Pooling, a missing element in the rate of return and price cap regulation debate: A comparison of alternative regulatory regimes

► Rural Local Exchange Carriers (RLECs) face large unsystematic risks. ► Pooling of RLEC costs and revenues eliminates unsystematic risks. ► Pooling lowers rate volatility under rate-of-return regulation. ► Pooling can incorporate incentive regulation and limit large swings in RLEC returns. ► Regulatory reform benefits from an incentive option in current pooling arrangements.