The District Public Service Commission said yesterday it would consider Chesapeake & Potomac Telephone Co.'s request for a $78.5 million rate increase, refusing a District People's Counsel motion to dismiss the case.

The rate request, if granted, would increase residential and business rates in the District by about 153 percent and 12.4 percent respectively. C&P asked for the increase two months ago because it claimed it was not earning enough on its rate of return and needed additional revenue to meet tough new competition in the post-divestiture marketplace.

The People's Counsel, a District agency, had charged the case should have been dismissed because C&P's request for a 37 percent increase in annual revenue was unreasonable and because it was unfair to ask for additional revenue before a full year had elapsed since the last rate increase in January.

The Public Service Commission said the case should go forward because the company had made "a lot of allegations" the commission thought it would be better to examine. At the same time, the commission dismissed a portion of the request -- interest that C&P wanted to recoup from customers for District taxes it had prepaid.