The Government, seeking to implement the principles of market and to liberalise the administration of the branches of infrastructure, has gradually rejected their regulation by transferring these functions to independent institutions. The principles of price setting and the prices themselves, entry into the market (licensing), promotion and control of competition, consumer protection and other functions were passed over to the newly established institutions that were not under subordination of the Government. These principles are laid out in various directives of the European Union, recommendations of the World Bank and other international organisations.

The Law on Energy, adopted in 1995, foresaw that an independent State institution, the State Price Regulation Commission of Energy Resources, should prepare the methods for energy price calculation, inspect price calculations provided by energy specialists and submit its conclusions to the Government. In July of the same year the President of Lithuania by his decree set up such Commission, which, however, was a public commission, constituted of the representatives of various ministries, departments and scientific institutions. In a short term, it became evident that such complicated work was not possible to be performed on public grounds, and the Government proposed to establish a functioning institution, possessing its own budget and staff.

On February 10, 1997 the President of the Republic of Lithuania appointed first members of the Commission.

At the initial stage of its activity, when the prices and the procedure of their application were approved by the Government, the Commission performed the function of the advisory body to the Government. The essential change in the energy pricing occurred in the summer of 1997 when the Amendment to the Law on Energy stipulating the new principles of energy pricing came into effect. The main provision of the Amendment states that the regulated energy prices (electricity, natural gas, district heating, and hot water) are set by the suppliers themselves upon having made their calculations abiding by the methodologies approved by the Commission as well as after having agreed them with the Commission.

In November 1998 the Seimas adopted the Amendments to several Laws (on Prices, on Local Government, on Energy, and on the Principles of the Activities of Transport) and thereupon authorised the Commission to adjust all the prices set by all district heating suppliers (until now the prices had been approved only for regional utilities), the prices of cold water as well as marginal tariffs for long–distance passenger transport. The name of the Commission was also changed, and it became the National Control Commission for Prices and Energy.

In the process of harmonisation of the legal acts in the sector of energy with the provisions of the European Union directives relating to electricity and gas (2001 Law on Natural Gas and 2002 Law on Electricity), the Commission that was previously responsible for pricing, price setting and their application evolved into a commission that has undertaken the actual economic regulation of energy sector. A new type of activity came forth – licensing and control over the operations of licensed companies. The Law on Electricity as well as the Law on Gas emphasize that licenses are indispensable for all core activities in these sectors. These licenses serve not only as a permit to participate in the market, but also as the instrument to control the compliance of the companies with the standards of quality of services, reliability of supply, environmental protection and others. The aforesaid Laws essentially altered the principles of pricing. The incentive regulation has been introduced – the price caps are set for a three year period, and specific tariffs are calculated every year abiding by the methodologies approved by the Commission.

From 2003 the Commission has acquired the right (the Law on Heat was passed in 2003) to regulate heat on the principles similar to those as in the electricity or gas sector. The Commission sets long-term basic prices for heat utilities, issues licenses and supervises their operations, coordinates investments, and resolves disputes.

With the European Union seeking for full liberalisation of electricity and gas markets (in 2003, the European Parliament and Council approved the Directives on Electricity and on Gas) and enforcement of market relations, the role of a regulator was allocated to the Commission. The energy companies being privatized or leased to a private capital, the relations between the market participants become still more aggressive. Until then the Commission acted just as an intermediary between the consumer and the monopolist, now it becomes more often involved in solving disputes between energy companies concerning the right to use the networks, to get connected to them, etc. The Commission gains still more experience in its efforts to keep the balance between the parties of the dispute.

The work of the Commission is accompanied by the changing legal environment. A Law on the Supply of Drinking Water and Wastewater Management extended the functions of the Commission in this sector as well. The Commission not only will set water prices, but also will be involved in licensing of the operation of the public water suppliers and supervising how water supply and wastewater management prices are applied.

To the order of the Ministry of Economy, the Public Institution “European Social, Legal and Economic Projects” carried out the study on the status and functions of the Commission, comparing it with other EU energy regulators. The main conclusion was that the Commission as regards its status and functions did not differ from the regulators in other EU countries. The Lithuanian energy regulator is estimated as “an independent institution, delegated with the functions as foreseen in the Directives and some other additional functions.”