HEP-Distribution System Operator (HEP DSO) is a member of HEP Group and is the only company in Croatia that is involved with the regulated activity of electricity distribution. Since HEP-DSO primarily operates in a regulated activity, and in fact is a monopolist in this segment of the electricity market classic business challenges and decisions, in terms of selection of the most effective business model, were not in the management’s focus. HEP Group is a company of strategic national significance, and the Croatian Transmission System Operator - HOPS and the HEP-Distribution System Operator are monopolists in their area of activity. The liberalization of the electricity market has led to a restructuring of the entire power sector. Although the distribution has remained a regulated activity HEP DSO is also faced with new requirements and the liberalization of the electricity market has caused significant changes in its’ everyday operations. Since HEP-DSO has a monopoly position legislator had determined an acceptable regulatory level of income for it. It is envisaged that the acceptable level of income should allow normal operations and the development of the company engaged in this regulated activity. Although HEP-DSO is not a direct participant in the electricity market, DSO has a very important role for the power market. That is to ensure the smooth functioning and the development of the retail electricity market. In the restructuring of the electricity sector there is no universal model of transition to satisfy the requirements of the European energy packages’ for the company like HEP Group. In Croatia, the same as in the rest of the CEE (Central and East Europe) countries, socio-economic conditions and heritage is an important factor in the restructuring of the power sector. This is primarily related to the transition from a socialist system and planned economy to a parliamentary democracy and a market based economy. The entire transition process was marked by the privatization fraud, mismanagement of resources, lack of a clear vision and strategy and a lack of domestic and foreign capital. For the HEP-DSO to adjust and prosper under the new situation in its’ sector several things need to be done: increase the financial and technical efficiency (reduced losses, higher efficiency), reduce the burden on the state budget through the reduction/elimination of subsidies for the production and transmission of electricity and growth of Croatian electric power companies in the region through acquisitions and mergers.