Shut Down

Colonial Pipeline hack showed industry vulnerability and why ties to Capitol Hill are crucial.

Shut Down

July 2021   minute read

By: Doug Kantor

On Friday, May 7, the Colonial Pipeline learned some of its systems had been compromised by ransomware. While similar cybersecurity incidents have hit many vital organizations, such as cities and hospitals, this hack would touch more people than any other ransomware in the past.

The hack did not reach all of the pipeline’s systems, but the company made the call to stop operations, which not only meant that products stopped moving through the pipe but also that terminals could not be accessed. With about 45% of the fuel used on the East Coast flowing through the Colonial, the effects of the shutdown spread rapidly—especially in the Southeast to the Mid-Atlantic area. Until the pipeline started operating again, there was going to be dislocation. However, decisions by regulators would help ease that dislocation (or make it worse).

The attack on the Colonial Pipeline was a prototypical example of why NACS spends years building relationships throughout the federal government and educating policymakers about the industry. There are some policy issues that NACS works on methodically, knowing the goals and potential outcomes. And then there are the issues that no one can predict like the Colonial Pipeline hack.

NACS was in contact with federal officials at the White House, the Department of Transportation and the Environmental Protection Agency during the weekend following the hack’s discovery to emphasize the magnitude of the pipeline shutting down for multiple days and to start conversations about regulatory waivers that would be needed to minimize the impact of the coming shortages.

By Sunday, May 9, it was clear that the problem did not have a quick fix, and government action was needed. But that didn’t mean government officials understood the severity of the problem yet. The Biden Administration, being new on the job, was eager to do the right thing and to understand the problem but did not have a lot of experience with motor feuls distribution.

That day, however, the Federal Motor Carrier Safety Administration issued a waiver on the hours-of-service limits that truck drivers could work in affected states. This allowed truck drivers additional flexibility to move more fuel longer distances. It also helped with the problem of truck drivers waiting hours at the rack before they could pick up a load to transport it in the first place.

On Monday and Tuesday of that week, NACS organized calls between some of the most active members of the industry in the affected areas and administration officials to talk about what needed to be done. NACS also collected information from members and provided it multiple times per day to White House staff and at the agencies. Regulators listened … and started to take action.

Then on Tuesday, the EPA issued waivers on requirements for reformulated gasoline and Reid vapor pressure in affected areas. Those waivers were key to providing some fungibility of product so that different types of gasoline could be moved to different places without concern about the regulatory walls typically in place. The fact that the incident occurred during the process of the annual changeover from winter to summer gasoline meant that available fuel was already low, and the entire episode was more challenging for NACS members.

NACS also requested that the administration waive weight limit restrictions to allow each truck to carry larger loads to its destination. There were several legal complexities that made it difficult for a federal waiver to be granted, but after discussing potential solutions, the administration determined that the already-existing federal emergency declaration relating to COVID-19 could be used to justify support of any state requests for weight limit waivers. The states then began getting those requests approved immediately upon declaring their own emergencies.

On Tuesday, following requests from NACS and others, the administration began evaluating the Jones Act and shipping availability. The Jones Act requires ships that transport goods between two U.S. ports be U.S.-flagged ships built in the U.S. and with American crews. That limits the ability of fuel shipments to be diverted to areas of need in an emergency such as the pipeline shutdown. By Wednesday, the administration was approving individual waivers of the Jones Act. Such waivers are rarely granted, and the fact that it was done in this situation is a testament to the administration’s concern, as well as the advocacy undertaken to convince them that decisive action was needed.

In the end, the administration took all of the actions NACS advocated—even when it had to take a circuitous route to get them approved. And NACS continued its work with the administration to ensure that the fuel waivers stayed in place long enough to provide some flexibility for other potential squeezes on supply, such as the increased demand for fuel that is typical during the Memorial Day weekend.

While the pipeline hack caused serious problems, the situation was improved by government action. Providing the information and advocacy necessary for those actions to take place is central to the NACS mission. Numerous NACS member companies were essential in these efforts, as they funneled information to NACS and took many calls with public officials on short notice to explain the state of play.

The crisis also proved to be an opportunity for NACS to build on its relationship with the new administration, which will help the industry on future policy issues—expected or unexpected.