Usually refers to a financial technique which isolates accounts and records related to a utility's primary competitive activity from accounts and records for all other production or distribution functions that a utility may perform. Functional separation is often required under deregulation to insure fair competition in a deregulated market and protect consumers against possible abuses in newly-deregulated markets where utility companies may have a monopoly or natural monopoly. Under deregulation, a utility will have to select a particular area of energy service in which it will compete, and functional separation insures that it cannot use financial information relating to other activities to give it an unfair advantage in its chosen field of competition.

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