The D.C. Court of Appeals yesterday upheld a 1979 decision by the city's Public Service Commission to deny Potomac Electric Power Co. a $22 million emergency rate increase, ruling that the utility had failed to show it needed the money.

People's Counsel Brian Lederer said the ruling would stop Pepco in the future from filing what he called "frivolous" requests for emergency rate hikes.

Pepco's general counsel, William Dana Shapiro, said he was "disappointed" with the court's decision, but declined to speculate on what it's long-term effects might be.

Pepco took the case to the city's highest court after the Public Service Commission denied the emergency rate hike, arguing that the commission erred by basing its decision on company revenues in Virginia and Maryland, rather than solely on its District operations. The three-member appeals panel agreed with the commission's finding that, even though Pepco was making a smaller profit than the commission had said it was entitled to, the shortfall did not constitute an emergency.

In a dissenting opinion, Judge Frank Q. Nebeker said that the two other judges had taken a "hear no evil, see no evil" approach to the issue. He said the commission must ignore Pepco revenues in outlying jurisdictions when considering rate hikes in the city.

At stake for consumers in the case was approximately $16 million Pepco sought to add to utility bills. Pepco made the request for an emergency rate increase in July 1979, when it also applied for permanent rate relief of $44.9 million. Earlier that year, the commission gave Pepco only a $5.9 million increase when Pepco had sought nearly $50 million.