Maryland Public Service Commission fines Pepco $1 million

December 21, 2011

Maryland regulators fined Pepco $1 million Wednesday for failing to fix problems that have led to the frequent outages that have long plagued customers of the Washington region’s leading power company.

The Maryland Public Service Commission described the fine as its largest ever and only its “initial” penalty for the company, which it concluded failed to maintain its power lines for years, resulting in prolonged outages during storms and on fair-weather days. The commission concluded that Pepco compounded its failings by communicating poorly with customers.

In particular, the commission blamed Pepco’s tree-trimming practices for being ineffective and contributing to the power failures.

“Pepco offers myriad excuses for its performance, but we’re not buying,” the commission said in its order. “Pepco’s customers have paid a substantial price for Pepco’s neglect, measured not just by direct economic costs such as closures of businesses leading to lost wages and reduced tax revenue, but also by less tangible costs, including the physical discomfort.”

Pepco spokesman Clay Anderson said the company had not reviewed the order and declined to comment further. This year, Pepco officials acknowledged their reliability problems and announced a five-year, multimillion-dollar effort to improve.

The commission’s conclusions mirrored those of a 2010 analysis by The Washington Post, which found that Pepco ranks as one of the worst utility companies in the nation when it comes to keeping the power on and bringing it back once it goes out.

Though large, the fine represented a small percentage of the company’s revenue in a given year.

Last year, Pepco Holdings paid more than $240 million in dividends alone.

In the third quarter of this year, it took Pepco Holdings about a day and a half to earn $1 million, according to the company’s government filings.

The penalty is the most recent backlash against the utility, which delivers power to 778,000 customers in the District and neighboring parts of Maryland, including some of the most affluent communities and most important institutions in the nation.

Maryland legislators passed a bill in April that imposes a $25,000-a-day fine on electric utilities for each violation of reliability standards. In July, District regulators tightened performance standards for Pepco, threatening to fine the company unless it improves reliability within two years and matches the performance of the nation’s most dependable power providers within a decade.

The Maryland commission, which began its investigation in August 2010, ordered that Pepco file a detailed, five-year improvement plan that includes measures to improve communications and speed service restoration. The commission said additional fines could be on the way if the company fails to improve.

Consumer advocates praised the commission’s actions. “Pepco has not met its responsibilities to provide safe and reliable service, and must change its ways,” said Paula M. Carmody of the Maryland Office of People’s Counsel.

Montgomery County Executive Isiah Leggett (D) also applauded the fine but said he was more pleased with the commission’s promise to disallow future rate increases unless it improved its performance.

He pointed out that each day of outages costs businesses and consumers tens of millions of dollars. “That cost should be assumed, at least in part, by the shareholders,” Leggett said.

Consumer advocates said it was highly unusual for the commission to impose a significant penalty. Pepco could file a formal objection with the commission or ask a court to block the penalty.

The order said that tree-trimming failures led to dramatically higher outage durations and frequencies in 2010.

“Pepco’s history of inconsistent and sometimes contradictory tree trimming practices between 1999 and 2010 imposed more costs and outages on customers than otherwise would have been the case had the company adhered to one coherent strategy,” the commission order said.

Pepco’s reliability problems were amplified by the utility’s refusal to increase the frequency of its tree trimming from once every four years to every two years, the order said.

The commission also concluded that Pepco failed to conduct periodic inspections of its distribution lines and did not conduct after-storm inspections or patrols.

Those lapses contributed to poor performance in national reliability studies and increased the power system’s vulnerability to storms, the order said.

The commission was especially critical of Pepco’s inability to accurately estimate how long it would take to restore service after major storms.

The order noted that Pepco had already initiated a five-year, $300 million program to improve reliability and planned to pass the cost along along to consumers. The commission cautioned that if the program did not reduce outages, the utility might have to pay those costs itself.

“It is Pepco’s legal duty to provide reliable service to its customers,” the order concluded.

The Post’s analysis found that the average Pepco customer experienced 70 percent more outages than customers of other big-city utilities and that the lights on average stayed out more than twice as long.

Pepco’s reliability began declining five years ago, the newspaper found, but company officials failed to immediately mobilize to counteract the decline.

Staff writer Mary Pat Flaherty contributed to this report.

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Joe Stephens joined The Washington Post in 1999 and specializes in in-depth enterprise reporting.
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