To ensure efficient, sound and professional process of utility regulation the Regulator should follow certain basic principles: independence, openness and a balanced distance from the government, the regulated companies and users.

Political, financial and institutional independence is one of the basic principles and preconditions for successful operation of the Regulator.

Implementation of the regulatory functions involves making decisions on politically sensitive issues, for instance, tariffs for public utilities. Therefore it is important to secure the independence of the Regulator from any intervention by the government and politicians. The Law “On Regulators of Public Utilities” states that the Regulator is not bound by decisions of government or its institutions regarding implementation of its functions, making decisions or issuance of administrative acts. The adopted decisions and issued administrative acts may be recognised illegal or repealed only by court.

One feature of independence of a Regulator is its financing. If regulatory institutions are funded from the state budget, there is a possibility to exercise financial influence on the work of the organisation. The mentioned risk is minimised in Latvia as the Regulator is financed from payments made by the regulated enterprises. Such a principle of financing already successfully operates in many countries. The annual rate of such payments in Latvia shall not exceed 0.2% of the net turnover of the public utilities in regulated services in the preceding financial year. The Cabinet of Ministers annually sets the rate of fees for regulation of public utilities concerning each type of public utilities. In 2001 and 2002 the rate of fees for each type of regulated public utilities is 0.2% of net turnover of the regulated services in the previous year. In railway sector this fee for public railway infrastructure services to cargo carriers is 0.1 percent.

From the institutional point of view, the Regulator is not completely independent, as it is an institution supervised by the Ministry of Economy. In future it is necessary to strengthen independence of the Regulator from the institutions of public administration.

Openness is a significant principle for ensuring transparency and stability of regulation. It helps to strengthen the responsibility of the Regulator and is a certain guarantee against corruption. Decisions made by the Regulator are open and are published. To ensure openness, the regulator co-operates with all subjects involved in regulation process by inviting them to participate in the preparation of draft decisions.

A balanced distance of the Regulator from the government, regulated enterprises and users. Decisions of the Regulator influence both providers and users of the regulated services, as well as potential participants of the regulation process and country’s economic development in general. Therefore, for each decision the Regulator has to evaluate and to balance equally and objectively the interests of all these parties.