Second Progress Review of Latvia’s Public Utilities Commission

Executive summary

The Public Utilities Commission (Sabiedrisko pakalpojumu regulēšanas komisija – PUC) is Latvia’s economic regulator for energy, e-communications, post, water, waste management and packaging deposit services. Established in 2001, the PUC oversaw the liberalisation of utility sectors and has worked to promote better quality, affordability and efficiency.

The OECD conducted an in-depth review of the PUC’s governance and performance in 2016 according to the OECD’s Performance Assessment Framework for Economic Regulators (PAFER). The PUC invited the OECD twice to track progress on recommendations since, demonstrating its commitment to excellence.

The progress review finds that the PUC has continued to implement OECD recommendations since the last review. It identifies progress on all recommendations, with more than half fully implemented or with good progress. The main areas of progress since 2020 include the introduction of key performance indicators (KPIs) to measure progress on strategic objectives, a fully operational Advisory Council and the use of interactive data-driven tools and reports to communicate with stakeholders.

Progress had been made more difficult in recent years due to a changing and challenging context. Shocks from the COVID-19 pandemic and Russia’s war of aggression against Ukraine have significantly affected the sectors under the PUC’s responsibility. The review identifies some areas that the PUC could focus on to continue its progress. These areas include i) the regulator’s use of communication and engagement, ii) performance reporting, and iii) funding and staffing arrangements.

Communication and engagement

Previous recommendations included clarifying the regulator’s goals and priorities, assessing how to participate in the policymaking process and setting up a consultative council to consult on the regulator’s strategy. Significant progress has been noted in these areas.

Assessment of progress on key recommendations and suggestions for the way forward

• The PUC’s Advisory Council is fully operational and positively perceived by stakeholders; it can be strengthened by keeping an eye on balanced representation and making meetings more member-led.

• While the PUC’s contributions to the policymaking process still consume significant resources, the regulator took an important step to signal its independent role by publicly issuing its opinions.

• The PUC’s new strategy continues the shift towards a user-centric approach, but it remains unclear how the regulator decides and communicates on trade-offs in decision making. The PUC could tailor communication in its engagement with different stakeholder groups to increase awareness of the regulator’s role and explain the balancing of interests in its decision making.

• The PUC engages frequently with stakeholders to inform its decisions but could more proactively co-ordinate with other public bodies to flag any issues or impacts that go beyond its own mandate, to improve role clarity, signal its independence and support the overall effectiveness of public policy.

Performance reporting

Previous recommendations included developing a performance assessment matrix, introducing more regular exchanges with parliament (the Saeima) and using performance data and information to communicate with key stakeholders. Strong progress has been made in some areas, while there remains more scope for improvement in other areas.

Assessment of progress on key recommendations and suggestions for the way forward

• The PUC made strong progress by introducing KPIs after consultation with stakeholders, and now needs to define targets and a clear methodology to enable tracking of progress on its strategic objectives and to maximise accountability.

• The PUC frequently interacts with parliamentary committees but could advocate for an annual in-person reporting by the regulator to the Saeima plenary on its strategy and performance.

• The PUC uses interactive tools and reports to share insights on the performance of the regulator and sectors with stakeholders in an accessible format and is on track to report on KPIs in the future.

Funding and staffing arrangements

Previous recommendations included advocating for an alternative fee-setting process, investigating the impact of the salary cap and developing a “total rewards approach” to increase job attractiveness. The first progress review already noted significant progress in these areas, but advancements have been more limited since.

Assessment of progress on key recommendations and suggestions for the way forward

• The PUC successfully advocated for an alternative fee-setting process in 2017 to reduce the risk of undue influence, but there remains a need for clear criteria and procedures for reviewing the fee level to ensure cost-reflectivity in a context of volatile sector revenues.

• A new salary cap allows PUC salaries to track sector salaries, but the regulator now needs to assess and enhance its broader attractiveness as an employer beyond financial remuneration.

• The regulator continues to offer a balanced employment package, although its efforts to build a positive work environment could be affected by the structural impact from the COVID-19 pandemic on operations.