Belco Releases Letter To Shareholders

"The Board of Directors has declared a dividend of 38.5¢ per share for the second quarter of 2004. 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 24, the market price per share was $39.00.

BELCO

Total kilowatt hour sales for the first five months of 2004, January through May, are slightly ahead of the same period last year, an increase of 0.83 percent. This increase is driven by residential and small commercial sales. Demand (large commercial) sales decreased primarily due to tourist properties remaining closed early in the year as they completed repairs and renovations necessitated by damage caused by Hurricane Fabian in September 2003. Demand sales through May 2004 are 5.43 percent behind 2003. Residential sales for the period through May are 4.7 percent ahead of last year. Approximately 1.7 million additional kilowatt hour sales are attributed to new metered connections, indicative of additional housing units coming on line. Consumption also continues to grow as a result of greater use of residential air conditioning. Small commercial sales have also increased 6.15 percent during the first five months of 2004, compared with 2003 due to increases in the customer base and consumption.

Volatile Oil Prices Impact Electricity Bills

Despite not having had a rate increase since 1996, the cost of electricity is at its highest, due to escalated world oil prices. In June, BELCO's landed cost for a barrel of diesel fuel was $63.00 and heavy fuel was $48.75 per barrel. This total cost incorporates a $15.10 per barrel duty charge, freight and wharfage fees. As a result of the high cost of fuel, the fuel adjustment rate for the month of June is at a decade high of 4.9¢ per kilowatt which now accounts for between 20-25 percent of a customer's bill. The affect is compounded by the overall increase in energy usage during the warmer months, resulting in greater kilowatts consumed at an all time high cost. Earlier this month we launched a public energy conservation campaign which, although precipitated by supply concerns, does provide opportunities for customers to reduce their overall bills through moderate reductions.

Meeting Peak Demand for Electricity

We have entered the summer of 2004 with adequate generating plant to meet our projected peak demands. However, as is typically the case, our margin of generating capacity is most vulnerable just prior to the installation of new plant. The new generating equipment is due to arrive in August, and commissioning is scheduled for Spring 2005. Power plant development, from planning through commissioning, is a 2-3 year process. The timing of this addition to our power station was planned based on a load projection forecast averaging 3 percent annual growth. However, last year peak demand on our electric distribution system increased 6.1 percent from 108 million watts (MW) to 114.6 million watts, and we anticipate a minimum 4 percent increase over 2003 in peak demand for electricity this summer. Additionally, the number of hours when we experience peak demand for electricity has expanded considerably in recent years and now extends twelve hours a day from 9 a.m. to 9 p.m. This is due primarily to greater use of residential split-system air conditioning.

As a precaution, in an effort to avoid possible rotating outages in the event of failure of more than one of our larger generating units, we have launched a campaign urging all of our customers to conserve where they can, and be prepared to take even greater measures to reduce consumption when plant availability is dangerously close to projected customer demand. We have also declared that should rotating outages become necessary emergency services and hospitals will not be affected. We will attempt to exclude large hotels, the City of Hamilton, the Corporation of St. George's and Dockyard. Areas that will be affected will be spread throughout the Island, and we will attempt to limit the duration of outages to two hours, before moving on to other areas or satisfying the entire Island's load.

Realising that generating plant capacity would be tighter this summer, we have taken a number of steps to assist in availability of capacity and reduction of demand. All engine and generator maintenance projects were moved forward and completed by the end of May in order to have all plant available for the hottest months. The changing of our planned maintenance schedule placed a large burden on our maintenance group for extended hours, night shifts and, in some cases, working seven days a week. We greatly appreciate their efforts and response to the Company's needs.

We have also re-instituted the Energy Cooperative Programme where, at critical times, we can call on some of our largest customers, who have self-generation, to run their plants removing their demand off of our system for a specified period, thereby leaving available capacity for others. Earlier this month we also met with many facility managers of large buildings and are encouraging their participation in conservation measures through changes that can be made to their automated energy management systems which, while having minimal affect on their operations, will contribute to overall load reduction.

It is our hope that all customers will take modest conservation measures and that we will get through the summer without the need for outages.

Bermuda Gas

Hotel restaurants remaining closed through the second quarter of 2004, as well as the timing of sales promotions, and the timing of completions of new building projects in both the commercial and residential sectors all contributed to a slight 3.2 percent reduction in overall results through May.

Propane gas sales are 0.3 percent behind the same period last year. Appliance sales are 9.1 percent lower and service and parts sales are down 4.3 percent.

Next month Bermuda Gas will expand its product line offering with the addition of a new brand of appliances that will further enhance the choices available to the local market.

Community Support

BELCO was once again the major sponsor of the Annual Agape House Rubber Duck Derby held in St. George's on Sunday, June 6th. This event is the primary fundraising activity for the hospice for the terminally ill. As the major sponsor since the beginning, eight years ago, BELCO is pleased to be a part of this successful campaign which has grown in both popularity and financial success over the years. Although final fundraising results for 2004 are not yet in, support from the corporate community was very strong this year necessitating an additional Corporate Duck Race. We are very grateful to all those who supported the Rubber Duck Derby through the purchase of ducks and promotional items, and office events.

In May, we hosted the second annual BELCO Cup cricket match. This traditional event involving the four top teams from the prior Premier League season, featured Southampton Rangers, St. David's, Western Stars and St. George's in two days of play that ended with Western Stars defeating St. David's for the BELCO Cup. BELCO assumed sponsorship of this event, formerly sponsored by a cigarette company, last year with the intent of increasing family appeal. This year we added the inaugural Junior Skills Challenge, a 40 minute competition showcasing the talents of Bermuda's young cricket players, which was well received.

Our companies and many of our people, personally, support and are involved with a wide range of activities that benefit our community. In addition to the Rubber Duck Derby and the BELCO Cup, our companies support programmes that benefit our young people, sports, education, health, and the local economy. We do this because we care.

In closing, please keep in mind that we are now officially in hurricane season, and while we may feel that after last year we should be spared, Mother Nature may have her own plans, so

let's prepare. Now is a good time to trim trees on your property and purchase the supplies you will need should we experience another active season.

Signed by:

Garry A. Madeiros

President & Chief Executive Officer