solution

The New York State Electric and Gas Corporation fi led a request for a 10.7%

increase in electric revenues. The reasons given to justify the increase were that

the value of the firm’s plant and equipment had increased by $140 million,

operating costs had increased, and investors required a higher rate of return.

a. Why should an increase in the value of the firm’s plant and equipment

result in an increase in the amount of revenue allowed by the Public

Service Commission? b. Why should an increase in operating costs have the same effect?

c. Why should the attitude of investors regarding what they require as a rate

of return be relevant here?