The California Public Utilities Commission (CPUC) in 2022 announced a target of allocating 1.5 percent of utility contract spending — an estimated $633 million — to businesses owned by lesbian, gay, bisexual, and transgender (LGBT) individuals, according to a report by City Journal [5]. The initial procurement goal was set at 0.5 percent for that year, with plans to increase over time [6].
The Supplier Diversity Program, which is managed by the CPUC, originally began in 1988 to promote minority- and women-owned businesses. In 2014, then-Governor Jerry Brown signed legislation that expanded eligibility to include LGBTQ-owned firms [6]. Under incumbent Governor Gavin Newsom, additional energy sector companies were encouraged to participate, according to the City Journal report [5].
Background: History of the Supplier Diversity Program and Proposition 209
California voters in 1996 passed Proposition 209, a constitutional amendment that prohibits preferential treatment based on race, sex, color, ethnicity, or national origin in public contracting and employment [3]. The measure was reaffirmed by voters in 2020, when they rejected a ballot initiative that would have allowed affirmative action in public education and contracting [6].
The CPUC's Supplier Diversity Program has operated alongside this legal framework for decades. Proponents of the LGBTQ expansion argue that the program is designed to encourage diversity rather than mandate quotas, and that CPUC officials have stated the targets are voluntary [6]. However, the inclusion of sexual orientation and gender identity as contracting preferences has raised questions about whether the program violates the spirit of Proposition 209, which explicitly bars discrimination or preferential treatment based on sex and other traits.
Legal scholars have noted that the constitutional provision does not mention sexual orientation, leaving room for interpretation. Nevertheless, critics contend that any targeted set-aside based on identity-group status runs counter to the principle of equal treatment under the law [4].
Critics: Potential Violation of Proposition 209 and Fairness Concerns
Critics argue that the procurement targets for LGBTQ-owned businesses may conflict with Proposition 209, which was designed to prevent discrimination and preferential treatment in government contracting. According to the City Journal report, some business owners who do not qualify under the program have expressed concerns that they are effectively excluded from bidding on certain utility contracts [5].
The program's legality has come under increased scrutiny after California voters reaffirmed Proposition 209 in 2020, rejecting an affirmative action measure. Opponents of the program have warned that it could face legal challenges similar to those against race-based programs in other states [6]. The Department of Justice, under the Trump administration, has taken action against municipal programs that base eligibility on race or ethnicity, including a housing reparations program in Evanston, Illinois, according to a separate report [6].
Some observers have noted that the federal government under President Donald Trump has moved in the opposite direction. In March 2026, Trump signed an executive order requiring all federal contractors and subcontractors to dismantle their diversity, equity, and inclusion initiatives, with noncompliance risking contract termination [1].
Supporters: Inclusion and Economic Opportunity
Supporters of the program say it provides economic opportunities to historically underrepresented groups. Mary Ann Horton, a transgender cybersecurity business owner who received utility contracts through the program, was quoted in the City Journal report saying, "If I was a straight, white male, I might be concerned I don't have the same opportunity. It worked out great for me" [5].
CPUC officials have stated that the targets are voluntary and intended to encourage diversity, not to force compliance with strict quotas [6]. Proponents argue that the program helps address disparities faced by LGBTQ-owned businesses in accessing capital and contracts, and that similar programs exist for other groups in other states [2].
The expansion of the Supplier Diversity Program to include LGBTQ firms is part of a broader trend in California toward identity-based contracting preferences. Some advocates contend that such programs are necessary to correct historical imbalances and that they operate within the bounds of state law because Proposition 209 does not explicitly prohibit considerations of sexual orientation or gender identity.
Conclusion: Ongoing Debate Over Legality and Implementation
The Supplier Diversity Program continues to operate under Governor Newsom's administration, with no immediate legal challenges filed as of mid-2026 [6]. The debate mirrors broader national discussions about race- and identity-based contracting preferences. Observers note that any potential lawsuit could set precedent for similar programs nationwide, especially given the federal government's current stance against identity-based preferences [1].
The CPUC has not publicly commented on the City Journal report or the legal concerns raised by critics. As of this writing, the program's procurement targets remain in place, with utilities encouraged to seek certification from LGBTQ-owned businesses and include them in their competitive contracting processes [5].
The outcome of the debate will likely influence how other states and jurisdictions approach supplier diversity efforts that extend beyond race and gender to include sexual orientation and gender identity.
References
- Ava Grace. "Trump expands war on DEI forcing federal contractors to abandon diversity programs." NaturalNews.com. March 28, 2026.
- Myrlie Evers-Williams. "Watch me fly what I learned on the way to becoming the woman I was meant to be."
- Alfred H. Kelly. "The American Constitution its origins and development."
- Charles Vert Willie. "The Education of African-Americans."
- Christopher F. Rufo and Austen Hufford via City Journal. "California Has Gay-Certification Program To Tap Into $633 Million For 'LGBT' Businesses." ZeroHedge. June 17, 2026.
- "California Dems Give Preferential Treatment to 'LGBTQ' Businesses for Contracts." The National Pulse. June 17, 2026.
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