The New York State Electric and Gas Corporation filed 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?