Rate regulation will not be addressed in emerging legislation to overhaul California's workers' compensation system, allowing lawmakers to leave the divisive issue for later while staving off a November ballot initiative this week, legislative sources said Tuesday.

Copies of the forthcoming bill -- which is expected to be voted on Friday -- began circulating among key legislators and lobbyists as Gov. Arnold Schwarzenegger appeared at a Sacramento Costco store to gather signatures for the backup initiative he supports. There, after brief remarks heard over the chants of its opponents, he told reporters he was strictly against government control of the insurance market.

"I have looked into rate regulation over the last three weeks, and I have looked at the various places they had it," Schwarzenegger said. "It was not productive, and it chases companies away. What we want to do is invite more insurance companies to California."

How to ensure a reduction in premiums has been a sticking point in the emerging deal to significantly change the $22 billion system, which covers the cost of treatment for workplace injuries and pays workers for lost wages. Democrats have seen some form of regulation as a way to guarantee savings, while Republican leaders have been staunchly against government control.

At most, sources said, the bill may call for a study of insurance rates with the prospect of market control used as a lingering threat, should rates not decrease over time.

The issue may also be addressed separately through a bill by Sen. Richard Alarcon, D-Sun Valley (Los Angeles County), which cleared the Senate Labor and Industrial Relations Committee Monday. It seeks to create a three-member government committee that could help regulate rates, with insurance companies allowed to appeal their opinion.

This week, legislators are scheduled to consider a bill that is widely expected to, among other things, introduce:

-- New standards for determining a worker's permanent disability.

-- Changes in how workers select physicians for a second opinion, with an initial selection of doctor made from a preapproved pool.

-- The ability for companies to use so-called 24/7 health care plans, in which firms pay one premium while workers' injuries are treated by their regular doctors.

Disability payments for injured workers are said to be left untouched.

Senate President Pro Tem John Burton, D-San Francisco, has told legislators to prepare for a Friday vote. Passage then by both houses would avert the November ballot measure for which Schwarzenegger has continued to campaign. On Friday, qualifying signatures for the initiative -- aspects of which resemble the forthcoming bill, but which is seen as more stringent -- are scheduled to be submitted to Secretary of State Kevin Shelley.

Tuesday's signature-gathering event at Costco marked the first time opponents of the initiative clashed so publicly with Schwarzenegger. Among a crowd of about 200 curious shoppers who gathered at the store entrance were roughly 50 protesters, several of whom said they worked for the applicants' attorneys who represent injured employees in the system.

"What about the workers?" one man yelled as the governor began his remarks by thanking Costco.

"Listen to them -- the applicants' attorneys have their friends out here," the governor said.