District regulators announced yesterday that they have approved a 1.6 percent rate increase for Potomac Electric Power Co., granting less than one-third of what the company originally requested because, they said, Pepco has failed to enact aggressive energy conservation programs.

The increase, the first in the district since 1984, will raise the average D.C. resident's monthly electricity bill by about 96 cents to $39.83 when it takes effect in two weeks, said Howard C. Davenport, general counsel to the Public Service Commission. The hike translates to $9.4 million in added revenue for Pepco, which since 1988 has been told by the commission to cut $50 million for tax and regulatory reasons.

Consumer advocates praised the commission for reducing Pepco's rate request -- the utility had applied for a $38.5 million increase in September. Since 1988, D.C. regulators have pushed the utility to reduce overall demand for power in the region through conservation measures. For its part, Pepco has promised to reduce the rate of increase in energy consumption.

"The commission today penalized the company for not being more aggressive in its conservation program," said Luis A. Wilmot, who argued against the increase as associate people's counsel. "No one's pleased about paying higher rates but it's not the $38 million they had requested."

Utility spokesmen blasted yesterday's decision as "totally inadequate" in light of previous fee cuts, and warned they would consider applying promptly for a new increase.

"We are certainly dismayed by this order and find it inadequate," said Pepco spokesman Nancy Moses. "The increase is inadequate to cover our increased costs since 1984." Moses said Pepco would continue to cooperate with regulators in conservation work.

The commission, aside from limiting the rate increase, cut Pepco's rate of return on equity to stockholders from 13 percent to 12.35 percent, effectively signaling displeasure with Pepco's performance, said Wilmot. The commission also approved surcharges against large users for peak-time energy use.

Davenport said the commission would keep pressing Pepco to cut energy use by showing customers where they can save on their electricity bills. Pepco last October began a five-year, $90 billion rebate plan for energy-conscious customers, Moses said.