Pepco announced yesterday that it plans to increase residential rates for electricity in the District by an average of about 18 percent beginning Feb. 8.

An average residential customer's payment would rise to $66.50 a month, a $10 increase from the current rate, according to Pepco, the largest electricity supplier in the Washington area.

Small commercial operations face average increases of about 24 percent, and rates for larger commercial operations would jump by an average of about 32 percent, Pepco said.

The increases would not affect customers using an alternative electricity supplier or low-income residents qualifying for Pepco's Residential Aid Discount Program.

The new rates must be approved by the city's Public Service Commission. It will review paperwork filed by Pepco to make sure the increases are "fair and reasonable," said Richard Beverly, the commission's general counsel. The commission oversaw a bidding process in which Pepco sought the lowest bids from electricity suppliers on the wholesale market.

Under an electricity deregulation plan, Pepco's rates were reduced 7 percent in the District in 2001, and rates have been frozen since then. But the cap expires in February, as does Pepco's long-term contracts from its electrical suppliers.

Market prices for electricity have increased significantly since rates were capped, and Pepco officials said the new rate is the result of prices obtained during bidding. "Customers have basically been paying below-market rates since 2001," Pepco spokesman Bob Dobkin said.

Customers said yesterday that they were not pleased. "I think that's ridiculous," said Colin Powell, 35, who works as a government contractor and lives in a LeDroit Park rowhouse. "I haven't experienced any savings at all with utility deregulation."

Pepco serves 200,000 residential customers and about 25,000 commercial customers in the District.

The new D.C. rates will last until May 31, 2006, according to Pepco.

Additional rate increases will sweep across the region in coming years with the end of caps that were put in place when the industry negotiated the path to deregulation. Pepco increased rates for its customers in the Maryland suburbs in August.

Businesses said they knew the increase was coming and are displeased. "It's a whopping increase," said Stephen F. Lustgarten, executive vice president of Blake Real Estate Inc., which owns, leases and manages office buildings in the city. "We're not thrilled about having a 32 percent rate increase."

He said some contracts will allow the added costs to be passed on to tenants, while in other cases, the company will have to absorb them.

Proponents of deregulation hope that the arrival of market rates will eventually promote competition and lead to reduced prices. Customers can choose to search for cheaper rates and purchase power from a source other than Pepco, a change that 17,000 residential and business customers have already made.