The D.C. Office of the People's Counsel last week protested a proposed $16.4 million rate increase by Washington Gas Light Co., saying the company needs no more than a quarter of that amount.

The consumer organization that represents ratepayers before the Public Service Commission has proposed the company receive only $4.3 million of its request, and that residential customers and commercial customers who have no choice of alternative fuels pay $700,000 less than they do now.

"Gas prices are falling, interest rates are falling, and the cost of capital is also falling, so we don't understand why they need more money -- except out of greed," said Luis Wilmot, director of consumer services at the OPC.

In October, the utility asked the PSC for rate increases of about 9.1 percent for residential customers who heat with gas and about 13.3 percent for residential customers who use gas only for cooking. The request was intended to generate additional revenue of $16.4 million a year.

Commercial customers who use only gas heat would see an increase of between 8 and 9 percent. Large commercial customers that have the capacity to use either natural gas or oil, depending on which is cheaper, have not been required to pay a portion of the fixed costs of the natural-gas distribution system and get a special, flexible rate.

The company has not asked for increases in Maryland and Virginia. Katie Magill, a spokeswoman for WGL's D.C. division, District of Columbia Natural Gas, said rising wages, costs for materials, taxes, customer debts and other factors over the past three years make it necessary to impose higher rates. "We are not increasing the cost of gas, we are asking for an increase to cover fixed costs," she said.

But consumer activists, the OPC and the Natural Gas Supply Association, a Washington group representing natural-gas producers, said the company could afford to lower rates to residential customers instead of raise them.

The average price of natural gas has fallen 16 percent over the last 2 1/2 years from $2.75 per million British thermal units to $2.31 cents per BTU as of May 1, the supply association said. A BTU is a commonly used measure of energy content.

The average amount Washington Gas Light has paid for natural gas between 1983 and 1985 has fallen 78 cents, from $4.74 per million BTUs to $3.96 per million BTUs. But residential customers have seen a decrease in their cost of natural gas of only 14 cents in the same period, the supply association said. The association, which maintains that all savings should be passed through to consumers, said it had gathered its information from WGL annual reports and Moody's Public Utility Manual, a widely used manual on public utilities.

WGL's Magill said, "You cannot use information from the annual report to calculate the rates customers pay . . . for gas." WGL said the cost of its gas had fallen 72.7 cents in that period and that the total amount had been passed through to customers. "Every penny is passed through -- that's a fact," said Magill.

The OPC said other concerns include a corporate reorganization of Washington Gas Light Co. into three branches, each now regulated by a separate commission. "We're worried we'll end up with higher costs in the District versus Maryland and Virginia" because of a lack of industrial customers and few commercial customers in the area, said Wilmot.

WGL responded that it had reorganized to better serve its customers and that rates always have varied in the three jurisdictions because costs in each are different. For example, the District has special taxes and older gas mains that need replacing. "It's impossible to compare them," Magill said.

In the District, WGL is authorized to charge residential heating and cooling customers $6.65 a month as a service charge from September through May, and no monthly charge in the intervening months. That charge would rise to $8 from September through May under the proposed rate plan. In addition, D.C. customers pay 79 cents per therm (100,000 BTUs). This rate would not be changed.

In Maryland, customers pay a monthly service charge of $7.10, and 73 cents per therm. In Virginia, customers pay $7.15 per month from September through May and 65 cents per therm. All per-therm rates are actually lower at this time because WGL is passing through savings from falling gas prices.

OPC's Wilmot also said WGL should require large customers to pay a portion of the fixed costs of the gas distribution system, and instead buy still cheaper gas to attract more customers to its service.

"To keep customers who have fuel alternatives, they can just lower the price and expect residential customers who have no choice to pay for it and insulate investors from the risks a company would normally take in a competitive market," Wilmot said.

WGL said it always works aggressively to buy cheaper gas and that, although customers in the competitive portion of its business are not asked to pay for fixed costs, the situation actually benefits residential customers.

Currently, WGL uses 80 percent of sales to large commercial and industrial customers as a credit on residential and small-commercial bills, Magill said. Customers received a credit of $9 million for the year ended in October because of this arrangement.