California electricity consumers can choose a retail electricity service provider, but most have not done so.  These consumers remain, by default, customers of the utility distribution companies (UDCs).  Pricing electricity for these default customers is now an issue before the California Public Utilities Commission.  In California this issue is framed largely in terms of two alternatives: pass through of the wholesale electricity price or a performance-based rate (PBR).  Under the first alternative, purchase from the California Power Exchange (PX) would be mandatory; under the second, each UDC would determine where to purchase supply and each UDC’s performance would be gauged by comparing its costs to the PX price.  This paper identifies issues that should be addressed in choosing between the two alternatives.  First the paper examines the effects of the two alternatives on electricity prices.  The analysis suggests that, at least in the near term, the choice will not have much effect on prices.  Next the paper looks at possible perverse incentives.  A central concern here is that, if providing default service becomes profitable, UDCs might use their distribution assets to stifle competition in the retail market.  Finally, the paper examines regulatory costs associated with the alternatives and concludes that regulatory costs are likely to be higher under a PBR.