D.C. People's Counsel Brian Lederer, who represents District consumers in utility rate cases before the Public Service Commission, said yesterday that the PSC and the city's utility companies are undermining his office by exercising arbitrary control over his funding for advocacy.

He spoke at a D.C. City Council committee hearing in support of a measure he said would "eliminate the control and interference currently enjoyed by the utilities and the commission in the litigation funding of the office of the people's counsel."

The PSC and utilities countered that the People's Counsel expenditures are excessive and his office needs to have its litigation costs examined and controlled.

Funding for advocacy by Lederer's office is paid by local utility companies, through assessments that they pass on to ratepayers. In 1980, the PSC asserted that it--not Lederer--had the authority to determine how much the utilities should pay.

The utilities often challenge assessments, and the amount itself then has to be litigated, leading to delays and uncertainty over payment.

Yesterday's debate came at a hearing of the D.C. City Council's committee on public services and cable television, which is considering a bill that would return to Lederer the authority to set the amounts he charges the utilities.

"The PSC has been reluctant to give up its advocacy role," even after the People's Counsel was designated to perform this function nine years ago, said committee chairman Betty Ann Kane (D-At Large). This has led to duplication of efforts, overspending in rate cases and infighting over payments to the People's Counsel, she said.

The effect of having the PSC determine how much the utilities should be charged to support Lederer's work, Kane said, "has been to tie the People's Counsel in knots."

"The people's counsel has hired as many as six separate law firms in one case," said William Shapiro of Pepco, arguing the utilities' position. "There are just hordes of them lawyers ."

The bill being considered by Kane's committee would give the People's Counsel independent authority to determine how much it can spend on litigating each case and get reimbursement for all costs, within an overall ceiling.

Last Friday the PSC added a new twist to the debate, ordering that the People's Counsel refund $247,700 to Pepco because the funds allegedly were used for irrelevant testimony in a rate case last fall.

Lederer denied that the testimony was irrelevant and said he does not know where the money will come from because the present budget is already spent and his office is funded solely through assessments on the utility companies. There is nothing in the District's budget that could be used for this expenditure.

" . . . The commission believes that instead of the council attempting to increase the already overwhelming expenditures by the People's Counsel, that the council should review the people's counsel's current expenditure of funds," testified Lloyd Moore for the PSC.

Lederer said the issue is not the amount of expenditures but of control. The PSC spent $7.87 million on rate case litigation from 1980 through 1982, more than the People's Counsel's expenditures of $7.39 million, he said.

Pepco said yesterday that in 1982 its costs of litigating rate cases was $595,524, while the People's Counsel's assessments for the same cases was $1.65 million. Both expenditures are paid ultimately by Pepco ratepayers.