Talk about re-regulation of the utility business. An initiative almost certain to be on the next statewide ballot would ban most businesses from leaving their utility in favor of independent providers and the state's major manufacturers are fuming.


This so-called direct access was at the heart of 1996's deregulation effort as a way to reduce stubbornly high electricity rates. That scheme backfired disastrously as it allowed electricity providers to game the system by driving up prices and bringing about rolling blackouts.


Under the proposed initiative, only those currently in direct access contracts would be exempted from the ban. All independent energy providers would be subject to rate regulation by the state Public Utilities Commission, just as the state's electric utilities are.


"The vast majority of small businesses saw no benefit from the deregulation disaster but suffered the associated rate increases and the hardships of rolling blackouts," said Mike Florio, senior attorney with Toward Utility Rate Normalization, or TURN. "With this measure, there will be a more level playing field between small and big businesses."


But manufacturers say banning direct access would deprive them of a check on high rates from utilities. They also claim it would bring investment in new power generation facilities to a halt. Virtually all the new generating plants coming on line since the energy crisis have been built by independent power generators that would lose their ability to set their own rates under the initiative. That, claim manufacturing lobbyists, would raise the prospect of rolling blackouts.


"It would make California less competitive, restrict new power generation and take away any flexibility for the state to deal with rapid changes in the marketplace," said Joe Lyons, energy lobbyist with the California Manufacturers and Technology Association.


Lyons said that the CMTA, along with other business groups and independent power generators, are prepared to raise $5 million to $10 million to wage a campaign against the initiative.


Santa Monica Tax Exemption
Screenwriters, sole proprietors, contract employees and home-based businesses are poised to get a break from the city of Santa Monica.


This week, the City Council is scheduled to give final approval to an exemption to its business license tax for individuals (not classified as employees) and entities grossing less than $40,000 a year.


The move comes seven months after the city of Los Angeles approved a business tax exemption for all individuals and entities grossing less than $100,000 a year.


Santa Monica's action was the city's response to an outcry that arose after an attempted crackdown on business tax scofflaws. Under a state law passed four years ago, cities have the power to comb through state income tax filings to track down scofflaws. Last year, the city hired a consultant to comb the state income tax files and sent out thousands of "pay up" letters.


"The city had the mistaken assumption that if you received a "1099 form," you were automatically a business," said Cheryl Rhoden, spokeswoman for the Writers Guild of America.


Instead of trying to separate legitimate businesses from struggling free-lancers, Santa Monica simply exempted those earning less than $40,000 a year.


"Clearly no business that small has a storefront. We're talking primarily home businesses," said Councilman Kevin McKeown. "People working at home don't commute and pollute, and they tend to shop and dine close to home."


McKeown had originally backed a $60,000 threshold for the exemption, but he said he supported the $40,000 level after city staff said anything higher would drain too much money from the treasury.


Rhoden said further steps are needed to ensure that screenwriters aren't unfairly labeled as businesses, especially to reconsider using the 1099 form as the sole determinant of who is or isn't a business owner.


Decision Day
Gov. Arnold Schwarzenegger has until next Monday (13th) to decide whether to call a special election for Nov. 8 to put before voters at least three measures he's backing: an overhaul of the state's redistricting process, lengthening of time for teachers to be eligible for tenure and stricter state spending caps.


A special election will set in motion a battle royal between Schwarzenegger and his business allies and the Democrats and their labor allies and not just on these issues.


Also on the ballot would likely be a prohibition on using union dues for political purposes, a discount program for prescription drugs for low-income residents and re-regulation of much of the state's electricity market.


Schwarzenegger is leaning heavily toward the special election, despite his sinking poll numbers and a recent statewide survey showing that 61 percent of Californians don't want the Nov. 8 vote.


Furthermore, neither the redistricting proposal nor the spending cap has 50 percent support in the May Public Policy Institute of California poll, and a blizzard of opposition from labor unions and Democrats would certainly follow.


*Staff reporter Howard Fine can be reached by phone at (323) 549-5225, ext. 227, or by e-mail at hfine@labusinessjournal.com .

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