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26 | 16th - 22nd January 2015 | utILIty WEEK Operations & Assets Capital Investment: Ofwat has capped capex for 2015-20 at £44.3 billion, short of the £45.7 billion wanted by the water companies. This gap indicates that water companies need to enhance productivity and become more cost efficient . WNS view: A sharper focus on asset management, efficient project delivery, and cost and supply chain efficiency can help manage capex better. Cost of capital (for wholesale business): Ofwat has lowered the cost of capital from 4.5 per cent to 3.7 per cent in 2015-20. This will reduce revenues and profit- ability of water and sewerage companies compared with the previous period and help cus- tomers save up to £2 billion. WNS view: Enhance revenue assurance capabilities across customer lifecycle encompass- ing order management, credit management, billing, remit- tance processing, collections and dispute management. Capital incentive (total expense for wholesale busi- ness): Instead of the earlier mecha- nism of rewarding companies on capital efficiency only, Ofwat aims to incentivise companies on totex efficacy in AMP6. Operational performance will be incentivised and penalised in order to achieve higher cost efficiency and customer satis- faction. Ofwat has assumed a lower allowance than requested for by most companies, result- ing in a totex gap of around £1.5 billion. WNS view: Create a scalable cost structure for general and administrative (G&A) spending in areas such as finance, HR, IT, legal and procurement. Retail Household Margins: Ofwat has asked companies to reduce retail household costs by £0.9 billion and has suggested an improvement in average cost to serve efficiency to achieve the same. WNS view: Optimise costs in order entry, customer invoicing, cash application, deduction and claims management, and dispute reconciliation, and increase adoption of self-service channels such as e-billing. Non-household retail margins: Underscoring the need for stricter cost discipline, Ofwat has asked companies to cut 10 per cent costs and fix 2.5 per- cent net profit margin on costs. In terms of promoting compe- tition, AMP6 will also allow non-household customers in England to choose their retailer from April 1, 2017. WNS view: Adopt new technol- ogies such as Customer Interac- tion Services (CIS) platforms to foster customer loyalty and boost operational efficiency. Price limits: National average bills should fall by approximately 5 per cent. WNS view: Control wholesale costs, improve opex efficiency through reduced G&A expenses and enhance customer service to earn incentives. To read the full article, visit: http://bit.ly/AssetMgmet Analysis Battling disengagement Jane Gray talks to First Utility about its first national television advertising campaign. F irst Utility is seeking to stimulate a step change in switching rates with its first nationwide advertising campaign, launching today (Friday 16 January). Ed Kamm, First Utility's chief of customer service, says the light-hearted campaign is designed to counter the "active disengagement strategy" he believes the big six have been pursing in recent years, which reinforces consumer inertia by offering infrequent, automated bill- ing. "They [the big six] actively search to not give you too much information," he claims. The upshot, according to First Utility, is that custom- ers are not tuned in to the opportunities available to save money. Its argument is supported by the low switching rate. Research conducted by the company last year found that 75 per cent of customers said they would switch to save money, yet the actual switching rate in 2014 was about 13 per cent. First Utility says it will measure the return on invest- ment of its campaign in terms of brand recognition rather than customer acquisition. The company is cur- rently the UK's largest independent energy supplier and attracted around 400,000 new customers last year. Kamm says there is little expectation of replicating this scale of growth in 2015 – "though you never know". The driving purpose behind the campaign is to position First Utility more widely as "a credible alternative" to the big six, which are household names. "Primarily we'll be looking to see improvements in our brand recognition," says Kamm. "If you look at the big six, their recognition is typically around 90 per cent because they've been around a long time. We've only been around since 2008 and we think our brand aware- ness is sitting at around 30 per cent." The adverts will air primarily on ITV during top-rated TV programmes such as Broadchurch and Coronation Street. Radio and digital versions of the ads have also been scheduled, all using the slogan "We put our energy into lowering prices" – a claim First Utility says is justi- fied because it had the best available tariff on the market for 52 per cent of 2014. Kamm declines to disclose what this promotional splurge is costing, but he does assure Utility Week that it is "a fraction of what British Gas spends", and that the price tag is "lower than our recent investment in customer service". In the lead-up to its first foray into national advertising, First Utility put a lot of time and effort into expanding and upgrading its customer service capabilities. Since late 2013 the service team has grown from 70 to 700 people and it is shortly to open a new cus- tomer service facility in Coventry. EXPErt VIEW Chris LLoyd, senior ViCe President, Wns Preparing for AMP6: Doing more with less Ofwat has published its final determinations for PR14 – and the targets are challenging for water companies. WNS identifies areas where you can improve efficiency and protect profits.