    Energy Efficiency: Opportunities Exist for Federal Agencies to
    Better Inform Household Consumers (26-SEP-07, GAO-07-1162).

    Household energy use accounts for nearly one-fourth of all energy
    consumed in the United States, amounting to more than $200
    billion per year spent by consumers. Recent increases in energy
    prices have heightened consumers' interest in making their
    households more energy efficient. To this end, the federal
    government manages two key efforts--EnergyGuide and Energy
    Star--to inform consumers about the energy consumed by certain
    household products. EnergyGuide is a mandatory labeling program
    created under the Energy Policy and Conservation Act of 1975
    (EPCA) and administered by the Federal Trade Commission (FTC)
    with assistance from the Department of Energy (DOE). It requires
    manufacturers to label and prominently display information about
    the energy consumption and annual energy costs of 11 categories
    of household products. In recent years, manufacturers have used
    adhesive backed labels adhered to appliances and so-called "hang
    tags" loosely attached to the interior or exterior of appliances.
    In its August 2007 revisions to the rule, FTC, among other
    things, prohibited the use of hang tags on the exterior of
    appliances, but continues to allow them on the inside. The law
    requires retailers to provide this information in catalogs
    offering products for sale. In 2000, FTC interpreted its
    authority over catalogs to encompass Web sites and required
    retailers to provide the same information on Web sites where
    consumers may purchase such products. The law prohibits retailers
    from removing labels placed by manufacturers or making them
    illegible. Also, EPCA requires DOE, in consultation with FTC, to
    study new product categories to determine whether they should be
    added to the EnergyGuide program and to report annually on the
    energy savings of the program. Energy Star is a voluntary
    labeling program created in response to the Clean Air Act
    amendments of 1990, and the Energy Policy Act of 1992 and jointly
    administered by the Environmental Protection Agency (EPA) and
    DOE. In general, it is designed to identify models for 26
    categories of household products that, without sacrificing
    performance, are the most energy efficient (the top 25 percent).
    Manufacturers are permitted to apply the Energy Star logo to
    products that the manufacturers identify are qualified, based on
    EPA or DOE criteria. Standards for internal control in the
    federal government require federal agencies, including FTC, EPA,
    and DOE, to establish goals, measure performance, and report
    program costs and accomplishments in order to improve management
    and program effectiveness. In this context, Congress asked us to
    analyze the EnergyGuide and Energy Star programs to determine (1)
    how these programs have changed over time, (2) how federal
    agencies verify the accuracy of the energy consumption estimates
    for household products covered by these programs, (3) the actions
    federal agencies take to ensure that the EnergyGuide is available
    to consumers and that the Energy Star logo is not misused, and
    (4) how federal agencies measure the effectiveness and cost of
    these programs.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-07-1162
        ACCNO:   A76769
      TITLE:     Energy Efficiency: Opportunities Exist for Federal
    Agencies to Better Inform Household Consumers
         DATE:   09/26/2007
      SUBJECT:   Energy consumption
    	     Energy costs
    	     Energy efficiency
    	     Federal regulations
    	     Internal controls
    	     Labeling law
    	     Monitoring
    	     Product evaluation
    	     Program evaluation
    	     Standards

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    GAO-07-1162

         * [1]Summary

              * [2]EnergyGuide
              * [3]Energy Star

         * [4]Concluding Observations
         * [5]Matter for Congressional Consideration
         * [6]Recommendations for Executive Action
         * [7]Agency Comments and Our Evaluation
         * [8]GAO Comments
         * [9]GAO Contact
         * [10]Staff Acknowledgments

              * [11]Order by Mail or Phone

    Report to the Chairman, Committee on Energy and Natural Resources, U.S.
    Senate

    United States Government Accountability Office

    GAO

    September 2007

    ENERGY EFFICIENCY

    Opportunities Exist for Federal Agencies to Better Inform Household
    Consumers

    GAO-07-1162

    Contents

    Letter 1

    Summary 4
    Concluding Observations 9
    Matter for Congressional Consideration 10
    Recommendations for Executive Action 10
    Agency Comments and Our Evaluation 11
    Appendix I Briefing to the Committee on Energy and Natural Resources, U.S.
    Senate, June 13, 2007 13
    Appendix II Scope and Methodology 63
    Appendix III Comments from the Department of Energy 67
    Appendix IV Comments from the Environmental Protection Agency 70
    Appendix V Comments from the Federal Trade Commission 73
    GAO Comments 80
    Appendix VI GAO Contact and Staff Acknowledgments 84

    Figure

    Figure 1: EnergyGuide Label and Energy Star Logo 3

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
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    separately.

    Abbreviations

    AHAM Association of Home Appliance Manufacturers
    ASE Alliance to Save Energy
    CEA Consumer Electronics Association
    CEC California Energy Commission
    CEE Consortium for Energy Efficiency
    DOE Department of Energy
    DVD digital video disc
    EIA Energy Information Administration
    EPA Environmental Protection Agency
    EPCA Energy Policy and Conservation Act of 1975
    FTC Federal Trade Commission
    GAO Government Accountability Office
    NASEO National Association of State Energy Officials
    NYSERDA New York State Energy Research and Development Authority
    VCR video cassette recorder

    United States Government Accountability Office
    Washington, DC 20548

    September 26, 2007

    The Honorable Jeff Bingaman
    Chairman
    Committee on Energy and Natural Resources
    United States Senate

    Dear Mr. Chairman:

    Household energy use accounts for nearly one-fourth of all energy consumed
    in the United States, amounting to more than $200 billion per year spent
    by consumers. Recent increases in energy prices have heightened consumers'
    interest in making their households more energy efficient. To this end,
    the federal government manages two key efforts--EnergyGuide and Energy
    Star--to inform consumers about the energy consumed by certain household
    products. Household energy use accounts for nearly one-fourth of all
    energy consumed in the United States, amounting to more than $200 billion
    per year spent by consumers. Recent increases in energy prices have
    heightened consumers' interest in making their households more energy
    efficient. To this end, the federal government manages two key
    efforts--EnergyGuide and Energy Star--to inform consumers about the energy
    consumed by certain household products.

    EnergyGuide is a mandatory labeling program created under the Energy
    Policy and Conservation Act of 1975 (EPCA)^1 and administered by the
    Federal Trade Commission (FTC) with assistance from the Department of
    Energy (DOE). It requires manufacturers to label and prominently display
    information about the energy consumption and annual energy costs of 11
    categories of household products.^2 In recent years, manufacturers have
    used adhesive backed labels adhered to appliances and so-called "hang
    tags" loosely attached to the interior or exterior of appliances. In its
    August 2007 revisions to the rule, FTC, among other things, prohibited the
    use of hang tags on the exterior of appliances, but continues to allow
    them on the inside.^3123 The law requires retailers to provide this
    information in EnergyGuide is a mandatory labeling program created under
    the Energy Policy and Conservation Act of 1975 (EPCA) and administered by
    the Federal Trade Commission (FTC) with assistance from the Department of
    Energy (DOE). It requires manufacturers to label and prominently display
    information about the energy consumption and annual energy costs of 11
    categories of household products. In recent years, manufacturers have used
    adhesive backed labels adhered to appliances and so-called "hang tags"
    loosely attached to the interior or exterior of appliances. In its August
    2007 revisions to the rule, FTC, among other things, prohibited the use of
    hang tags on the exterior of appliances, but continues to allow them on
    the inside. The law requires retailers to provide this information in
    catalogs offering products for sale. In 2000, FTC interpreted its
    authority over catalogs to encompass Web sites and required retailers to
    provide the same information on Web sites where consumers may purchase
    such products. The law prohibits retailers from removing labels placed by
    manufacturers or making them illegible. Also, EPCA requires DOE, in
    consultation with FTC, to study new product categories to determine
    whether they should be added to the EnergyGuide program and to report
    annually on the energy savings of the program.

    ^1Pub. L. No. 94-163 (1975).

    ^2EPCA currently provides for 16 product categories, but allows FTC the
    discretion not to include the categories if including them would not (1)
    assist consumers, (2) be technically feasible, or (3) use a DOE test
    procedure. The EnergyGuide program currently includes 11 product
    categories: furnaces, room air conditioners, central air conditioners,
    heat pumps, clothes washers, dishwashers, refrigerators, freezers, light
    bulbs and fluorescent ballasts, household water heaters, and pool heaters.

    ^3In the Energy Policy Act of 2005 (Pub. L. No. 109-58 S 137), Congress
    amended EPCA to require FTC to initiate a rulemaking to consider (1) the
    effectiveness of the EnergyGuide program and (2) changes to the label's
    format. FTC conducted a study that primarily focused on alternative
    EnergyGuide label designs, revised the format of the label, and finalized
    its revisions to the program's implementing regulation on August 29, 2007
    (16 C.F.R. S 305).

    Energy Star is a voluntary labeling program created in response to the
    Clean Air Act amendments of 1990^4 and the Energy Policy Act of 1992^5 and
    jointly administered by the Environmental Protection Agency (EPA) and DOE.
    In general, it is designed to identify models for 26 categories of
    household products that, without sacrificing performance, are the most
    energy efficient (the top 25 percent).^6 Manufacturers are permitted to
    apply the Energy Star logo to products that the manufacturers identify are
    qualified, based on EPA or DOE criteria.

    Figure 1 shows examples of the EnergyGuide label and the Energy Star logo
    that consumers see in retail stores and on Web sites.

    ^4Pub. L. No. 101-549 (1990).

    ^5Pub. L. No. 102-486 (1992).

    ^6For the Energy Star program, we examined the 26 household product
    categories out of about 50 categories of commercial and household Energy
    Star products. Household products include clothes washers, dishwashers,
    refrigerators and freezers, dehumidifiers, room air cleaners, air source
    heat pumps, boilers, ventilating fans, ceiling fans, room air
    conditioners, central air conditioners, furnaces, geothermal heat pumps,
    programmable thermostats, compact fluorescent light bulbs, residential
    light fixtures, televisions, digital video disc (DVD) players, video
    cassette recorders (VCRs), television combination units, cordless phones,
    external power adapters, home audio products, computers, monitors, and
    printers. Our review included neither commercial Energy Star products,
    such as traffic lights, exit signs, copiers, and electrical transformers,
    nor Energy Star products that do not directly consume energy, such as
    insulation, windows, and doors.

    Figure 1: EnergyGuide Label and Energy Star Logo

    Standards for internal control in the federal government require federal
    agencies, including FTC, EPA, and DOE, to establish goals, measure
    performance, and report program costs and accomplishments in order to
    improve management and program effectiveness.^7

    7GAO, Standards for Internal Control in the Federal Government,
    GAO/AIMD-00-21 .3.1 (Washington, D.C.: November 1999).

    In this context, you asked us to analyze the EnergyGuide and Energy Star
    programs to determine (1) how these programs have changed over time, (2)
    how federal agencies verify the accuracy of the energy consumption
    estimates for household products covered by these programs, (3) the
    actions federal agencies take to ensure that the EnergyGuide is available
    to consumers and that the Energy Star logo is not misused, and (4) how
    federal agencies measure the effectiveness and cost of these programs. We
    provided a briefing to your staff on the results of our work in June 2007.
    This report summarizes and formally transmits the information provided to
    your staff during that briefing. It incorporates formal comments and
    technical comments provided by agencies since the briefing.^8 The attached
    slides provide more details on our findings and suggested actions.

    To perform our review, we interviewed agency officials and staff,
    representatives from trade associations, major retailers, manufacturers,
    and experts; and reviewed literature, authorizing legislation and
    regulations,^9 program materials, and program accountability documents. In
    addition, we inspected about 4,000 individual appliances displayed for
    sale in 30 retail stores across 5 cities and inspected about 3,600 Web
    sites to evaluate compliance with the EnergyGuide and Energy Star
    programs. We also examined Energy Information Administration estimates and
    projections of household energy consumption over time.

    We performed our work from November 2006 through September 2007 according
    to generally accepted government auditing standards.

    Summary

    EnergyGuide

    Overall, opportunities exist for the EnergyGuide program to improve how it
    provides information that could help consumers improve their households'
    energy efficiency and decrease energy consumption nationally:

    ^8The briefing slides and draft report were updated to reflect the final
    amendments to the Appliance Labeling Rule (16 C.F.R. S 305) that FTC
    issued in August 2007.

    ^9Specifically, we reviewed FTC's Appliance Labeling Rule and DOE's
    regulations for energy test procedures (10 C.F.R. S 430 Subpart B).

               o The EnergyGuide program has changed little over time, even
               though energy consumption patterns are changing substantially. For
               example, televisions,^10 computers, and other product
               categories--which are expected to account for nearly half of
               household energy consumption by the year 2020--do not currently
               require an EnergyGuide label. Although FTC has pursued labeling
               for some products that are covered by law but are currently not
               subject to labeling, such as televisions, it does not have
               independent authority under EPCA to add some new products to the
               EnergyGuide program, such as computers and microwave ovens. FTC
               has added new categories only five times since the program was
               first implemented in 1980, according to a program official, and
               only when required by law. Although DOE, in consultation with FTC,
               is required to study new products to determine if any products
               should be added to EnergyGuide, DOE staff could not identify any
               instance of such a study, and told us that they have not completed
               one for at least 10 years.

               o FTC is not required to, and does not, independently verify
               energy consumption estimates provided by manufacturers. FTC staff
               told us they rely on manufacturers to verify competitors' energy
               consumption estimates and to report any problems to FTC. However,
               FTC only tracks some of the complaints it receives from
               manufacturers and therefore could not provide the exact number of
               complaints it receives about the EnergyGuide program. FTC staff
               told us it does not track complaints about the EnergyGuide program
               because it receives only a few each year and does not need a
               formal, systematic method for tracking these few or their
               resolution. According to FTC staff, there was little evidence to
               suspect a significant pattern of widespread misreporting of
               EnergyGuide information because of the small number of complaints
               they had received. In a related issue, energy efficiency experts
               and agency officials told us that computer controls in modern
               appliances can enable appliances to detect test conditions and
               temporarily reduce energy use, making it difficult to ensure that
               tests accurately measure energy consumption under normal operating
               conditions. According to one manufacturer and a consumer group,
               another manufacturer may have used computer controls to manipulate
               energy tests and to register lower-than-normal energy consumption.
               DOE reviewed the matter and found that the manufacturer had
               complied with the law, but DOE is considering changing its rules
               to prevent manufacturers from manipulating energy tests in the
               future. Without such changes, FTC could face increasing
               difficulties in ensuring that EnergyGuide provides consumers with
               accurate estimates of appliances' energy efficiency.

               o FTC does not know whether EnergyGuide is available to consumers
               because it has undertaken no significant efforts since 2001 to
               ensure EnergyGuide's availability to consumers in showrooms and on
               Web sites. GAO's inspections of major appliances found that
               EnergyGuide often is unavailable or difficult to use when
               consumers are purchasing products. GAO's inspections of appliances
               subject to EnergyGuide in retail showrooms found that 26 percent
               of these appliances lacked an EnergyGuide label, and another 24
               percent of labels were no longer affixed in a prominent and easily
               accessible location. For example, many EnergyGuide labels were
               folded or crumpled, hidden by racks or bins, or placed upside down
               or backward inside appliances--this was the case for both adhesive
               backed and hang tags. Furthermore, we observed some changes in the
               retail environment that may prevent the EnergyGuide label from
               being easily accessible, such as the growing number of warehouse
               retailers that sell appliances such as water heaters still in the
               manufacturer's shipping boxes (with the EnergyGuide label not
               visible) as opposed to displaying unboxed appliances in a
               showroom. In addition, GAO examined about 3,600 products on Web
               sites of major appliance retailers and found that about 12 percent
               of these products lacked EnergyGuide information, and another 44
               percent had links to EnergyGuide information that were difficult
               to find and use. According to FTC staff, although FTC has taken
               steps since 2001 to ensure that EnergyGuide information is
               available to consumers, there have been no enforcement actions for
               this program since 2001 because the agency has limited resources
               and has given the EnergyGuide program a lower priority than its
               other enforcement priorities. FTC staff told us they have adequate
               authority to ensure the EnergyGuide is available on Web sites;
               however, they told us they lack specific statutory authority to
               ensure that retailers display the EnergyGuide in showrooms.
               According to these staff, the current statute does not require
               retailers to ensure that the EnergyGuide label is available to
               consumers in showrooms; it only prohibits them from removing it.
               In addition, staff told us enforcement actions are difficult
               because FTC must prove that retailers removed the EnergyGuide
               labels.

               o FTC does not measure the overall effectiveness or costs of the
               EnergyGuide program, contrary to federal standards for internal
               controls, and DOE does not measure the energy savings of the
               program, as required by law. Although FTC staff told us that a
               recent survey measured effectiveness by asking consumers whether
               EnergyGuide was useful, FTC has not examined whether the program
               is achieving its goal of improving energy efficiency. FTC staff
               told us they did not examine the effectiveness and costs of the
               EnergyGuide program, and in particular did not measure the
               effectiveness of the program in saving energy because it would be
               difficult and would not be useful. DOE is required by EPCA to
               annually estimate the energy savings of the EnergyGuide program,
               but DOE staff were unable to provide us with any recent annual
               estimate.

    ^10Some televisions may use an amount of electricity comparable to
    refrigerators, one of the most energy-intensive product categories.

    Energy Star

    Overall, Energy Star has been generally successful in identifying and
    highlighting the most energy efficient products, but faces some
    challenges:^11

               o Energy Star has regularly expanded to include new products and
               keep pace with a changing market. However, 6 of 26 categories of
               household products currently qualify for Energy Star based on
               factors other than the estimated total energy consumption. For
               example, some products--including televisions, home audio
               products, DVD players, and stereos--qualify for Energy Star based
               on how much energy these devices consume when they are in standby
               mode, which may account for only a small percentage of total
               energy consumption. In the case of one Energy Star-qualified
               plasma television that we reviewed, standby power accounted for
               less than 10 percent of the annual estimated total energy
               consumption. However, the total energy consumed by the television
               amounted to more than the total annual energy consumption of some
               refrigerators. EPA officials told us televisions would qualify for
               Energy Star based on total energy consumption starting in 2008,
               and they are considering similar changes for some other product
               categories, unless it is appropriate to continue using standby
               power. In addition, for a few product categories, Energy Star no
               longer highlights only the most energy efficient models. In these
               cases, Energy Star-qualified products account for well over the
               program's general goal of identifying the top 25 percent of
               products available in a particular category. As a case in point,
               more than 70 percent of dishwashers sold from 2004 to 2006
               qualified for the Energy Star before new qualifying criteria were
               implemented in 2007. According to one DOE official, this occurred
               because it took longer than expected to revise its criteria to
               identify only the most energy efficient models.

               o DOE and EPA test some products to verify their energy
               consumption estimates, but generally rely on manufacturers to
               verify competitors' efficiency estimates. EPA and DOE officials
               told us that they did not believe further verification testing is
               needed because manufacturers would report discrepancies they find
               while testing competitors' products. Again, experts and agency
               officials told us that the computer controls in modern appliances
               make it difficult to accurately test normal energy consumption. In
               a related issue, DOE officials reiterated concerns expressed by
               some manufacturers that their competitors may have used computer
               controls to manipulate energy tests in the United States, and that
               this has been a widespread problem in another country. In its
               comments, DOE reported that it is considering changing its rules
               to prohibit manufacturers from manipulating energy tests in the
               future. Without such changes, DOE could face increasing
               difficulties in ensuring that Energy Star informs consumers about
               energy efficient products.

               o EPA monitors stores, Web sites, and advertising to prevent
               misuse of the Energy Star label and follows up on problems. GAO
               inspections found few instances of the Energy Star mark being
               misused.

               o DOE and EPA conduct efforts to measure the effectiveness of the
               Energy Star program which are useful but have limits. To measure
               effectiveness, DOE analyzes sales data to estimate energy savings,
               which were about $7 billion per year.^12 Separately, EPA analyzes
               a consumer awareness survey of the Energy Star program. However,
               this survey does not assess how many additional energy-efficient
               products are purchased due to awareness of the Energy Star
               program. Agency officials recognized that this would be useful,
               but told us developing more extensive analysis of the program's
               impact would be difficult.

    ^11The EPA Inspector General recently described similar challenges in a
    report reviewing EPA's implementation of the Energy Star program. The
    report provided specific recommendations for strengthening the management
    controls that protect the integrity of the label for the Energy Star areas
    managed by EPA. See Environmental Protection Agency, Office of Inspector
    General, Energy Star Program Can Strengthen Controls Protecting the
    Integrity of the Label (Washington, D.C., Aug. 1, 2007).

    ^12EPA reported that in 2006, the entire Energy Star program, including
    products in the commercial, industrial, and residential sectors, saved
    consumers a total of about $14 billion in energy costs in 2006 and cost
    about $60 million. Looking only at products commonly used in households,
    such as appliances, computers, and consumer electronics, EPA and DOE
    officials estimate program savings of about $7 billion for 2006 with
    program costs of about $25 million.

    Concluding Observations

    EnergyGuide and Energy Star share the laudable goal of providing
    information to help consumers reduce their household energy consumption,
    thereby reducing energy consumption nationally. However, there are
    opportunities to improve the programs' long-term effectiveness that
    require the attention of Congress and the agencies.

    The EnergyGuide program's familiar yellow label has aided consumers for
    over 25 years, but the lack of timely additions of new product categories
    has left consumers with little meaningful information about the energy
    efficiency of some of the most common and most energy-consuming household
    products. Moreover, because of changes in the current retail environment
    such as the growth of warehouse retailers and Web-based appliance sales,
    because statutory authority does not specifically require enforcement in
    some instances, and because FTC does not verify and enforce the display of
    the EnergyGuide label in retail stores, the effectiveness of the
    EnergyGuide program as it is currently implemented may be diminished. It
    is clear that consumers making purchasing decisions can only benefit from
    the EnergyGuide when it is available and easy to find and use. The August
    2007 revisions to the labeling rule may address one source of missing
    labels--missing labels that were attached to the outside of the
    appliance--but do not appear focused on addressing the other problems we
    found with adhesive backed labels, hang tags initially attached on the
    inside, nor problems we found on Web sites. Overall, FTC's position is
    that it lacks resources and sufficient authority for more robust
    enforcement in retail stores. However, there may be opportunities for FTC
    to enhance enforcement within existing authority by coordinating its
    enforcement activities with existing Energy Star enforcement activities to
    reduce costs. In addition, FTC could improve the value of consumer and
    manufacturer complaints as a monitoring tool if it tracked complaints and
    their resolution. Moreover, without a meaningful assessment of the
    effectiveness and costs of the EnergyGuide program, FTC and Congress lack
    information that could help them empower consumers to improve household
    energy efficiency.

    In contrast, Energy Star has regularly expanded to keep pace with the
    market and consumers generally equate the Energy Star logo with better
    energy efficiency than comparable products. However, EPA and DOE's efforts
    to raise consumers' awareness of the Energy Star program may be undermined
    and consumers may be confused if program officials continue to allow
    products to qualify for Energy Star based on factors other than total
    energy consumption, such as energy used in standby mode, which may account
    for only a small percentage of total energy consumption for many devices.
    Moreover, both programs may face emerging challenges as computerized
    controls become more common in appliances and other products, making it
    more difficult to measure their true energy consumption.

    Matter for Congressional Consideration

    To ensure that consumers have consistent access to information about the
    energy efficiency of household products, Congress may wish to consider
    granting FTC with specific authority to require retailers to prominently
    display the EnergyGuide in retail showrooms.

    Recommendations for Executive Action

    To ensure that consumers have access to information about the energy
    efficiency of household products, we recommend that the Chairman of the
    Federal Trade Commission and the Secretary of Energy take the following
    four actions:

               o To ensure that consumers have access to information about the
               energy efficiency of the types of household products that account
               for a significant and growing portion of household energy
               consumption, such as computers and televisions, we recommend that
               the Secretary of Energy, in consultation with FTC, regularly
               review product categories not currently covered to assess whether
               they should be included in the EnergyGuide program.

               o To ensure that the EnergyGuide program is effectively achieving
               its goal of improving household energy efficiency by establishing
               goals, measuring performance, and reporting program costs and
               accomplishments, we recommend that the Chairman of the Federal
               Trade Commission, as required under federal standards for internal
               control in the federal government, regularly measure the cost and,
               to the extent practical, the effectiveness of the EnergyGuide
               program. To assist FTC in measuring effectiveness, we also
               recommend that the Secretary of Energy measure the energy savings
               of the EnergyGuide program, as required by EPCA.

               o To ensure that consumers have consistent access to accurate
               information about the energy efficiency of household products, we
               recommend that the Chairman of the Federal Trade Commission
               monitor the availability of the EnergyGuide label and, within
               existing authority, enforce compliance through periodic
               inspections of retailers' showrooms and Web sites and by routinely
               and systematically tracking complaints, the issues they raise, and
               the manner in which these matters are resolved.
               o To ensure that EnergyGuide remains effective in a changing
               retail market, we recommend that the Chairman of the Federal Trade
               Commission clarify FTC's rules regarding the display of
               EnergyGuide information in the current retail environment, such as
               for warehouse retailers and Web-based product purchasing.

    Agency Comments and Our Evaluation

    We provided a draft of our report to DOE, EPA, and FTC for review and
    comment. We received written comments from all three agencies and they are
    presented in appendices III, IV, and V respectively.

    DOE said it strongly concurred with the statements and recommendations
    regarding its responsibilities and historical actions for the EnergyGuide
    and Energy Star programs. DOE also noted a series of steps it is
    undertaking to address three specific areas of concern: updating the
    EnergyGuide program, addressing the possible use of computer controls to
    circumvent DOE test procedures, and updating Energy Star qualifying
    criteria and test procedures.

    EPA's comments clarified issues related to verifying manufacturers' energy
    consumption estimates, updating Energy Star qualifying criteria, and
    explaining why some Energy Star products may qualify based on criteria
    other than total energy consumption. We incorporated these comments as
    appropriate.

    FTC noted in its comments that while the report contained helpful
    observations and suggestions, the Commission said that the report's
    conclusions were based on factual inaccuracies and outlined several issues
    of concern, such as GAO's characterization of FTC's efforts to measure
    costs and effectiveness and their efforts to enforce compliance. As
    previously discussed, we disagree with FTC's characterization of our
    report's conclusions and note that FTC did not point out any material
    factual inaccuracies in their written comment letter on our draft. FTC
    also provided technical changes which were incorporated. FTC's written
    comment letter and our detailed responses to issues raised by the
    Commission appear in appendix V. We continue to believe our report
    presents a fair presentation of the facts and issues associated with both
    programs and have not changed our recommendations.

    As agreed with your office, unless you publicly announce the contents of
    this report earlier, we plan no further distribution until 7 days from the
    report date. At that time, we will send copies to the Chairman of the
    Federal Trade Commission, the Secretary of Energy, and the Administrator
    of the Environmental Protection Agency and other interested parties. We
    will also make copies available to others upon request. In addition, the
    report will be available at no charge on the GAO Web site at
    http://www.gao.gov.

    If you or your staff have any questions about this report, please contact
    me at (202) 512-3841 or gaffiganm@gao.gov. Contact points for our Offices
    of Congressional Relations and Public Affairs may be found on the last
    page of this report. GAO staff who made major contributions to this report
    are listed in appendix VI.

    Sincerely yours,

    Mark Gaffigan
    Acting Director, Natural Resources and Environment

    Appendix I: Briefing to the Committee on Energy and Natural Resources,
    U.S. Senate, June 13, 2007

    Appendix II: Scope and Methodolog

    To determine the extent to which EnergyGuide and Energy Star programs for
    household products have changed over time, we reviewed authorizing
    legislation^1 and regulations, including the Federal Trade Commission's
    (FTC) Appliance Labeling Rule^2 and other program materials documenting
    processes, guidance, and actions that agencies have taken to implement
    these programs. We also interviewed key federal agency officials and staff
    at the Department of Energy (DOE), Environmental Protection Agency (EPA)
    and FTC. In addition, we interviewed representatives of industry and trade
    associations, including the Association of Home Appliance Manufacturers
    (AHAM) and the Consumer Electronics Association (CEA); major manufacturers
    of household products and major retailers of household products and
    consumer electronics; energy efficiency experts identified on the basis of
    referral by key agency officials, staff, and other experts, including
    experts at a national laboratory; efficiency advocates, including the
    Consortium for Energy Efficiency (CEE) and the Alliance to Save Energy
    (ASE); consumer advocates, including Consumers Union; and the National
    Association of State Energy Officials (NASEO) and state energy offices in
    locations with significant outreach efforts, including the California
    Energy Commission (CEC) and the New York State Energy Research and
    Development Authority (NYSERDA). Further, we performed quantitative
    analysis of the Energy Information Administration's (EIA) Annual Energy
    Outlook 2007 of residential energy consumption projections to evaluate the
    share of total household energy consumption not covered by the EnergyGuide
    over time. EIA's consumption projections are not statements of what will
    happen but of what might happen, given the assumptions and methodologies
    used by EIA. As such, EIA's projected data reflect known technological and
    demographic trends and current laws and regulations, and generally do not
    reflect potential impacts of pending or proposed legislation, regulations,
    and standards, or of unknown technologies. The projected data presented in
    this report reflect projected energy consumption for the scenario EIA
    considers to be the most likely; other scenarios reflected similar
    results. In the past, EIA projections of energy consumption have been
    relatively close to realized outcomes; however, it cannot be predicted how
    the underlying factors of EIA's model will change in relation to one
    another or other currently unknown factors. We assessed the reliability of
    EIA projected data by performing manual testing of the data, reviewing
    related documentation, and interviewing Census officials regarding the
    uses of the data and the data's internal controls. We found the data to be
    sufficiently reliable for the purpose of our analysis.

    ^1Energy Policy Conservation Act (EPCA), Pub. L. No. 94-163 (1975); Energy
    Policy Act of 2005, Pub. L. No. 109-58 (2005).

    ^216 C.F.R. S 305.

    To determine how federal agencies verify the accuracy of energy
    consumption estimates in the EnergyGuide and Energy Star programs, we
    reviewed legislative and regulatory requirements for developing energy
    consumption estimates and agency procedures including DOE's test procedure
    for measuring energy consumption. We identified federal agencies' efforts
    to verify energy consumption estimates by reviewing agency documentation^3
    and interviewing key federal agency officials and staff at DOE, EPA, and
    FTC. We also interviewed major manufacturers of household products about
    their role in providing estimates and their efforts to verify competitors'
    estimates of energy consumption. We identified efforts taken by other
    agencies and organizations to test appliances for energy consumption by
    interviewing individuals identified on the basis of referral by key agency
    officials and experts, including experts at a national laboratory,
    Consumers Union, CEC, and NYSERDA. Finally, we evaluated the extent to
    which circumvention of rules for developing energy consumption estimates
    has been detected in the United States and abroad by interviewing experts
    and reviewing the literature.

    To identify the actions DOE, EPA, and FTC take to ensure the EnergyGuide
    label is available to consumers and the Energy Star label is not misused,
    we reviewed legislative and regulatory requirements. We also reviewed
    program documentation on enforcement activities and interviewed key FTC
    staff about efforts taken to enforce compliance with the EnergyGuide
    program rules as well as DOE and EPA officials about efforts taken to
    ensure that the Energy Star label is not misused. We also examined the
    August 2007 revision of the Appliance Labeling Rule. In addition, we
    interviewed representatives of industry and trade associations, including
    AHAM and CEA, as well as major manufacturers of household products and
    major retailers of household products and consumer electronics. We
    interviewed energy efficiency experts identified on the basis of referral
    by key agency officials, staff, and other experts, including experts at a
    national laboratory; efficiency advocates, including CEE and ASE; consumer
    advocates, including Consumers Union; and NASEO and state energy offices
    in locations with significant outreach efforts, including CEC and NYSERDA.
    To evaluate the extent of compliance with agency rules and guidance for
    displaying the EnergyGuide label on products, we visited five major
    metropolitan areas selected to increase geographic diversity and minimize
    travel costs. In these 5 metropolitan areas we conducted site visits of 30
    retail stores, including national, regional, and local retailers of major
    appliances or consumer electronics. Within these stores, we inspected all
    major appliances available for sale in five categories of major household
    products required to carry the EnergyGuide label: refrigerators, freezers,
    clothes washers, dishwashers, and water heaters. Our inspections resulted
    in a nongeneralizable sample of 3,987 major household appliances on
    display for sale in showrooms.^4 We determined whether labels for
    different products were difficult to use based on details about their
    placement and condition including whether labels were difficult to read
    because they were crumpled or folded, damaged, placed next to labels with
    differing data, or obscured by bins, shelves, racks or advertising, or
    other documents; placed upside down or backward inside appliances; or
    pasted to inside walls or surfaces that were difficult to access (such as
    clothes washer drums or the back or lower interior walls of dishwashers or
    refrigerators). Our results were generally similar for a variety of
    different metropolitan areas. In addition, to evaluate compliance with
    EnergyGuide display rules for products sold electronically on the Web, we
    inspected a nongeneralizable sample of 3,595 major household appliances
    for sale in 5 product categories (refrigerators, freezers, clothes
    washers, dishwashers, and water heaters) on the Web sites of 4 major
    retailers of household appliances and consumer electronics. To evaluate
    the extent of compliance with agency rules and guidance for displaying the
    Energy Star label, we examined a nongeneralizable sample of 220 Energy
    Star products during our site visits,^5 such as major household appliances
    and consumer electronics. To determine the misuse of the Energy Star
    label, we compared the sample of products sold to Energy Star's 2007 list
    of qualified products (last updated April 2007).

    ^3We also reviewed a recently issued report by the EPA Inspector General
    reviewing EPA's implementation of the Energy Star program. See
    Environmental Protection Agency, Energy Star Program Can Strengthen
    Controls Protecting the Integrity of the Label (Washington, D.C., Aug. 2,
    2007).

    To determine how federal agencies measure the effectiveness and cost of
    the EnergyGuide and Energy Star programs, GAO reviewed legislative and
    regulatory requirements for measuring program effectiveness in the
    Standards for Internal Controls in the Federal Government^6 and EPCA. We
    reviewed DOE, EPA, and FTC program documentation, annual reports, and
    performance reports to better understand how these federal agencies
    measure the effectiveness of these programs. In addition, we interviewed
    federal officials and staff at DOE, EPA, and FTC about efforts they have
    taken to measure the performance of the Energy Star and EnergyGuide
    programs, including efforts to measure cost and effectiveness. We
    interviewed representatives of industry and trade associations, including
    AHAM and CEA, as well as representatives from major manufacturers and
    retailers of appliances and consumer electronics and experts to better
    understand their perspective on the effectiveness of federal efforts. We
    interviewed energy efficiency experts identified on the basis of referral
    by key agency officials, staff, and other experts, including experts at
    national laboratories; efficiency advocates, including CEE and ASE;
    consumer advocates, including Consumers Union; and NASEO and state energy
    offices in locations with significant outreach efforts, including CEC and
    NYSERDA.

    ^4The results of the nongeneralizable sample are not intended to
    statistically estimate the number of labeled products in compliance for
    all products across the United States.

    ^5In some cases, we inspected products bearing both the EnergyGuide and
    the Energy Star labels.

    We conducted our work from November 2006 through September 2007 according
    to generally accepted government auditing standards.

    ^6GAO, Standards for Internal Control in the Federal Government,
    GAO/AIMD-00-21 .3.1 (Washington, D.C.: November 1999).

    Appendix III: Comments from the Department of Energy

    Appendix IV: Comments from the Environmental Protection Agency

    Appendix V: Comments from the Federal Trade Commission

    Note: GAO comments supplementing those in the report text appear at the
    end of this appendix.

    See comment 1.

    See comment 3.

    See comment 2.

    See comment 3.

    See comment 5.

    See comment 4.

    See comment 7.

    See comment 6.

    The following are GAO's specific comments on the Federal Trade
    Commission's (FTC) letter dated September 10, 2007.

    GAO Comments

               1. Although placement of information on the Web site may be
               helpful, it is not a sufficient step on its own to ensure that
               consumers have access to energy efficiency information in retail
               stores and on retail Web sites where consumers purchase equipment
               covered by the EnergyGuide. Neither the law nor the program's
               rules allow manufacturers and retailers to substitute placement of
               energy data on FTC's Web site for placement of labels on equipment
               or on retailer Web sites. In addition, even if such alternative
               placement was allowed, it is not clear how most consumers would
               know to go to FTC's Web site when shopping for covered equipment.
               We continue to believe that FTC should inspect retail stores to
               ensure that EnergyGuide labels are available to consumers.
               2. Although FTC has conducted a survey of consumers as part of its
               recent rulemaking, we do not believe that the consumer survey
               demonstrates the EnergyGuide is available to consumers. FTC stated
               that 85 percent of consumers answered that they recalled seeing a
               label with energy characteristics and of those respondents, 59
               percent found it useful and FTC presented this evidence that
               EnergyGuide labels are available. We disagree that the FTC survey
               is convincing in demonstrating this point. In contrast to our
               study, which was based on direct inspection of many appliances in
               multiple locations, the FTC survey relied on consumers to
               accurately recall--and to accurately report--whether or not they
               saw a label on an appliance for as long as two years prior to the
               date of the survey. We did not attempt to assess the reliability
               of FTC's survey; however, other results from the FTC survey raise
               questions about the accuracy of some respondents' memories and the
               usefulness of the survey as a tool to reliably assess the
               availability of EnergyGuide labels. For example, 41 percent of the
               respondents who reported seeing a label could not recall that the
               label was yellow with black letters, which raises doubts about the
               accuracy of some respondents' memories and the usefulness of the
               survey to support FTC's position.^1 Given the limitations with
               FTC's survey, we agree with FTC's statement that the availability
               of labels in showrooms warrants further attention. As such, we
               continue to believe that FTC should monitor the availability of
               the EnergyGuide label and, within existing authority, enforce
               compliance through periodic inspections of retail showrooms and
               Web sites.
               3. Regarding the effectiveness of the EnergyGuide program, FTC
               states that it routinely measures the costs of the EnergyGuide
               program as part of its obligations under the Paperwork Reduction
               Act, and qualitatively measured the program's effectiveness during
               its February 2007 rulemaking. During the course of our audit work,
               FTC staff was unable to provide to us information describing the
               costs and effectiveness of the program in recent years and
               expressed a variety of concerns about doing so. The Paperwork
               Reduction Act costs FTC now cites, but still has not provided to
               GAO in sufficient detail for us to review them, may or may not
               fully cover the costs of administering the program. Also, we
               disagree with FTC's statement that FTC measured effectiveness in
               its consumer survey and that measuring energy savings would be
               "highly speculative." As noted in our response to comment 2, we
               have concerns about FTC's reliance on its 2007 consumer study and
               comments it took during its recent rulemaking to measure the
               effectiveness of the EnergyGuide program, and believe it would be
               better to develop an estimate of the program's actual energy
               savings. We recognize that measuring program results and
               effectiveness generally involves some estimation; Standards for
               Internal Control in the Federal Government point out that internal
               controls only need to provide reasonable, not absolute, assurance
               that goals and objectives are being met.^2 Moreover, the 2006
               survey is not an adequate measure of effectiveness because it is
               not done regularly. In this regard, we continue to believe that
               FTC should regularly report the costs and accomplishments of the
               program, and it appears, as DOE noted in its comments, that DOE
               plans to meet with FTC to help it do so.
               4. As noted in our report, we believe FTC has a shared
               responsibility, with DOE, for adding new products to the
               EnergyGuide program. As suggested in our recommendations, and
               noted in DOE's comments, we believe that FTC should work with DOE
               to collaboratively evaluate and determine whether additional
               products should be included in the EnergyGuide program. We
               continue to believe that FTC should work with DOE to add new
               products to the EnergyGuide program to keep the program relevant
               with changes in consumer purchasing patterns.
               5. While FTC is not required to verify energy consumption
               estimates, the Energy Policy and Conservation Act (EPCA) clearly
               contemplated that such testing may be desirable or required. In
               this regard, the law specifically provides FTC with the sole legal
               power to require manufacturers, at their expense, to provide FTC
               with appliances for testing and verification.^3 We recognize that
               such testing could be difficult given FTC's current lack of
               expertise to evaluate appliance energy data. However, FTC could
               augment its own expertise with that of others, such as DOE, the
               National Institutes of Science and Technology, and others FTC
               identified in its comments. As such, we believe that this presents
               another opportunity for FTC and DOE to collaborate for the benefit
               of consumers. Therefore, we continue to believe that our
               characterization is appropriate.
               6. During the course of our audit, FTC staff told us that they
               collected complaints regarding the EnergyGuide program. However,
               when we asked to examine these complaints, FTC did not provide us
               either with records of these complaints or information on how the
               issues were resolved, nor evidence that these issues were
               resolved. FTC also informed us that individual staff members
               received some complaints that they did not track, and that these
               complaints were resolved informally. We continue to believe that
               FTC should use a routine, systematic method of tracking complaints
               that it receives from manufacturers and others and the manner in
               which the issues raised in these complaints are resolved in order
               to improve effectiveness; however, based on FTC's comments, we
               clarified the language of our recommendation to better reflect the
               need for systematic tracking of complaints, the issues raised in
               these complaints, and their resolution.
               7. We did not intend for our report to imply that this issue was
               solely the responsibility of FTC. Rather, because it could become
               more important in the future, we believed it was important to
               raise this issue to FTC, DOE, EPA, and the Congress. As DOE notes
               in its comments, DOE is considering revisions to its testing
               procedures to limit manufacturers' circumvention of DOE test
               procedures. As DOE completes these revisions, FTC enforcement will
               be needed because EPCA requires FTC to enforce the accuracy of
               EnergyGuide labels.^4 In response to this comment, we clarified
               the language in our report to better reflect our intent.

    ^1Harris Interactive, FTC Energy Label Research Study, a special report
    prepared for the Federal Trade Commission, January 2007, p. 7.
    [12]http://www.ftc.gov/os/2007/01/R511994EnergyLabelingEffectivenessFRNConsResBkgrdInfo.pdf

    ^2GAO, Standards for Internal Control in the Federal Government,
    GAO/AIMD-00-21 .3.1 (Washington, D.C.: November 1999), p.6.

    ^3Pub. L. No. 94-163 S 326(b)(3)

    ^4Pub. L. No. 94-163 S 333(a)

    Appendix VI: GAO Contact and Staff Acknowledgments

    GAO Contact

    Mark Gaffigan, (202) 512-3841, gaffiganm@gao.gov

    Staff Acknowledgments

    In addition to the contact named above, key contributors to this report
    included Dan Haas and Jon Ludwigson (Assistant Directors), Lee Carroll,
    Kristen Massey, Alison O'Neill, Frank Rusco, Rebecca Shea, and Barbara
    Timmerman. Important assistance was also provided by Nicolas Alexander,
    Jeffrey Barron, Mark Braza, Casey Brown, Dan Egan, Amy Higgins, Randy
    Jones, Jennifer Leone, Stuart Ryba, and Bruce Skud.

    (360748)

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