District regulators have tightened performance standards for Pepco, threatening to fine the beleaguered power company unless it improves reliability within two years and matches the performance of the nation’s most dependable power providers within a decade.

In a related move, Pepco on Friday applied for a 5.3 percent rate increase that would cost a typical District residential customer $5 a month and provide the company with an additional $42 million a year.

Under the new performance measures, Pepco must reduce the frequency of outages by 9 percent each year, beginning in 2013. It must reduce the length of outages by 3.4 percent annually.

“Pepco has to improve — or else,” said Betty Ann Kane, chair of the D.C. Public Service Commission. “We want absolute standards.”

The provisions do not mandate a penalty if Pepco falls short, but current law allows the commission to fine the company $10,000 per offense for failure to perform reliably. The commission and the District council have asked Congress to raise the maximum penalty to $100,000.

The commission has never used the authority it does have to fine Pepco. Kane said that was because Pepco had always exceeded weaker reliability standards that have been in place.

Pepco President Thomas Graham said he considered fines unnecessary, especially since Pepco had always met benchmarks set by the commission.

“We’re fine with standards as long as they are fair, they are attainable, and they are sensitive to cost for our customers,” Graham said.

As for the timing of the rate increase, Pepco spokesman Bob Hainey said, “It’s never a good time. But this is the start of the process; there are going to be hearings. We need the money to get the job done.”

Pepco has about 778,000 residential and commercial customers in Washington and Montgomery and Prince George’s counties.

Neither the performance standards nor the rate increase would apply to Maryland customers, although regulators there are finalizing tougher regulations and Pepco is expected to seek a rate hike in Maryland.

The push for higher reliability standards follows an investigation by The Washington Post that found Pepco ranked near the bottom nationally among electricity companies in terms of keeping the power on and bringing the lights back once the electricity goes out. The Post found that the average Pepco customer experienced 70 percent more outages than customers of other big-city utilities. And the lights stayed out, on average, more than twice as long.

The newspaper’s study concluded that Pepco’s reliability began faltering five years ago and that company officials failed to stem the decline. Reliability in Maryland was substantially worse than in the District, where many lines are underground.

After the articles, Pepco executives acknowledged they had failed to provide reliable power and vowed to improve. They said planned upgrades would cost an average residential customer an additional $1 a month.

The proposed D.C. rate increase would pay for those improvements, along with maintenance and new equipment, the company said.

Kane said regulators will scrutinize the request, with final action taking about a year.

“We have to look at every penny very carefully,” she said. “We put Pepco on notice that we would most likely look at performance in connection with the next rate case. That would be in addition to any fine.”

In April, a national survey reported that customer satisfaction with Pepco plummeted in the first quarter of this year, placing it at the bottom among the nation’s 25 largest investor-owned power companies.

Maryland legislators passed a bill in April that imposes a $25,000-a-day fine on electric utilities for each violation of reliability standards. The standards are to be enforced by July 2013.

“We know the customers are very upset,” Hainey said. “We’re doing the things the customers have asked for. If you look at the last couple storms, the outages have been small. And we’re doing our best to get people back on as soon as possible. “