The Potomac Electric Power Company has picked up a powerful ally, City Council Chairman Arrington Dixon, in its campaign to impose tighter controls on the city's utility consumer representative.

Pepco has been increasingly anxious to curb the powers of the city's Office of People's Counsel, which led the successful fight against $39 million in rate increases the utility had sought.

Dixon, whose wife, Sharon, is director of consumer affairs for Pepco, has asked a council committee to consider legislation that would prohibit the Office of People's Counsel from spending money to prepare arguments against rate increases without first having council approval. The legislation is virtually identical to proposals drafted by Pepco.

Dixon received $4,850 in campaign contributions last year from Pepco, Pepco officials and a law firm that lobbies the council for the utility, according to campaign financial reports.

"I don't view any conflict at this point," Dixon said yesterday. He said he forwarded the measure as a courtesy to another council member, John Wilson.

Asked why Wilson could not have submitted the legislation himself, Dixon repeated, "I did it as a courtesy."

Asked about the similarity in language of his proposal and that of Pepco. Dixon said, "It doesn't matter where the words come from. Wherever the legislation comes from, the members still have to exercise their judgment."

Dixon said he considered Pepco to be just another special interest group. "I also have a utility bill every month, and all the people who voted for me get a utility bill every month."

He said he was not certain how he would vote if the matter comes before the full council.

People's Counsel Brian Lederer called the Pepco effort an attempt to "put this office out of business. They want to get all the rate increases through . . . The only reason we were successful [this time] is we had the resources to hire experienced professionals capable of looking at the company independent of the company."

Alan G. Kirk, vice president and general counsel for Pepco, said yesterday that his firm was not trying to thwart the operations of the five-year-old office. "The only issue is one of public administration," Kirk said. "I've never heard of a public office which operated without oversight of a legislative body."

The major issue over which Pepco and the office are arguing is a provision that permits the office to incur virtually unlimited expenses in preparing its opposition to proposed utility rate increases. Once the pending rate increase is resolved, the cost of preparing the opposition is assessed against the affected utility, which usually passes the expenses on to its customers.

In the latest rate request decision, the people's counsel spent more than $400,000 opposing Pepco's arguments for a $44.8 million increase. On June 14, the D.C. Public Service Commission granted the firm only a $5.8 million increase.

The People's Counsel estimated that when passed on to consumers, the $440,000 cost of fighting the increase would result in a one-time additional bill of $2.35 for every Pepco customer.

Pepco is now trying to change the payment procedure by requiring the office to receive an annual budget appropriation from the council that would include the cost of preparing any upcoming rate case arguments.

Pepco would still have to pay the costs, but the council would know and approve the expenditures in advance.

In addition to Pepco, the legislation would affect other firms under the jurisdiction of the Public Service Commission, including C&P Telephone Co. and Washington Gas Light Co.

The affected firms would still have to pay the costs of People's Counsel case preparation, but the council would know about and approve the expenditures in advance.

"Taxpayer money is so tight and I don't know if the council intends to assume any additional burden," Lederer said. "I would have to talk about the budget for a case that hasn't even been filed. I'd have to show all my cards up front, and in these cases, a lot of strategy is involved."

The Pepco legislation suffered a temporary setback yesterday when council member Wilhelmina J Rolark (D-Ward 8), chairman of the consumer affairs committee, refused to allow the Pepco legislation to be considered with another bill affecting limits on the operational budget of the office.

"The council's buget process is already too unwieldy," Rolark said, "and then to take on the bills of a wellheeled utility, it's a bit too much."

Kirk said Pepco probably would try to have the proposal tacked on to the bill when it is considered by the full council next month.

Pepco has retained Stephen I. Danzansky, a partner in the firm of Danzansky, Dickey, Tydings, Quint and Gordon, as an $80-an-hour lobbyist of the council, according to city records.

Danzansky contributed $500 to the Dixon campaign last year and other firm lawyers, their spouses and the law firm itself donated $2,350 more, according to campaign financial records.

Several council members said that for weeks Danzansky has been actively urging members of the Council to exert a stronger control over spending by People's Counsel Office.

Pepco and two top officials of the utility contributed $2,050 to Dixon's campaign.

Dixon said yesterday that it was a common practice for special interest groups to send draft legislation to council members. "If we had more staff," he said, "our dependence on outside assistance would be less."

Wilson, former chairman of the consumer affairs committee, wrote Dixon on May 8, saying that if the current practices of the office continued, it was "likely to create a heavier financial burden upon the consumers of the District of Columbia than had ever been anticipated . . ."

"In fact," Wilson wrote, "there may be severe governmental, if not constitutional, issues in permitting an agent of the government to assess private citizens for the expense of his office without any sort of oversight or meaningful system of checks and balances."