Potomac Electric Power Co. yesterday proposed increasing the rates it charges its 211,000 District customers by an average of 7.4 percent -- and by as much as 20 percent for some residential customers -- largely to pay for electrical generating capacity it is buying from an Ohio utility.

The request for a rate increase, which must be approved by the D.C. Public Service Commission, is the utility's first in the District since 1984, when Pepco was granted a 5.9 percent rate increase that boosted its annual revenue by nearly $30 million. The new request would bring Pepco $41 million in additional annual revenue.

Pepco spokeswoman Nancy Moses said the company was evaluating whether to also request a rate hike in Maryland.

Yesterday's request was immediately denounced by consumer advocates, who said Pepco is trying to charge customers for new generating capacity before District regulators approve its building plans.

Pepco said that since the last rate hike, District electricity prices have declined 8 percent, mostly because of lower fuel costs, changes in the federal tax code enabling the utility to collect fewer tax dollars from consumers, the refinancing of debt at lower interest charges and the renegotiating of railroad contracts for fuel delivery.

Pepco Chairman W. Reid Thompson said, "Despite our intensive efforts to minimize all operating and construction costs, the existing rate levels are inadequate to cover Pepco's current costs of providing service to District of Columbia customers, including the current costs of capital."

Although the average amount of the increase would be 7.4 percent, Pepco's residential customers would be hit with a larger increase than would the utility's commercial and government customers.

Under the proposal, the typical D.C. residential customer who does not heat with electricity and who uses about 550 kilowatt hours of electricity monthly will pay an average of $43 per month -- an increase of about $8.50 monthly, or about 20 percent.

Residential customers would see an average rise of 15 percent in their bills, as opposed to an average rise of 5 percent for commercial and government customers.

About 11,500 qualified low-income District customers would get a larger special discount from the utility, continuing a program begun in 1983. They would receive a fixed 25 percent reduction from the standard rate, up from a current average discount of 21 percent.

"Existing District of Columbia residential rates do not cover the full cost of providing service to residential customers and provide a return far below the return provided under existing rates for commercial and governmental customers," Thompson said.

The District PSC said yesterday that the request would be closely scrutinized, especially in light of Pepco's plans to build three new combustion turbines at Benning Road and to build a few billion dollars worth of additional new generating capacity at its existing power plant site in Dickerson, Md.

The commission recently held hearings on a controversial energy conservation strategy that is meant to defer the construction of some of this costly new generating capacity. Some proposals under the plan, such as consumer rebates for the installation of energy efficient equipment, have faced stiff resistance from the utility.

Moses said $35 million of the $41 million revenue increase the utility has requested is needed to cover the cost of buying power from Ohio Edison through the year 2005, while the rest will cover increased operating expenses.

Maryland regulators last year allowed Pepco to pass through to that state's customers $19 million in costs associated with the Ohio Edison purchase. But the District Public Service Commission has yet to determine the prudence of the purchase or whether other strategies, such as more aggressive energy conservation or the purchase of power from nonutility entrepreneurs, might be less costly.

"This company unilaterally and without commission authority entered into a commitment with Ohio Edison to purchase {electricity} over the next 18 years," said Elizabeth Noel, deputy People's Counsel for the District, which represents District consumers before the PSC. "They had no approval from the commission, no consent, they just did it. They want to incorporate that acquisition in these rates without determining if it is necessary."