The D.C. Public Service Commission yesterday approved a $31 million increase in basic telephone rates, but rejected the Chesapeake & Potomac Telephone Co.'s proposal to impose a separate charge just to get a dial tone.

C&P, which had requested a $54.3 million rate increase, criticized the ruling, which also reopened a controversial Centrex business service rate case.

The PSC granted C&P a temporary 8.62 percent across-the-board monthly surcharge on rates for all classes of users in the District except coin phones and Centrex service. The surcharge, which would bring in $13.7 million, will take effect immediately and will end with approval of a new rate structure that C&P must submit this fall to bring in $31 million.

The PSC estimates the surcharge will boost unlimited metro calling rates, for example, from $12.49 per month to $13.52 per month. Unlimited D.C. service will rise from $6.38 to $6.91 per month. Economy service, now costing $3.11 per month, will rise to $3.37.

"The commission allowed the increase to be effective now because divestiture has drastically increased C&P's expenses," said Howard Davenport, general counsel for the PSC. "The commission is pleased that it is able to keep residential rates in the District lower than in Maryland and Virginia."

"We're discouraged," said Web Chamberlin, spokesman for C&P. "We feel we provided the commission with very adequate testimony."

C&P had argued it needed $54.3 million because basic rates no longer are subsidized by long-distance and equipment revenue following the breakup of the Bell System; because competition is taking some business away; because of rising costs, and because the company is earning a rate of return below its authorized return of 12.25 percent. "This particular award will not get us to cost," Chamberlin said.

"They shouldn't have gotten a penny," said Frederick Dorsey, the D.C. People's Counsel, who represents consumers before the commission. The Office of the People's Counsel and consumer advocates have said the company did not justify the increase, which they claimed would be used to subsidize competitive services.

The PSC denied the company's proposal to charge separately to receive a dial tone and for usage -- as C&P does in Maryland and Virginia -- because of "public outcry and lack of evidence," Davenport said.

C&P said that system would ensure that all customers pay for the "fixed costs" of telephone service while paying additional charges only for usage.

The PSC also reopened the highly controversial Centrex business service rate case that had been decided just months ago because of the need to "examine the issues."

The PSC said C&P may have underestimated portions of the cost of Centrex service. In April, the PSC had authorized a 20 to 30 percent reduction in Centrex rates and froze rates at that level for five years, after C&P argued the reduction would keep the service competitive with other telecommunications technologies that were providing stiff competition.

C&P had argued that if it lost Centrex customers, residential subscribers would have to make up for lost revenue. Centrex accounts for about 20 percent of C&P's overall revenue.

But later, the PSC said it was not informed of a potential marketing problem with Centrex service that could mean basic monthly rates of residential and business customers could rise as much as $3 per phone line anyway.

Information filed by Bell Atlantic Corp. before the Federal Communications Commission had indicated C&P needs special FCC permission to serve as a contractor to provide a new phone system to the federal government and large business customers who want service and equipment provided in one package. C&P has said it did not notify the PSC of the marketing problem because marketing did not become an issue until after the Centrex case had been decided.

Consumer advocates argue Centrex service is noncompetitive and now below cost, which means all other classes of customers must subsidize it. Bell Atlantic maintains the Centrex service still partly subsidizes residential rates.

Whether or not the service is competitive has been linked to a controversy over whether the District awards contracts for political reasons at the expense of D.C. phone users.

Jose Gutierrez, former director of the Department of Administrative Services, charged early this year that City Administrator Thomas Downs had attempted to steer contracts for a new government phone system to C&P as a favor to Delano Lewis, executive vice president of C&P and a longtime political supporter of Mayor Marion Barry. Gutierrez subsequently was fired.

The PSC also struck down a C&P request to charge ratepayers $3 million for the loss of a contract to bill customers for American Telephone & Telegraph Co.

The PSC also decided that enhanced 911 emergency service, a computerized new system that allows emergency dispatchers to automatically identify the address of a caller, will be paid for by a phone-rate surcharge rather than by taxpayers. The cost of the service has not been determined.

The commission also supported C&P's proposal for "lifeline" service for low-income senior citizens that would cost $4 a month and would include 30 calls and a 50-cent reduction in the $1 monthly subscriber line charge.

The program, for which the elderly would have to qualify, would be funded by C&P ratepayers. "The PSC is of the view that in the future, tax revenues, not ratepayer money, should fund the so-called lifeline rate," the commission said.

The ultimate rate design will be decided in November, after two community hearings are held in addition to public hearings in which C&P will present its testimony.