An analytic approach to determine appropriate regulatory strategies for the energy sector is proposed in this paper. A basic model of the regulatory system in the energy sector is defined, and the regulatory mechanism functions in this context are outlined. The basic problem of unknown factors (i.e., system entropy) is highlighted. An original algorithm developed to analyze regulatory background context and regulatory mechanism functions is discussed. A useful method for defining existing level of energy activities regulation is also presented using the Croatian regulatory framework as an example. (c) 2008 Elsevier Ltd. All rights reserved.