Case Study Multi-Sector Regulator: Latvian Public Utilities Commission (PUC) [6.1.1]

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The Latvian Public Utilities Commission (PUC) was created in 2001 and took over regulatory functions previously performed by separate energy and telecommunications councils and by the Ministry of Transport. A key practical factor was the need to concentrate scarce resources. The authorities felt that a critical mass was needed to attract the best people.

As shown in the 2004 annual report of the PUC, the model has proven to be successful in Latvia and clearly argues in favor of the multi-sector approach - the advantages of unified multi-sector regulator have undoubtedly demonstrated themselves in the case of Latvia.

These advantages are summarized as follows in the 2004 Annual Report:1

“The first advantage is the use of unified approach – unified regulatory strategy, unified requirements for information provision by service providers, unified procedure for organizing public hearings and finding out public opinion, uniform approach to issuance of licences, tariff setting and dispute settlement. The use of unified approach improves predictability of regulation, clarifies the investment environment for the existing service providers and new entrants in the market, as well as enables more efficient use of regulator’s funds and expertise. The unified approach is especially significant for companies which simultaneously operate in several regulated sectors.

An advantage of multi-sector regulation is also the opportunity to apply the experience accumulated in one sector to other sectors, taking into account the specifics of each sector.

The position of unified regulator provides an insight of the considered issues in a wider context, evaluate the existing situation in each sector and the relative development prospects against other sectors. Mutually complementing information about processes in several sectors ensures more accurate analysis about the mutual impact of energy sub-sectors, the impact of possible changes on the overall price level, competitiveness of the national economy and other macroeconomic indicators. To make certain that regulated services are provided in sufficient quality and their price is justified, the Commission has the right to request all the necessary information from service providers.

One of the main tasks of the Commission is to find balance between the interests of involved parties, protecting consumers and promoting the development of service providers, ensuring safe and continuous availability of services at present, in the medium and long term. Economic regulation of several important sectors for society in one institution provides better opportunities to balance the interests, eliminating the possibility of capture by the interests of a separate sector, creating a better idea about consumer opportunities and needs, as well as the overall situation of the national economy.

The existence of unified independent multi-sector regulator means that the Commission is sufficiently strong to fulfil the delegated functions – service providers have to respect the Commission’s opinion. After the Commission started operations, a certain time period passed before service providers were convinced about the Commission’s independence and impartiality, and currently cooperation is constructive in most cases, the Commission is an equal discussion partner for the largest Latvian enterprises, several of which are incorporated in world scale corporate groups.

The multi-sector regulatory model, especially in case of Latvia as a small country, creates advantages by concentrating human resources and expertise. Existence of separate regulators would mean that regulatory experts and specialists would be divided among several institutions. A small regulatory institution would also be weaker financially, not being able to attract and retain good specialists.

The Commission also uses advantages of unified regulation in its structure because sector departments are complemented by Legal and Economic Analysis Departments which participate in the consideration of issues in all sectors. The high professionalism of the Commission’s employees is witnessed by the fact that Commission’s experts regularly participate in the working groups of ministries developing sector policy documents and drafting legal acts.”

Legal Status

After the law “On Regulators of Public Services” was passed on 19 October 2000, a two-tier system of public service regulation was established. The first tier regulator – the Public Utilities Commission – regulates public services on the state level. The second tier regulators – local government regulators – regulate local service providers in the territories of the respective local governments. Before the reform regulatory functions were performed by several institutions: the Ministry of Transport, Energy Regulation Council, Telecommunication Tariff Council and Railway Administration, as well as local governments. Taking over the functions of these regulatory institutions (except the functions of local government regulators), the unified multi-sector regulator started its operations in 2001. It regulates energy (except for heat supply, if heat production is not combined with electricity production), electronic communications, post, and railway sectors on the state level. Local government regulators supervise waste management (except waste recycling), water supply, sewerage, and heating sectors (except combined heat and power production).

The basis of operation of the Commission is set by the law “On Regulators of Public Services”. Amendments to the law “On Regulators of Public Services” were prepared during 2004 and approved by Saeima (Parliament) on 2 December 2004.

These amendments proposed:

  • to strengthen the Commission’s status as a derived public person;
  • to change the existing responsibility regulation of public service regulators;
  • to delegate rights to the Cabinet of Ministers to set a stable rate of state duty for public service regulation and the payment procedure of state duty for public service regulation;
  • to introduce new efficient regulatory instruments, especially in cases when the public service provider does not abide by or violates the licence conditions;
  • to delegate rights to the Commission to specify quality requirements for public service provision; and
  • to harmonize the law with the Administrative Procedure Law, State Administration Structure Law and the Commercial Law, as well as perform editorial revisions.

After amendments to the law, the new Commission’s statutes were prepared and approved on 15 December 2004. Specific Commission’s functions, tasks and rights in each regulated sector are specified by the respective sector laws – Energy Law, Postal Law, Electronic Communications Law and Railway Law. In 2004 amendments were made to the existing sector laws, and additional laws were also passed.

Amendments to the Postal Law were adopted in February 2004, implementing the respective norms of the European Union directives on the gradual opening of the postal sector to competition, licensing of postal service providers, and issuance of general authorisations, tariff setting, and complaint review.

On 15 April 2004 the Cabinet of Ministers issued regulations No. 304 “Electronic Communications Law” according to the procedure of Article 81 of the Constitution. On 28 October 2004 the Saeima adopted the Electronic Communications Law which replaced the previous Law On Telecommunications. The Electronic Communications Law introduces new norms of EU directives in the communications sector, particularizes the Commission’s functions and specifies new procedures for implementation of these functions. With the approval of the new law the Commission must develop about 40 new secondary legislation acts – regulations, methodologies, procedures and orders. In accordance with the tasks specified in the Electronic Communications Law, the structure of the Commission and the personnel list has also been changed.

Organizational Objectives

In accordance with the law “On Regulators of Public Services” the goal of regulation is to provide an opportunity to receive continuous, safe and high quality public services whose tariffs (prices) correspond to economically reasonable costs, as well as promote development and economically justified competition in regulated sectors.

The PUC’s strategic goals are to protect consumer interests and to promote both competition and investment-driven development. A major task of the PUC is to approve tariff-structures, and expectations are that it will enact a uniform tariff setting mechanism in all the sectors under its supervision.


The Commission performs the following functions:

  • protects consumer interests and promotes the development of public service providers;
  • promotes competition;
  • issues licences, registers authorizations and supervises the adherence to their conditions;
  • supervises the compliance of services with requirements for quality, environmental protection, technical regulations, and standards;
  • sets tariff calculation methodologies;
  • approves service tariffs;
  • informs the public about its activities and the operation of public service providers; and
  • performs extra-judicial dispute settlement.


The main reason for the regulatory system reform was the need to ensure the formation of independent regulatory institutions and independent decision adoption process. Decisions linked with regulation directly influence not only the regulated companies, but also the society and economic development in general. Therefore, the evaluation and balancing of service provider and user interests had to be handed over to independent institutions, thus averting the risk of adoption of politically and economically unreasonable decisions. The newly formed regulators – the Commission and local government regulators – according to the law are independent in their decision making and are not subject to the decisions of the government, local governments or other state institutions. Regulators’ decisions may be declared illegal and repealed only by the judiciary. The Commission does not supervise local government regulators and has no right to influence their work.

The unified multi-sector public service regulatory model has shown its advantages in Latvia, although the two-tier level of regulation has proven to be difficult in practice. Latvia is striving to include all regulatory functions in a unified regulatory process in the future so as to implement the principle of regulatory unity.

In the second half of 2004 the Commission participated in the working group formed by the Cabinet of Ministers, together with representatives of sector ministries and Latvian Association of Local and Regional Governments looking for ways to optimize the public service regulatory model and to overcome difficulties which have arisen from the fragmentation (and even duplication) in the implementation of regulatory functions between ministries, regulators and other state institutions.

PUC is governed by a council of five members, including the chair, appointed by the Latvian parliament for five years. Financial independence is guaranteed by mandatory levies on the regulated sectors, so that funding is independent of the state budget. Technically, for constitutional reasons, the PUC is an arm of the Ministry of Economy, but in practice it will be politically independent. The FCMC has no supreme authority.


Annual report 2004 has been submitted to the Ministry of Economics to be included in its consolidated annual report. Opinion on the Commission’s Annual report 2004 was given by a sworn auditor Zigrida Sneidere, certificate No. 110.


In conformity with the law “On state budget for 2004” the Commission’s budget is a part of the budget of the Ministry of Economics.

The Commission’s operations are financed from the duty on public service regulation which is paid by the regulated companies. In the report year the state duty in accordance with the Cabinet of Ministers regulations No. 548 of 30 September 2003 “Regulations on the rate of state duty for regulation of public services in 2004” was 0.2 per cent of the net turnover of the respective public service provided by the company.

The Commission’s financial report was prepared on the basis of the Cabinet of Ministers regulations No.999 “Procedure for preparation of the annual reports of state and municipal budget institutions” of 30 November 2004.


The decision-making institution of the Commission is the Board consisting of five commissioners. In June 2001, the Saeima, following a recommendation of the Cabinet of Ministers, appointed the chair of the Commission who is also a commissioner and four other commissioners.

The board makes decisions on behalf of the Commission and issues administrative acts which are binding to specific public service providers and users.

The executive institution is subordinated to the board and performs the functions of its secretariat and experts. The executive institution prepares issues and documents for consideration in board meetings and implements the adopted decisions and the administrative acts issued by the board. The executive institution has a respective structural unit for each state regulated sector and other departments performing support functions.


The PUC in Latvia has made concerted efforts to develop its resources. In 2004, for example, the Commission:

  • supported studies in professional higher education, graduate and post-graduate programs in Latvian universities.
  • promoted participation of employees in seminars organized by various Latvian and foreign institutions, training cycles, local and international conferences, and meetings organized by professional associations.
  • organized seminars on topics requested by Commission’s employees, inviting lectors or organizing seminars themselves.
  • provided opportunities to study foreign languages which are paid by the Commission’s budget or by attracting external financing.
  • organized training and experience exchanges, in-service training in regulated companies and regulatory institutions abroad. Business trips were paid both from the Commission’s budget and attracting foreign financing.
  • ensured involvement of foreign or local consultants to perform specific tasks or solve problems, supplement the knowledge of employees and gain experience.

At the end of 2004 the total number of the Commission’s employees and officials was 83, including five commissioners, an executive director, five department directors, 25 division managers, 42 experts, and five technical specialists. Out of all the Commission’s employees, 92 per cent have higher or unfinished higher education.


1 See 2004 Annual Report at

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