Belco Releases Letter To Shareholders

"The Board Directors has declared a dividend of 38.5¢ per share for the second quarter of 2003. A cheque is enclosed for shareholders who have requested direct payment. Those who designated a deposit to their savings or current account have been given credit effective today. As of June 20, the market price per share was $32.75.

BELCO

Total kilowatt hour sales remained strong in the second quarter resulting in a 5.29% increase through May 2003 compared with the same period in 2002. This increase is largely attributable to cooler weather this winter, compared with 2002, which resulted in an increased demand for heating. As a result of the lower temperatures, sales in all categories are more in line with expectations than during the previous year. Demand (large commercial) sales through May 2003 are 4.70% ahead of the same period last year. Residential sales are up 6.54%, and small commercial sales increased 3.36% during the first five months of this year compared with 2002.

New Operations Centre

The highlight of the second quarter was the official opening of our new Operations Centre on May 15th by Premier, The Hon. Jennifer Smith. The official opening marks the end of the first phase of the facilities development, which included design and construction of the infrastructure and commissioning of new communications systems, to consolidate what had been two Energy Supply control rooms, and one Energy Delivery control room.

From this facility, systems operations staff can now monitor and control all power plant generating units and associated equipment, as well as the transmission of power from the plant to 34 substations, and the distribution of power from the substations to 32,000 metered connections. The 24-hour Operations Centre also

houses our dispatch operations which coordinates the movement of field crews in relation to customer calls. Additionally, there are meeting rooms to be used for training and as situation rooms in emergencies, as well as a viewing area.

We are particularly proud that this project, from design to commissioning, was overseen by BELCO employees working in strategic and core teams who delivered this phase of the project on time and on budget. BELCO Energy Services Company (BESCO) was also involved and provided the engineering for the electrical systems, security and safety controls.

Since moving into the facility Operations Centre employees immediately began recognising the benefits of having Energy Supply and Energy Delivery operators together. In addition to the improved level of coordination, employees are enjoying the opportunity to work with state-of-the-art technology, learn more about the complexities of each others roles, and develop system oriented work processes.

Phase two of the project, to continue into 2004, involves the development and installation of new software and systems to enhance the integration of operational data from Energy Supply and Energy Delivery for better reporting and coordination, as well as the implementation of new operating regimes. The Operations Centre is a $5.4 million project that is expected to produce annual savings of approximately $1 million per year after the first few years of operation.

Applications for Planning Approvals

Last month we filed our application with the Planning Department for an extension to the East Power Station building to house the addition of two new medium speed diesel engines. As we shared with you in the Annual Report, by the summer of 2005 we will require two new 14 MW generators in order to meet projected demand. The two new generating units will be installed adjacent to the last two units and will utilise the existing stack.

We are currently in negotiations with engine suppliers and hope to enter into a final contract by the end of November. Final engineering, equipment procurement, site mobilisation and construction of plant will take approximately 18 months, so it is important that we get the necessary approvals in place in order to meet the summer 2005 target.

This month we also filed a planning application for the building of a new substation on St. John's Road. Last year we commissioned a new substation at Admiralty House

Park to improve service to the Spanish Point area. The addition of the St. John's Road Substation will further improve service to the North Shore Pembroke area. The St. John's Road Substation is due to be commissioned in 2004.

Process Office

As we expand and improve our facilities to meet Bermuda's current and future energy requirements, we are also committed to broadening the ability of our people to provide the best service possible to our customers. Our most important internal initiative is to become a Process-Driven organisation, where our focus is on finding the best outcome to enhance customer satisfaction, reduce costs and improve employee satisfaction. We are doing this by reviewing and re-designing the steps we take to get specific jobs done.

To date 10 teams have been appointed and are working on various processes within our Energy Delivery Group. I am pleased to report that we are already seeing some positive results which have encouraged us to commit additional resources to Process. During the second quarter of this year, a new Process Office was established at BELCO to coordinate, managed and assist Process Teams to meet their targeted goals. The four member Process Office consists of two employees seconded from other areas and two consultants. The Process Office reports directly to the Executive. Over the next several months Process work will begin in each of BELCO's five Groups, and at Bermuda Gas as we begin to make Process a way of life.

Performance Management Initiative

Throughout our companies employees are gaining a heightened awareness of how their performance affects the whole, what is expected of them and how they will be evaluated. The new appraisal process for bargaining unit employees that was developed and implemented in consultation with the Electricity Supply Trade Union has recently been through a successful pilot phase at BELCO and will be implemented later this year. The Performance Management programme is already in place at Bermuda Gas and is working well.

Bermuda Gas

Results through May 2003 continue to be encouraging as demand for propane gas increase 13.6% for the first five months of the year compared with the same period in 2002. Appliance sales are also ahead 1.4% through May. Bermuda Gas is realising the benefits of the training initiatives implemented last year as Service, Labour & Parts sales for the five months through May increased 9.9% compared with the same

period last year. A number of training initiatives are continuing as members of management and staff are taking part in the Certified Employee Training programmes offered by the National Propane Gas Association (NPGA), as well as training programmes offered by vendor companies such as Viking.

In April, Bermuda Gas welcomed architects, interior designers, property managers and customers who had purchased Viking appliances, to a reception marking the opening of the new mezzanine showroom featuring the complete Viking line. Regional Sales Director of Viking, Gene Carr and the Chief Operating Officer of Bermuda Gas' Viking distributor, Joel Zillioux were on hand to greet guests and provide information on the complete range of Viking appliances.

In addition to the mezzanine showroom, Bermuda Gas has revamped the ground floor showroom creating a more interactive environment that allows customers to view and handle a variety of other brands of appliances. Bermuda Gas carries 32 brands of appliances.

During the second quarter, the first of two propane-powered vehicles arrived at Bermuda Gas and is now part of its transportation fleet. The Isuzu cylinder delivery truck is servicing East end runs. While we are still in the early stages of tracking data on performance, the propane-powered truck is noticeably quieter and more environmentally friendly with virtually no emissions.

BESCO

BESCO continues to strengthen its position in the Energy Management and Building Controls market by providing clients personalised energy solutions utilising state-of-the-art technologies. Results through April are on target, slightly ahead of the same period last year. Additionally, during the quarter, BESCO began work on a number of new projects in office buildings in the City of Hamilton.

Community Support

Once again this year BELCO was the major sponsor of the Annual Agape House Rubber Duck Derby. This is the seventh consecutive year BELCO has sponsored this event which is the major fundraiser supporting the operations of Bermuda's only hospice for the terminally ill. While involvement and support has continued to grow each year, we are very pleased that this year's event exceeded our goal of $100,000. Through personal, team and corporate sponsorships of rubber ducks competing in St. George's on Sunday, June 1st, coupled with the sales of promotional materials, Agape House raised approximately $109,000.

Congratulations to all those involved in the organisation of the Rubber Duck Derby specifically, the staff of Agape House and volunteer members of Friends of Hospice. It is their unwavering commitment to this much needed facility which keeps us inspired to continue our sponsorship.

BELCO's community support moved to the sporting arena this year with our first ever BELCO Cup cricket challenge. Featuring the top four teams from last season, the semi finals and final match were played on the Saturday and Sunday of Father's Day weekend. Southampton Rangers and St. George's squared off in the well attended final at St. David's Cricket Club with Rangers the first team to win the BELCO Cup. Recognising the strong tradition of cricket in our community, we are pleased to have been offered the title sponsorship of this longstanding Premier Division fixture.

Employee News

Please join me in congratulating three BELCO employees selected by their colleagues for the honour of Employees of The Year 2002. James Dowling of Corporate Services, Juliette Watson of Energy Delivery and MacKeith Wilson of Corporate Services had all previously been nominated for Employee of the Quarter in 2002.

Finally, in closing, just a reminder, we are now officially in hurricane season and before the tropical season gets too active, now is a good time to prepare by trimming trees on your property and purchasing the supplies you will need to be safe and comfortable should we experience severe weather. Hopefully, we will not have a bad season; however, it is always prudent to be prepared.

Signed by,

Garry A. Madeiros

President & Chief Executive Officer