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
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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 [email protected]. 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, [email protected]

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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