So how is the country serving the people?

How can a contract mean you need to raise prices for the citizens? This can only be the case if the government is not acting in good faith, and has planned for this eventuality.

I'm still amazed how people think their government is there to help, especially in nordic countries, when it is plainly just an extraction and control device.

There's plenty of calls to change the pricing rules but I'm amazed that there is so much political resistance. We could be changing this now.

See my other example of effects of the current market rules https://news.ycombinator.com/item?id=32798081

Something is wrong with how prices are formed in this market.

That contract you mention is basically that you transmit electricity from where it's cheaper until the price balances out at both ends. That's when you stop (unless capacity limits you before that happens). It's a horrible contract, there's no consideration for rational planning of e.g. seasonal availability (which is enormously different in Norway compared to the continent). Ref. a link in my other comment (nrk.no) which explained this (in Norwegian. Translate can probably handle it). The sad thing is that politicians, including the former prime minister, seems to not understand the nature of the contract they signed. They still thinks it's about exporting surplus and importing from surplus, which it's not at all about.

How is the country, or the EU serving the people, when they are contractually bound to increase the prices, even when there is no necessity?

I don't want to go into that much politics, but if you look at it from high above there's a little more energy coming into the pool (by using that pricing method to squeeze more export out of Norway), and as a result the net total for all of EUs citizens will be a tiny bit lower. Even though it creates havoc in Norway (prices going up maybe 1500% or, some days, an order of magnitude more). Obviously there's an energy crisis in Europe so I'm not sure EU can be blamed for how it affects Norway, the fault is on Norwegian politicians alone for signing a deal which was such a misfit for how the Norwegian power production works. Unbelievably naive, not even realizing that the already existing methods did everything they wanted - sell surplus when it was safe to do, buy when you could, optimize how hydro resources were used (a lot of the rivers and lakes, the majority in fact, also have fish - and the unwanted high output at the bad time creates havoc - not enough water). The Acer setup, as such, is probably fine for the majority of the continent, but I don't know enough about power production in most of EUs member states.

> This can only be the case if the government is not acting in good faith, and has planned for this eventuality.

Because during normal times it actually leads to cheaper prices. It has only really been an issue now due to the crisis.

Also this is mostly a consequence of the free market. In the late 90s and early 2000s the Nordic countries freed the electricity markets of the very tight government control. The markets then over time decided that they can make more money by combining each other by joining nord pool (originally a Norwegian company)

There is not just one way to have a free market. The market rules determine market outcomes, and different methods for how prices are formed could be used.

Sure, electricity is in some sense a pretty artificial market with the auctions and system operator etc etc. OTOH, commodities generally price at the margin, and the rules for the electricity market have been designed to mimic this price finding process that comes about more naturally in other commodity markets.

So while currently there are certainly big issues with how the market functions due to Putin, anyone suggesting any major reform will have to think long and hard what the market mechanics are supposed to be, and what could be unintentional side-effects of that mechanism. At the moment there is a lot of political pressure to do something, anything, and it's very likely such hasty proposals will be throwing the baby out with the bathwater.

The gas situation may be a major stress to the system at this time, but prices were gradually rising even before this current crisis.

EU regulations forbid most subsidizing of goods withing country borders in general. There are some exceptions, like for example agriculture.

There were a lot of reports made before the cables were created indicating that prices would not change much. I believe these were created in good faith by incompetent people.

People in Norway are currently paying full price, but the government is refunding 90% of the cost above ~0.7 USD / KWh.

You could argue that all domestic energy infrastructure could be nationalized and energy sold at cost to domestic users, but then where does the money come from for investment?

Government funds would have to finance it. Cheaper electricity is a benefit to domestic industry (manufacturing and computers included) - tax money derived from this and public-private partnerships for investing in increased energy supply.