Virginia Attorney General J. Marshall Coleman has sharphy criticized a plan to tie utility rate increases to the cost of living, saying it will encourage utilities "to keep costs up... to receive maximum income."

Instead, he wrote State Corporation Commissioner Junie L. Bradshaw, Virginia Electric and Power Co. and the state's other utilities should have their efficiency measured against other utilities and big manufacturing companies across the nation.

This would "discourage inefficient operation while offering utilities the incentive to incxrease profits by improving productivity, which would present long-run savings to utility customers," Coliman wrote.

Bradshaw and House Majority Leader A. L. Philpott (D-Henry) recently announced the new plan to review utility rates annually and to grant increases up to -- but not more than -- the rise in the cost of living index.

The plan was supposed to simplify the rate review process in the commission and eliminate much of the acrimony in heated public hearings on such increase requests as Vepco's for a $246 million, 25 percent increase.

But the plan's announcement has thrown everything into confusion, with consumer advocates saying rates may be even higher under the new plan without a chance for the public to get its views across in thorough hearings.

The confusion is greater because the commission has nothing in writing yet and nobody knows for sure what the new plan will include. Bradshaw acknowledged in an interview with The Washington Post last week that because of loopholes in the plan electric utility bills will continue to rise significantly faster than the rise in the cost of living despite the plan.

The loopholes are fuel cost pass-throughs and "emergency hearings" under the new plan that will be handled separately from the annual cost of-living reviews. That is, a utility might get a COL increase in the annual review, then fuel increases on top of that and then might come in for some "emergency" increase.

Nobody is clear what an emergency is. Bradshaw said in his interview it would be something like "a power plant blows up. That's an emergency." But then he also acknowledged that if future "load projections" indicate an increase in customer demand some years hence requiring action now to build power plants, that might be considered an emergency, too.

Coleman wrote that if fuel and construction costs are allowed on top of the COL increase each year, "the proposal guarantees utilities rates equal to their costs plys inflation, apparently without incentives to decrease costs through increased efficiency and productivity."