ompetition has an unnerving habit of rewrit-C ing the basic assumptions on which business is built. Decisions that seemed perfectly sensible at the time can appear ludicrous in hindsight, after competition has changed some fundamental ground rule that everyone took for granted.
Nowhere is this phenomenon more pronounced than where competition is introduced in a regulated industry. Here regulation has a tendency to write these basic assumptions into law, making them all the more powerful and resistant to change. This institutionalization of business assumptions may come formally, as where the Federal Power Commission wrote regulations decades ago that generally required a new pipeline to show 12 years of ready supply behind it. More often, however, the process is more informal, as where businesses understand that departures from the "accepted wisdom" may be viewed as imprudent management. It takes great clarity of vision, and not a little courage, for company managements to ignore the accepted wisdom under these circumstances.
In the gas industry, deregulation and competition in the field markets caused wholesale changes in the way that buyers viewed gas reserves. Thus, as the field markets became effectively deregulated in the early 1980s, buyers began to reduce the level of product they were willing to pay suppliers to keep in inventory. "Just-in-time" inventory management had come to the natural gas field markets well before it became a buzzword in the popular business press.
Translated into the jargon of the industry, what this
Philip M. Marston is an attorney specializing in business and regulatory issues affecthg the natural gas and electricity industries.