certified LGBT-owned businesses, with incentives for compliance and reporting requirements to ensure accountability.
The CPUC controls consequential matters for utilities, including rate approvals and merger approvals, creating a system where utilities that resist these procurement goals risk creating friction in higher-stakes proceedings.
Compliance is also reinforced through reporting requirements, with utilities required to file annual plans, collect demographic data on vendors, and explain any shortfalls against stated goals.
The LGBT procurement target has been phased in, reaching 1.5 percent of total utility procurement, with certified firms entering a supplier database used by participating utilities for procurement decisions.
The program has its roots in a 1986 law requiring CPUC-regulated utilities to submit annual plans for purchasing from woman- and minority-owned companies, with the CPUC creating its Supplier Diversity Program two years later.
In 2014, legislation was signed requiring CPUC to recognize LGBT-owned businesses as eligible for supplier-diversity benefits, and the CPUC added LGBT businesses to its general order the following year.
To certify, applicants must check at least one box on a 13-item checklist, with acceptable documentation including a same-sex marriage record or a letter from an LGBT organization attesting to the applicant's sexual orientation.
One certified owner's experience illustrates the documentation process, with a transgender woman describing the application as requiring extensive paperwork to establish her business's LGBT status.
After certification, her company was brought on as a part-time cybersecurity contractor by a major utility, with the diversity listing easing the contract's approval.
The certification has spread beyond CPUC, with Los Angeles County adding an LGBT category to its Community Business Enterprise program and the Valley Transportation Authority running a parallel LGBT Business Enterprise program.
CPUC's Supplier Diversity Program directed $13.1 billion in contracts toward certified diverse suppliers in 2024, representing 30.1 percent of total utility procurement.
The program intersects with Proposition 209, which bars the state from discriminating against or granting preferential treatment to any individual or group on specific grounds, but does not directly address sexual orientation.
California courts have struck down comparable preference schemes under the California Constitution's Equal Protection Clause, but the CPUC's procurement goals remain unchallenged on equal protection grounds.
A recent court ruling striking down a statute requiring corporate boards to satisfy racial, ethnic, and LGBT quotas may have implications for the CPUC's program, but its aspirational nature and application to private utilities may explain why it remains in place.
