The cost of basic telephone service in the District will increase by as much as 50 percent for residential customers and up to 63 percent for business customers under a new rate plan approved by the D.C. Public Service Commission yesterday.

In addition, the cost of local calls placed through pay phones will rise from the current 15 cents to 20 cents.

The higher rates, which go into effect next month, implement a $31.5 million rate increase approved by the commission for Chesapeake & Potomac Telephone Co. in August. At that time, the PSC imposed an interim 8 percent surcharge on all customers.

In announcing the decision on how the rate increase will be shared by C&P's customers, PSC Chairman Patricia M. Worthy said residential rates still remain lower than in most places in the country, including Virginia and Maryland.

"We have attempted to keep residential service affordable while balancing the need of C&P to compete for certain business services in the post-divestiture reality of telephone service," she said.

Under the new rates, the basic charge for unlimited-call service in the metropolitan area will rise from $12.49 a month to $15.61, a 25 percent increase. A little less than half of the 280,000 residential customers in the District subscribe to this service.

In the Virginia suburbs, unlimited residential calling in the metropolitan area costs $16.48 a month; in Maryland, the same service costs $17.19 a month.

The charge for the D.C. flat-rate service, with unlimited calling only in the District, will rise from $6.38 a month to $9.57, or 50 percent. Almost half of the District customers subscribe to this service.

The new rate structure also establishes a lifeline telephone service for customers 65 years of age or older. The service will cost $4 a month and include 60 free calls.

Each call above that amount will cost 6.9 cents. To qualify, customers will have to be certified by the D.C. Energy Office as eligible under the statutory standards of the low-income home energy assistance program or the complementary energy assistance program.

Eligible customers will also have their installation charges reduced by 50 percent.

C&P officials called the PSC decision "a step in the right direction."

But consumer advocates criticized the fact that the phone company got an award at all. Mark Plotkin, advisory neighborhood commissioner for the Glover Park area, said the phone company will continue to ask for rate increases as long as the commission is willing to grant them.

"There doesn't seem to be any end in sight," he said. "This reminds me of a buffet. C&P heaps their plate, sits down and eats, and goes back for more. The commission should close the buffet." Plotkin said residential rates are raised because C&P has a monopoly on the service, while businesses can "shop around" for services.

"It's like Chinese water torture; they keep chipping away at residential rates," he said.

Frederick Dorsey, D.C.'s people's counsel -- an advocate hired by the District to represent utility customers in the rate-making process -- said, "The commission appears to be willing to accept C&P rate requests which are not adequately cost-justified."

Dorsey said the ruling allows C&P to use residential rates to subsidize services for businesses that should compete on their own.

In other action yesterday, the PSC gave mixed reviews to an energy-management plan proposed by the Potomac Electric Power Co. Details, Page D7.

In April, the PSC allowed C&P to lower its rates for customers subscribing to its Centrex business service by 20 percent to 30 percent and freeze them for those businesses that agree to stay on the service for five years. The service, which essentially gives companies a private telephone network handled by the phone company for a monthly fee, faces stiff competition.

That action by the PSC, said Dorsey, insulates C&P's earnings in competitive business services at the expense of the residential ratepayer. "C&P has been able to convince the commission to have residential consumers alone subsidize the business class," he said.

C&P received its last rate increase in the District in January 1984. In that case, filed before the breakup of American Telephone & Telegraph Co., the PSC awarded C&P $41.5 million, raising both residential and business rates an average 41 percent, said C&P.

In the latest rate case, C&P had originally asked for $75.9 million in increases that would have doubled basic residential rates more than 100 percent, but had adjusted the sum twice, finally to $54.2 million.

In this case, C&P had argued it needed the higher rates to earn its authorized rate of return, to cover rising costs, and to make up for the loss of revenue from long-distance service and from the manufacturing of equipment. At the time of the breakup, C&P and other Bell operating companies lost long-distance services and equipment manufacturing to AT&T.

C&P said it needs to raise residential rates to reflect the actual cost of those services. C&P said business charges had long subsidized local phone service, but with increased competition for business customers, subsidies had to be eliminated.

While the new rates were hailed by C&P as a positive sign, the company has appealed the rate case to the D.C. Court of Appeals, claiming that the amount of the award -- $31.5 million -- was too small.

"The commission is moving in the right direction with regard to cost-based pricing," said Web Chamberlin, spokesman for C&P.

The company, which had a 9.72 percent rate of return in the past year, is authorized to try to earn 12.29 percent.

Nevertheless, Chamberlin said the subsidy in residential rates has still not been eliminated.

The company had wanted to put the brunt of the increase on residential customers and less on most classes of business customers.

"We have to have a balance between our residential and business customers regarding the rates they pay and the cost of providing that service. The business customers rates that we had applied for would have brought their services to cost; the residential customers are still not at cost," said Chamberlin.

The company has no plans to file for another rate case in the near future, he said, but will be evaluating revenue and rate of return closely in the coming year.

The PSC decision also changed charges for other telephone services. The decision will increase measured area-wide service, which includes 60 free local calls and a charge of 6.9 cents for each additional call, from $6.38 a month to $7.98, an increase of 25 percent. It also raises the economy rate, with a 6.9 cent charge for each call, from $3.11 a month to $4.67, an increase of 50 percent.

Rates for residential installation will rise from $25 to $32.15, an increase of 29 percent. Directory assistance rates will rise from 20 cents to 26 cents per call, after five free calls.

Business rates will change from $16.05 a month per line, which includes 110 free calls and a charge of 6.9 cents for each additional call, to $12 a month, with a 6.9 charge for every call. Additional business lines will cost $12 a month, up from $8.97 a month.

Connections for semi-public coin phones will cost $14 a month, up from $8.60 a month.